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!