Cash for Cars: Drive Used and Love It
Borrowing money for new cars is a fool’s bet. Use this technique to get the most vehicle for your money.
I’ll probably never own a new car, and I’m okay with that. Because paying cash for used cars is the smartest way to drive.
Driving is one of the biggest expenses in American life. Aside from a home, you’ll likely never make a bigger purchase than buying a car. You’ll probably have several of them throughout your lifetime. So shouldn’t you shop strategically?
I think you should. We’ve already discussed how borrowing money for cars is a dangerous mistake, how buying brand-new cars is a bum deal, and how leasing is the most expensive and least wise way to drive. That means paying cash for used cars is the way to go.
You may think used cars are no fun. And sometimes they aren’t. You can find some really awful used cars out there. But you can find some really great ones too, especially late-model vehicles manufactured by reputable companies. You can get a used car that’s also a fun car, a cool car, a safe car and a fuel-efficient car. Whatever you value in cars, you can find in a used vehicle.
Why Used is Better
So why should you buy used? Because you get more for your money that way. When you buy a new car, you pay a high premium for the “new factor.” The car loses a lot of value the moment you drive it off the lot and continues to plummet in value during the first four years of ownership. But after those four years, the depreciation levels off to a much slower pace.
A new car loses a lot of value the moment you drive it off the lot.
When you buy a used car, on the other hand, you letting someone else lose the money on the “new factor,” and get a good, late-model car that will hold onto much of its value while you own it.
Why should you pay cash for used cars? Because paying cash saves you from making additional, expensive interest payments. It protects you getting upside-down on the loan (owing more on the loan than the car is worth). And most importantly, it keeps you away from the bondage of debt.
Saving Cash for Used Cars
So how do we make this theory work? After all, a decent used car costs several thousand dollars. And unless you’re a prodigious saver, you probably don’t have that kind of money lying around.
The answer is to become a prodigious saver. If you borrow money to buy a car, you’re going to make monthly car payments for two to five years, or maybe even more. If you buy five new cars during the course of your driving life, that can amount to 25 years or more of car payments.
What if you made those payments to yourself instead of the bank?
Since all cars depreciate over time and eventually fall apart, you’re going to have to buy numerous cars during your life. And that means you’re going to spend a significant amount of your monthly budget paying for your cars. But if you save for cars ahead of time, you make those payments to yourself.
When you make loan payments to a bank, those payments include interest. Over time, you pay much more money than what the car is actually worth.
When you make payments to yourself, you don’t have to pay anyone interest.
When you make payments to yourself in the form of car savings, though, you don’t have to pay anyone interest. Every cent that you save is money you can use toward the purchase of your next car. It’s the most efficient way to spend money on a car.
Discipline Makes the Difference
Car savings takes discipline, of course. But that’s true of any financial strategy that really makes a difference. If you can train yourself to begin saving several years in advance of when you’ll need to buy your next car, you’ll see just how well this discipline pays off.
By applying some strategy to the way you save for and buy cars, you’ll find yourself able to purchase better and better vehicles as time goes on. I’ll show you how in the next article in this series.