Buying Cars

I like cars, and aside from a home a car is the biggest purchase most of us will make.  Here’s my ideal and realistic car ownership life cycle: buy a certified pre-owned car, get a five year financing, plan to keep the car for seven to eight years, and repeat.

I never consider buying a new car.  However, I am risk averse, so I want as much comfort that the car is going to last and I won’t be paying a mechanic a lot of cash at random intervals to keep me on the road.  I can’t deal with that uncertainty, and I don’t like uneven expenses.  My solution is to buy certified pre-owned cars from manufactures with good reputations and cars with low mileage.  For research, I’ve used Edmunds for the past 7 or 8 years.  So here’s my reasoning on CPO cars. 

Depreciation, the car’s loss of value over time, is greatest in whole dollar terms in the early years.  Let someone else take those losses in value.  You’re going to lose too, but I’m not comfortable with throwing that much value away.

Have a trade in and a cash-down payment.  If you really want the car, it’s worth putting more cash down upfront for a lower payment over the next five years.  One, you’ll save on interest expense, and two you’ll be glad you have a lower payment in years 3, 4, and 5 after the “newness” wears off.  Not to mention, if you loose a job, not having a big car payment will help. 

To get that cash down payment, never stop making car payments.  When the car’s paid off, put those car payments in savings.  Now, you’ve got the cash for surprise repairs or expensive maintenance as well as building that new cash down payment.  When you buy the new car, as far as your budget’s concerned, nothings changed.

For the financing, always get your self pre-approved with a lender before going to the dealership.  You’ll get the facts about your credit and you’ll know if the financing being offered is a good deal.  As a side note, get your credit as clean as possible; it will open doors to better deals. 

As a final note on cars, the Car Talk guys on NPR have said as much, “You can pay for a new car in car payments or for an old car in repairs & maintenance.  Either way you’re going to pay.”  I prefer my car costs to be as straight line and predictable as possible.