A brand new car is a nice luxury that most yearn for, including myself. I can easily finance a new car, but since my focus is to be financially independent, I will not.
What does a brand new car cost you?
If you can pay cash, which you should if you can afford it to avoid interest, your cost is the price you pay. However, all vehicles are depreciating assets and will loose 20-30% of it’s value when you exit the dealership.
If you finance, this is a much more drear situation. You are losing value and you are paying interest.
I will agree, the below actually isn’t a bad deal since interest rates are at record lows.
Let’s say you buy a 2021 Chevy Camaro (base model) for $24,000. You put down $2k and finance the remaining $22k on a 5 year loan at 3% APR. With about $2k in overall interest, you will be paying almost $26k total once the loan is paid off.
Did you know, your new car will be a “used car” after you own it for just a bit of time?
The extra $2k coupled with the 20-30% depreciation is what deters me from new cars. I can get a used Camaro, a couple of years old with 30-50k miles, for $15-$16k. This is a saving of $10-11k versus a brand-new car.
If you invest the $10k you save instead, it could turn into more than $20k in ten years (using a conservative interest rate of 7%).
Satisfaction Vs Buyer’s Remorse Vs Your Financial Goals
These 3 criteria are the ultimate deciding factors when deciding to by a car.
Would you be as satisfied with a used car as you would with a new car? I would be just as satisfied if not more satisfied because I’d be able to save more money. Even if I could fit a new car payment into my budget.
Would you have buyer’s remorse if you bought a car? I’m only 31, but I’m old enough to need that the excitement of getting the “new, shiny thing” is fleeting. Once you have “it” you’re often disappointed.
Does this purchase help or hinder your financial goals? When comparing buying a new car to buying a used car, a new car is a financial hindrance.
My Philosophy on Cars
As long as the car can get me from A to B, reliably, is safe, and is full efficient, I am happy. I don’t need anything flashy.
In my early 20’s I financed a brand new Camaro. Granted, I loved the car, but it was a large financial misstep. I could barely afford the payments at the time and would have been just as happy with a used one. I learned my lesson the hard way.
Mrs. FFR and I own used cars that are completely paid off (that we bought used). We have a 2013 Toyota Camry (70k miles) and a 2015 Subaru Forester (100k miles), that we will drive until they hit 250k miles, die, or cost more to repair than their value.
Tip: Routine maintenance and regular oil changes are your friend. Reliable vehicles, if taken care of, could last you well beyond 200,000 miles.
When the time comes for us to get a different vehicle, we will be getting a used replacement with 30-50k miles, 2-5 years old, and we will pay in cash to avoid interest.
In summary, don’t get a new car just because you can afford the payments. It will delay getting to financial independence. If you absolutely need a replacement car, buy used and buy reliable (and take care of it).