This article about how to buy a car intelligently, I wrote it together with my life partner and personal finance adviser, Daniel Cabrera, who I learn so much from every day.
In case you did not know, the second largest and most important purchase we will make in our lives, after that of a house, will be the purchase of a car. But unlike the houses, which increase their value over the years, the vehicles are losing it. Renowned personal finance expert Dave Ramsey talks to us about how we should make this purchase and how to get the most out of our money.
Here are the reasons why it is better to buy a used vehicle instead of a new one:
New cars lose 70% of their value in the first four years of use. So that you have a better idea of what happens financially when you buy a new or used car, I invite you to do the following exercise: drive your current car and while you do it, lower the window and repeatedly throw $ 100.00 dollars bills. Try to do this every Friday. It seems crazy, right? This is exactly what we do when buying a beautiful new vehicle. The reality is that 98% of people simply do not have the ability to waste this amount of money on a new car.
Another advantage of buying a slightly used vehicle is that the first owner already absorbed the cost of depreciation. You get an excellent price for the vehicle that only has four years of use and whose price is well below the cost of a new one.
Car dealerships have a large number of used vehicles, especially those whose lease or rental agreements have expired. However, the best deals are with private sellers, who are eager to get rid of their vehicle. These will have a better disposition to negotiate with you and thus you will be able to obtain a car at an excellent price. You can also call the banks and ask where they sell the vehicles that have been repossessed or seized.
Here are 3 recommendations before leaving to find the car of your dreams:
Financing vs. saving
Let’s suppose that you are thinking about obtaining financing to acquire a vehicle and that your payments will be $ 400.00 dollars per month. Let’s say that the car you are about to replace is valued at $ 1,500.00 dollars. If you set aside those $ 400.00 dollars and pay yourself, instead of sending them to the agency, you will soon have $ 4,000 USD to pay in cash for a vehicle (in just 10 months).
When selling the previous one you will have $ 1,500 USD in the bank. If you continue to save the $ 400.00 for another 10 months, you will have $ 5,500 USD. Repeat this process for 10 more months and you will have $ 10,000 USD to buy another car in cash and only 30 months have passed since you started saving. What would be the sense now to buy a new vehicle and see how its value drops at the speed of light?
Our perspective on money changes radically when we have cash in hand. It is easier for us to make a bad financial decision when it comes to obtaining something through credit. When it comes to investing the fruit of our savings, we are much more cautious and smart in the purchases we make.
Before buying a vehicle, be sure to investigate its market value, especially if you are considering buying it from an agency. In the USA, you can visit pages such as KBB , Edmunds and Carmax . Surely there is an equivalent in your country. Remember that knowledge is power! Do not venture to make the second most important purchase of your life without having done a good research job before.
Flee from temptation
Vehicle dealers are great experts, not only in making you fall in love with a new car but in making you sign for a credit for which, literally, you will pay a very high price for many years of your life. Always keep in mind that, unless you are a millionaire, you cannot absorb the cost, or the impact of the depreciation of a new vehicle. It’s a luxury that simply is not worth paying the price for!