The Smart Way to Buy a Car

The average American spends around $10,000 a year on their car. That’s a good chunk of change that could be put to better use. (Imagine all the penny candies you could buy! . . . ahem, or the contribution you could make to your retirement fund or mortgage.) If you need to buy a car, pay cash for it—every time. This may sound ludicrous, but it is possible. It just takes a little planning and strategy.

The owners of most luxury cars, surprisingly, are average, middle-class Americans who have been duped by the lie of consumerism. Consumerism tells us that if we drive that fancy, new-smelling car, we will look sexier and feel better about our lives. The strangers who pull up next to us at red lights will be disgustingly envious and we will have an absolutely defining sense of happiness and self-worth.

Really, the only thing we’ll have is an ulcer from all the stress that paying for that car will give us. Here’s why.

How Most Americans Buy a Car

  1. Lease

Car dealers offer leases hoping that you’ll focus on the low monthly payments rather than all the money that you’ll actually lose in the long run. Leasing a car is basically renting a car for a really long time. Leases trick people into thinking that they can drive a nice car for less money than it would take to buy the same car. What people don’t realize is that they actually end up paying more on their leased car, especially if the car gets even slightly damaged or they exceed the mileage limit.

 

  1. Buy It New

It’s become part of the typical American way of life to have a monthly car payment. Because it’s expected, many car buyers figure they might as well get a new car. After all, a new car will be more reliable, right? This may be true in some cases, but you could pay for the repairs on a used car several times over with the money you would save by not buying a new car. The average monthly payment for a new car is around $500. That’s $500 that you have to come up with every month no matter what your financial status is. More good news: new cars lose about 20% of their value as soon as you drive them off the lot and about half their value within four years.

Either way they go—leasing or buying new—most Americans are wasting money on their car. You know who isn’t falling into this trap? The rich. Rich people don’t get to where they are (and stay there) by just trying to look rich. They’re smart with their money, and they’re smart about buying cars. Whether or not you’re rich at the moment you’re reading this, you can be smart about your automobile purchases. Here’s how.

 

 

How YOU Should Get a Car

  1. Save $1500 and buy a used car.

Sound crazy? (And lousy?) Don’t worry, this is just the first step. You can get a surprisingly reliable car for about $1000 (the remaining $500 is for repairs). Most car buyers worry about mileage; many cars run well even after 200,000 miles. The Guinness world record for highest mileage on a car is 3 million miles.

  1. Talk to your Aunt Gertrude

Buying cars from family or friends is the way to go. You’re more likely to get a good deal and less likely to get a bad car. And if aunty does sell you a lemon…well, you know where she lives.

  1. Have the car inspected.
    Before buying the car, take it to a mechanic for a basic inspection. This will cost less than $100 and you’ll know what you’re getting into. Also get a vehicle history report for the car. You’ll want to know what kind of accidents the car has been in, just in case there are hidden damages or the quoted price is too high. Many websites offer free reports or you can sign up on Carfax.com for about $30 a month.
  2. Buy a reputable sedan.

The more common and reputable the car, the less expensive the repairs will be. Small cars tend to be more reliable, while SUVs tend to have more problems.

  1. Create a “OneDayIWon’tOwnaCrappyCar” fund

Now imagine the car you like to have some day. Figure out how much your monthly car payment would be if you went out and bought that car new right now, and save that money in your new fund. Pay yourself as religiously as you would pay off the loan and in a few years you can buy that car—in cash. (That is, if you haven’t realized that driving an old car really isn’t that bad and you could put that money into something with a higher return, like a house.)

It may be easier and “cooler” to run out and get a new car. But there’s nothing cool about a stressful monthly payment. With just a little planning and some sacrifice, you can ensure that you’ll never have a car payment again.

 

Edson Senna is a freelance writer who specializes in finance and law. He sometimes does consulting for lemon law attorneys like Jon Jacobs. In his free time, Edson enjoys biking, hiking, and running.