Great article on the wisdom of buying a $5,000 car. Now, I don’t totally recommend this – I think you should buy any car you can pay cash for. And if you can pay cash for a $50K car, so be it. But some highlights:
Now you can easily go 200,000 miles with regular maintenance.
Cars are engineered today so that you’ll get tired of them long before they tire out on you.
According to CNW Market Research, the average new car in the United States sells for $30,266 and is financed for 58 months with a monthly payment of $411.
58 months financing?!?! That’s almost 5 years of making a payment of $411! When you’re making that much of a car payment, you probably aren’t also saving for your next car so that the next car doesn’t have to have a car payment. Another stat they had:
“Imagine, however, that you took the $411 average new-car payment and socked it away in a savings account paying a lousy 3% interest. Discounting taxes, you’d wind up with more than $26,570 in cash at the end of five years.”
They listed other advantages: cheaper insurance, cheaper registration, and cheaper sales tax. All more money saving opportunities.
So, if you could – save up $5K to pay cash for a car. Buy that car in cash. Then save what your car payment could’ve been (say $200/month) for as long as that car lasts you (say 5 years, which is a conservative number). Let’s even pretend that you aren’t getting interest on the money. At the end of those 5 years, you’d have $12,000 to buy your next car in cash. Even if you only saved $100/month for 5 years, you’d have $6,000 for your next car. GENIUS!