For many people, buying a car is their first big-time investment. But for most of these investors, it’s also their first leap into debt’s bottomless pit. Can you actually buy a good car without going into debt? How can you keep from losing your shirt to an unscrupulous seller? I’ll show you how to pay cash for a great, reliable, used car—and why doing it any other way is just plain silly.
The New Car Myth
When most people dream of owning a car, they think of a new car. They’re shiny, they’re reliable, they’re great fun to show off to your friends. And best of all, they have that intoxicating new-car smell.
But let’s look at these benefits, compare them to what you can get with a used car, and see what they’re really worth. First, there’sshiny. Well, any car is shiny if it’s clean and buffed and waxed—unless, of course, it’s a rust bucket, and then there’s not much you can do except clean up the rust. Shine is only skin deep. A good buffing job removes the oxidized paint and exposes the shiny stuff below it. Most cars can return to their new car shine for years before you have to repaint them. So this shiny thing is not an issue.
Let’s talk about reliable. Yes, most new cars are more reliable than their used counterparts. And new technologies and higher quality manufacturing have been improving the reliability of cars in recent years. That also means that used cars are more reliable than ever—they’re running longer and giving their owners fewer problems. What’s more, some used cars are more reliable than new cars. It depends on the make and model. So while reliability is an issue, it’s not an all-or-nothing thing. Let’s talk more about it in a bit.
Then there’s the show-off factor Okay, new cars win in this class most of the time. It is more prestigious to drive into the school parking lot with the new-car sticker still in the window. But three months later, the sticker is faded, your car is dirty, and the dealer has recalled it to fix a problem you didn’t even know it had. When you consider the alternative (we’ll be there in a moment), prestige comes at a ridiculously high price. (And if you buy a quirky or classic used car, you may get to have your cake and eat it too.)
Finally, there’s that unmistakable new-car smell. You can’t duplicate it. You can’t even retain it—the smellfades quickly, especially if you forget and leave your gym clothes beneath the seat. In six months or less, your new car will smell like a used car. Save yourself a few thousand dollars and buy a 99 cents air freshener.
The biggest problem with a new car is the price. It’s insane. How can people afford it? Most people can’t. So they ask their bank to buy the car for them. The bank gives the car dealer most of the money, and you chip in the rest. Then you make payments to the bank. Forever. Actually, you’re in debt for just 3 to 5 years, but right now in your life, that will seem like forever. You’ll be halfway through college or already graduated before you actually own your whole car. For the first year, your ownership amounts to the seats, the stereo, the mirrors, and maybe the windshield wipers. You’re rich.
What’s worse, your car is depreciating the whole time you’re pouring money into it. The car payments are based on the new price, not what it’s worth at the moment. Depending on factors such as the interest rate, your down payment, and the market value of the car, you’ll spend the first few years owing more money than the car is worth. Two years from now, you’re driving a used car and paying for it like it’s still new. Why not start with a used car to begin with?
This debt thing is a BIG issue. Don’t even get me started on it right now, because there’s no stopping me. I’ll save my spiel.
One more thing about new cars before we move on. A new car can depreciate 20% or more the moment you drive it off the lot! Let’s say you buy a new car for $15,000 (which is a cheap car these days), and change your mind a few weeks later. The dealer might give you $13,000 for it. It’s hardly used! You haven’t even put your gym clothes in it. Doesn’t matter. It’s a used car. You lose two grand.
You’ve got to ask yourself, given the high price, instant depreciation, and possibly long-term debt, Is that new-car smell really worth it? For most people, especially teenagers, the answer is no.
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