As a first-time car buyer, you don’t know anything. Well, you might know something; but there are sharks in the water waiting to consume your bank account whole. “Interest” is the great white shark of the new car lot, and if you’re purchasing one for the first time, what are you doing there anyway?
You shouldn’t be buying a new car until you already know how to drive. If you do already know, and you’ve been driving hand-me-down beaters from elder family members or something, well then you’re in good shape if you’ve got the resources; but even so, going for a new car is likely going to represent a negative equity choice.
Making An Informed Choice
Crunching The Numbers
Consider this: a vehicle is likely going to last you about 200,000 miles if you give it the right attention. Bought new, and assuming 20k miles a year, you’re looking at ten years’ use. Now if you’re paying off a $20k car in monthly installments at interest, you’re going to end up paying way more than you have to.
Say you put $1k down, and pay the car loan off at $250 a month from there. It would take six years and four months at 0.0% interest to pay the full sum. By the time you’re done, you’ve put 126,600 miles on the car. When you factor in interest, that compounds things further, pun-intended.
A $20k car with $1k down would require a $19k loan. At a 60-month loan period, you would pay $341 a month at 3% interest compounded annually, or $1,484 in interest over 5 years. Over ten years, you would pay $3,016 in interest. So in total, you would pay between $21,484 and $24,016 for that $20k car over the course of ten years—if you were lucky to get an annually compounded interest rate as low as 3%.
If it did take you ten years to pay off, you’d likely see interest rates fluctuate; and should you keep the vehicle that long, by the time you finally get it paid off, the vehicle is essentially a beater. At 200k miles, most warranties will be voided, and the vehicle will be one pricey fix away from being junked.
Now that’s on top of the cost of maintenance for that vehicle, which is going to be around $3k annually when you factor in gas, oil, repairs, accidents, tickets, insurance (and sometimes necessary attorney fees), registration, and other incidentals; like increased security, depending on your neighborhood. By the time ten years have elapsed, at minimum, you’ve paid $55k for that $20k car.
Meanwhile, you could go the used route and save thousands of dollars. For $5k, you can find a decent late-model vehicle at between 30k and 100k miles. You pay for it in one sum and be careful to care for it. If you get that vehicle to last you five years, you’ve spent $20k total. If you get it to last for ten, you’re likely at $35k. You’ve essentially saved an additional $20k over time if you can do that, and at the end of the day, your vehicle is about as valuable as the new one would be after so many miles.
As you can see, there are a lot of angles here, and you’re going to want to make a careful choice. It makes sense to do some research into the buying market beforehand, and see what sort of purchase options work best for your personal situation. At https://www.drivingguide.com, for example, you can find deep resources on proper defensive driving strategy, purchasing, insurance acquisition, legal considerations, and more.
