The purpose of owning a car is to provide you and your family with safe reliable transportation. Yet how many car commercials focus on those aspects of owning a car? Instead they focus on how sexy the owners are, how luxurious the car is, how other people will envy you if you choose the car they are selling. In short, most of the car commercials don’t even acknowledge safe and reliable transportation as a reason to buy what they are selling.
Yet spending more than you need to on a car can do some severe damage to the family finances. After home mortgages, car loans are the largest debts most people have. And more than 70 percent of all the cars on the road are financed. Everybody likes the new car small – but it comes at a high cost. Did you know a new car loses 40% of its value in the first year, and 60% by the 4th year. In other words, a new $28,000 car will lose about $17,000 of value the first four years you own it.
You could get the same results by tossing a $100 bill out the car window once a week for over 3 years! Car debt is one of the biggest roadblocks for people on their journey to true financial freedom.
Unlike a home, which usually appreciates in value, the moment you drive a car off the lot it depreciates in value. It’s worth less than you paid for it by the time you hit the first intersection. The depreciation is especially dangerous because most people never get out of car debt. Just when they get to the point of paying off a car, they trade it in and purchase a newer one with credit.
You can follow 3 steps to get out of never ending car payments:
- Decide to keep you car a minimum of 3 years longer than your car loan.
- After your final payment, keep making the same payment to yourself. Put the money into an account that you will use to buy your next car.
- When you are ready to replace your car, the trade-in, plus your 3 years of savings should be sufficient to buy a good used car without a loan.
Lots of people get confused between the function of a car, which is to take you from Point A to Point B and the status of driving a new car. In 1 John 2:15 we hear “Do not love the world, not the things in the world.” Often times loving the things of this world influence our buying habits too much.
Besides being budget-friendly, there are other reasons to choose a used car rather than a new one. Today’s vehicles are designed to run for many more miles than the models of years past. Because of that, car shoppers can buy a quality vehicle, even a luxury car, with lots of extras that might not be affordable to them brand new.
As you begin to contemplate purchasing a used car, you’ll need to take into account how the vehicle will be used. If your family has outgrown the sedan, you may want to consider a minivan. If your job or choice of recreation dictates off-road capabilities, you may want to consider a truck or SUV.
In addition to deciding which type of vehicle you need, you should also write up a list of car options you simply can’t live without. Such items may include features such as an automatic transmission; power steering and brakes; good gas mileage; or adjustable seats. It will also be helpful to write up a second list of options that would be nice to have if you happen to run into a vehicle that comes equipped with those features, but would not be a deal breaker should they not be included. Some of those features could include: body style, color preference, air conditioning, cruise control, and sound systems.
After you have saved up enough money to cover the price range of the used car you have in mind, be sure to factor in the expenses that you may not have considered such as title transfer and registration fees, and in some states, smog or emissions certification. In addition, your insurance rates may be affected; check with your current agent or online to get a quote. If you plan to buy an older car, or are willing to buy a car that may need maintenance or repairs right away, set up a special fund for those probable expenses.
Once you determine how much money you can spend on purchasing a used vehicle, it is time to start the next step to car ownership which is to do some research. Talk to family, friends and co-workers to see which vehicles they have been happy with in the past. Proverbs 20:18 tells us “Plans made with advice succeed; with wise direction wage your war.” While buying a used car is not necessarily waging war, the advice of friends and relatives is invaluable in researching both cars and car dealers.
While their experiences (good and bad) are purely anecdotal, they may help you decide which make or model might work best for you.
As your mind opens up to the process of buying a used car, you’ll begin to notice cars on the street that you have overlooked before. Make some mental notes on which makes, models, and years of the cars particularly catch your eye. By this time, you should have a pretty good idea of the style of car you are shopping for.
Another good place to do research is in the local newspaper or auto trade magazines to see what the market is like out there, and your computer can be a useful tool as well. Typing in “used car” into a search engine will bring up reams of sites that will show cars for sale, or articles on a wide variety of techniques to help you buy a car. Take a look at the general types of vehicles currently for sale, what features are available on what makes and models, and what kinds of vehicles you can afford.
Here are some of the best places to shop for cars on the Web:
- Edmunds.com lets buyers shop for used cars and once buyers choose a car and trim level, they can see the average price paid for that car in their area and get an estimated price from Edmunds.
- Cars.com, connects shoppers to dealers who offer a quote;
- U.S. News Best Cars, which ranks cars and tracks deals;
- Kelley Blue Book, determines a price buyers should expect to pay based on local demand, seasonal trends and other factors.
Spending some serious time at this stage of the process is important to making an informed decision on what type of car you’ll be narrowing your search for, so don’t skimp on the time you dedicate toward your future vehicle.
When you find one car for sale that you are specifically interested in, be sure to hone in on information regarding that make and model. Request that the seller provide you with the Vehicle Registration Number (VIN) for that car. Each car manufactured is issued its unique VIN and the records of that vehicle follow it throughout its lifetime. For a minimal fee, online services can locate the records for that particular car and send its vehicle history report to you.
The type of information you will receive is: if the car has a clear title; if the car has been salvaged; if the car has been involved in a serious accident; how many times the car has been sold; the original sale date; and if there have been any recalls for that car. Investing in a VIN search can save you a lot of headaches (and money) down the road.
So what is the bottom line impact of driving debt free cars? The average car payment is about $375/month. If a 21 year old drives a debt free car and saves the $375 monthly payment, by the time they are 65, they will have saved over $1.3Million!! ($375 at 7% for 44 years)
It’s all about staying out of debt and focusing on the real reason for owning a car – to get you from point A to point B safely and reliably!