Your car may drive like a dream, but in reality it’s pretty much a guaranteed money pit.
Of course, at the moment we have a strange situation where some used cars are selling for more than their purchase price, but this is due to the supply and demand issues of COVID-19 which should not persist. Longer.
And the main car personal finance law is that every extra dollar you spend on a car is a dollar lost. Still, it can be hard to fathom when you’re faced with billion dollar marketing campaigns and salespeople who speak well.
Here are some examples of common car buying and the messages that are left out.
What they say: Renting a car costs less than buying it.
What they don’t tell you: To be clear, the monthly cost of leasing a car will indeed generally be less than the monthly payment to buy the same car with a loan. But a lease is for three years. You either have to buy it or, as most people do, just rent another new car. Keep renting, and you’ll be making lease payments in perpetuity, which is why renting is a four-wheeled money pit.
If you buy a car on a five-year loan, you’ll own it at the start of the sixth year. No more payments as long as you drive the car.
This can mean years without having to shell out a monthly payment for your car, giving you the leeway to use that money for other financial goals.
Since the average car payment is now north of $ 500 (and over $ 400 for a used car), this is a great opportunity to build up emergency savings, pay off student loans. at a faster rate or put money aside for a down payment on a house. But only if you don’t go for the lease.
What they say: Between trade-in values, low interest rates and greedy lenders, we can certainly get you into that new car.
What they don’t tell you: If you instead opt for used cars throughout your driving days, you could put yourself in a great position to retire with a lot more savings. The opportunity cost of buying a new car or purchasing a new pickup truck with upgrades can add up to tens of thousands of lost retirement dollars.
What they say: Low interest rates and easy financing make this a great time to buy a new car.
What they don’t tell you: Buy new and you agree to be the financial idiot who pays most of the depreciation of the car. Buy a used car that is three years old (or older), and you effectively let the seller take the heavy blow of depreciation for you.
What they say: Our dealership will even organize the financing for you. It couldn’t be easier.
What they don’t tell you: You will pay a high price for this convenience. Financing arranged at the dealership often involves an increase in the interest rate which, according to a university study, cost borrowers in 2018 an additional $ 1,800 over the term of their car loan. Shop online. Be sure to check out the offers of credit unions; they often have the lowest auto loan rates available, and many are easy to join.
What they say: Environmentally conscious? U.S. too. Discover our electric vehicles.
What they don’t tell you: Waiting a few years to buy an electric car might be a better deal, as rapidly falling costs for electric batteries could bring prices of electric vehicles in line with those of fuel-powered cars by 2023.
That said, if you’re impatient to get started now, the best deals are on EVs which still qualify for big federal tax credits ($ 7,500 maximum) for EVs.
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