I know, I know. New car smell is compelling! And I certainly won’t deny the appeal of a brand new hatchback to shuttle you about in life. But despite all the intrigue, the aesthetic of a new car alone isn’t always worth the financial repercussions.
I’m here to argue, as a youngin’, that buying a new car isn’t your best option. And that by doing so, you could be making a decision that could have a substantial impact on your financial future. By choosing to forgo the new car route, you might actually find yourself smiling about the decision years later – especially if you take advantage of one of the many other alternatives to a new car that don’t require high debt.
Young folks might want to begin considering new cars as an optional expense rather than a mandatory purchase. Here’s why:
The extra expenses
A car is one of those purchases that comes along with a decent number of other expenses. It’s not just about the car payment (and interest). Tack onto it the cost of…
- Car insurance
… and you have a pretty high monthly bill. Combined together, the cost of a new car can easily outstrip your monthly budget. When you buy a new car your insurance will be higher. Your gas mileage might be better, but gas prices are a big hit to your budget to begin with. Costs associated with parking and maintenance are also pretty pricey.
The high debt
Young folk are already being saddled with a fair amount of debt at a young age. With high student loan debt becoming the norm rather than the exception, tacking on a new car payment could be putting you into a financially vulnerable position. Though being young gives you the advantage of time, it only works for you if you take care to consider your long-term financial plan when making present decisions.
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The poor return on value
There’s the saying that as soon as you drive off the lot, your car’s initial value has decreased by 50% but it’s not just the investment value of the car that’s diminishing. Money you put towards your monthly payments will also have a big impact on your long term financial security.
Depending on the initial cost of the car, your monthly payments could be significant. If you’re paying off other debt or working on creating an emergency fund or saving for retirement then you will be funneling a fair bit of your income into paying off your new car. Rather than paying $30,000 for a new car ($22,000 for the car and $8,000 for interest) you could pay $9,000 for a used car ($7,000 car and $2,000 interest). with the $21,000 you saved, you could start your retirement fund or down payment for a house. Thirty years later, the return on this money could be impressive. Just from one decision not to buy new.
So what are the alternatives?
It’s not impossible to buy a new car – of course. And depending on your career or location, a reliable form of transportation might be a non-negotiable. But since the strain of a monthly car payment at a young age will have a direct impact on your financial future, exploring any and all options can help you to choose a route that fits within your means and needs.
Pay cash – The very best way to buy a car? In one fell swoop. If you have the ability to buy the car outright then you can save yourself from paying interest and starting the headache of monthly payments.
Choose used – Buying a used car in cash is something that can save you tons of money. It takes a little research and patience (and a close attention to detail) but you can find some great cars out there. Sites like Cars.com or AutoTrader list cars from both dealers and individuals, while Craigslist is always an option too. Consider buying a car from a family who is upgrading to something brand new. Check out the maintenance history and even get it check out by a mechanic of your own to make sure there are no surprises before buying it.
Keep it in the family (or friends) – One excellent way to ensure that you’re getting a car with a full (and accurate) history is to network with friend or family member when you’re on the hunt. They may be gearing up to sell, or know someone close to them who’s selling. Because you know them, you’ll get a full history of their ownership and you’ll be able to keep in contact should something go wrong.
Go without a car – Take this with a grain of salt but I’ve never actually owned a car and I’ve never needed to. I know this isn’t a possibility for everyone, but despite the occasional frustration, I get by just fine. I know the ins and outs of public transportation. I have a bike. And when desperate – I find deals to rent a car. Sure, it’s paying into something that will never be mine. BUT, the odd $200 cost of a weekly rental (after scouting AAA discounts and deals) is still less than paying $4,000 a year in car payments.
Carpool – Of course, you can always buddy up with another car owner, pitch in for gas/mileage, and still save a ton on gas. Carpooling can be a great way to save on transportation costs without actually having to go the bus route. If you have a co-worker or friend who’s headed in the same direction, hitch a ride! Benefit for them? A discounted toll and access to the (often speedier) carpool lane during the commute. Benefit for you? Company and a ride to work with the opportunity to split costs. For more reasons to carpool and tips on etiquette, check out this post.
Save for a high downpayment – Ultimately, you don’t want to continue making high interest payments over a long period of time as this will cost you the most. If you have a high down payment with plans to pay off the remaining debt quickly you will at the very least have a plan that accelerates your repayment.
Above all, remember the function of your car: getting you from point A to point B, safely and effectively. Whether with a shiny exterior and leather seats is the more optional (and costly) part. If you can manage to go for the lower cost option you may be able to build the financial foundation that will allow you to buy a new car in the future or to work towards other very worthwhile financial goals.
Image Credit: Matt Kober