Never, ever take out a loan to buy a car — always pay cash. Think of a car as a really bad investment because it is, it is guaranteed to be worth less in the future. Forget about the classic car phenomenon where cars actually appreciate in value, they don’t, they just seem like they do because of inflation. And even if they did actually increase in value, you’d have to keep your car for 25 years or more and work very hard to maintain it over the years. And definitely don’t drive it, that’ll hurt its chances of becoming valuable.
If you wouldn’t borrow money to buy an investment you knew was going to be worth less in the future, you shouldn’t do it with a car. The only reason to buy a car that you can’t afford is for emotional reasons (or worse, you want to impress strangers). If you do that, realize that you are paying a lot for those emotional reasons. And if this is the way you think about all purchases, accept that you will never be financially-sound. That’s okay too, money isn’t the most important thing in life and driving a new BMW is more fun than driving a used Honda, but if you do this you aren’t allowed to complain about your lack of money.
If you don’t have the cash for your car, buy a less expensive car that you can pay for with cash. If you don’t have the cash to pay for a new car, buy a used car. If you still don’t have enough cash, find a less expensive car. If you still don’t have enough cash, save until you do. If you don’t want to save, go buy a car that costs more than you can afford, but realize that you’re making a financial mistake, one that will take you a while to recover from, if you can recover from it. And don’t claim that you can’t get a decent car for cheap, eBay shows plenty of decent cars have been sold for as little as $1,000.
Now that you have the cash to buy your car, if you still think a loan is the way to go, keep reading.
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