As the economic crisis continues, that is the question many families are now asking themselves. My wife and I decided that purchasing a new vehicle will wait, as both of our current cars are in great working condition. But everyone’s situation is not the same…
As you drive around your home town, watch TV in the evening, or listen to the radio, it’s hard to miss the abundance of car dealers advertising deals that were unheard of only a few months ago.
Thousands of dollars for trade-ins (I heard one offering $9,000), thousands of dollars off the price (sometimes even over $10K for hard-to-sell vehicles like trucks), financing deals, free this and that – these are all part of what’s being currently offered to get consumers to spend money again.
How do you decide if buying a car is the right thing to do?
Well, first remember the mantra – “Just because it’s a sale, you’re still spending money.” Don’t immediately fall for the trap of going for the deal only because it’s a deal.
Having said that, there are great deals to be had. If you’re in the market for a new car, now’s probably the best opportunity you may have in your lifetime.
Put your emotions aside for a moment, stop dreaming about that new car smell and consider the following:
- Do I want New or Used? If you’re not into used cars, you can move on, although I still believe buying used is the most effective use of your car-buying money. However, the current deals have significantly closed the gap, particularly on vehicles that depreciate slowly. New cars also come with a warranty and…that new-car smell (which is actually bad for your health, as I’ve found out recently). It may be worth re-evaluating your position if you’re dead-set on buying used.
- Your Current Payments & Expenses. Please don’t get a new car just because your monthly payments will be lower. You’ve built up equity in your current car that you can stretch out long after payments have stopped. The longer you keep it, the more cost-effective your payments become. But sometimes it makes sense to look at what you’re currently spending, particularly if you’re doing regular major maintenance on your older cars. Average out your maintenance costs and expect that they will increase, not decrease in the future. Most of the time, you’ll see that the price of a new car is still greater than upkeep costs of your current vehicle, but if you’ve reached the break-even point, it’s time to think about buying.
- Available Assets. Look specifically at your available cash for a down payment, and the value of your current car, which you can sell or trade in. You may be able to leverage the value of the car using current dealer incentives (like “bring in any car and we’ll give you $5,000). But make sure that the dealer is not making up the difference elsewhere.
- Job Security. Clearly, the current economy is not conductive to committing to years of expensive payments for anything. Job security varies between industries, and you should have a good idea of how stable your income is right now and what you can expect for the next few years. Give yourself options – buy a car that you can afford even when your income decreases down the road. And don’t forget the importance of diversifying your income stream.
- Transportation Needs. It’s possible that since the purchase of your last car, your needs have changed to the point where your current ride just isn’t meeting them. For example, you may have had your third of fourth child, and need a car that can seat seven comfortably. Otherwise, you’re forced to drive two vehicles wherever you go. If this is the case, take into account these new needs and expenses you take on by not getting another vehicle.
It’s often the biggest purchases in our life (homes and cars) that bring out the biggest emotional input and cloud our judgement. Review your own situation ratinonally, and determine the best course of action. It may just be time for a brand new car!
Fiscal Fizzle 
I have been recently considering buying a new car this fall, however just yesterday found out that I have to sink yet another large chunk of change into my exisiting one to fix a broken air conditioner. My husband justifies the cost by saying “at least it’s cheaper than a car payment”. Yes, it is technically cheaper right now than a car payment but how do you know at what point you stop sinking those chunks of money into your existing car. At what point do the additional interval investments need to stop? Is there a frugal formula?
Bayah,
I would have to side with your husband on this one. It’s very likely that your A/C bill, although large and unexpected, is still much cheaper than a new vehicle.
You have to consider a number of the things I outlined, including the relative convenience and reliabilty of new vs. old, what you have room in your budget for, and locking in to 3-5 years of future payments.
Part of the problem for many of us dealing with the same issue you are is that the psychology changes when we go from regular, monthly payments to “maintenance” mode. We think that because payments are over, we don’t need to put money towards the car. Unfortunately, that’s usually not the case.
Although you usually don’t need to put in as much as you were paying for your car loan, I recommend starting a “car fund” and paying 25-50% of what you used to, depending on the age of the vehicle, warranties, expected reliability, etc.
Sooner or later, you’ll need to use that money and most of the time, it will be in big chunks and it will blindsight you. Without this fund, you’ll ‘feel’ like you’re shelling out huge sums of money.
One last tip: look at your car expenses on an annual basis. How often do you repair it? What do you spend? If over the course of a year, we spend $2,000 on our car (sounds like a lot), that’s about $167 per month (a puny little itsy bitsy car loan).
A lot of things to consider…certainly not an easy decision. Best of luck!
We drive a 2001 Jetta TDI; 345,000 km. It cost a total of $15,000. 3 1/2 years ago, with 188,000 km. when purchased.Full load leather sunroof heated seats— would llike comprable. Do approx. 4000 km per month. Great fuel economy, 56-58 mpg, approx $200/mo in fuel. The challenge is the repairs have averaged approx. $400 per month, lately $600 per month. Are they likely to increase?
Dilema:
1. keep it and keep repairing but reliability is an issue
2. buy a new Prius (payments would be approx. 600/mo) after selling the Jetta for $5000. and using that as a down paynment). Fuel cost would remain at appro. $200./mo.
3. second hand 2+ years old car (safety ratings and comfort are important, lots of time on highways) Fuel cost would likely be double what they would be for the Jetta or a Prius.
Additional information; this vehicle is for my wife’s work. She is 54 years old and planning to retire by 60 years old. She has her own business and all costs can be written off before retirement and the car can then be used for her retirement .
Your insights and opinion are much appreciated, Other options????
Thanks, Bryce
Bryce,
It sounds like it’s time for a new car in your situation. I’m not certain how you’re calculating a monthly maintenance cost, but I’ll assume that it’s a long-term average. In my case, I’ve found that car repairs are large and sporadic.
Clearly, one of your big considerations is fuel cost. I would weigh the cost of a new Prius against that of an older car. For example, the Prius is $600 for car + $200 for fuel, while an older car might be $300 for car + $400 for fuel. In that case, you might still be better off with the older vehicle.
You have two more considerations: how long you’ll keep the vehicle and your wife’s tax situation. Since you’re planning a long-term relationship with the new car and your costs are deductible up-front, the Prius isn’t looking so bad.
One last thing – don’t forget the cost of maintaining a hybrid vehicle!! I’ve had someone run the numbers for me before, and replacing the battery every 3-5 years is a BIG cost.
I currently drive a 1997 Pontiac Bonneville. She has 210,000 miles on her. I currently am deciding if buying a new car is my best option. My car is $250 a month is gas, and her repairs are starting to run me upwards of $2400 a year, with each repair $400 dollars or more. And she currently has a habit of randomly shutting off while I am driving her. I am a college student and I drive a lot, so I’m trying to decide if getting a more fuel efficient and reliable car is better than putting money into mine’s repairs and gas.