The best financial decision I’ve made was purchasing all but one of my cars without financing. I see more reward now that the economy is in a slump and I have had to cut back on luxury expenses.
I purchased my first car in 2000, after I began working my first full time job and managed to save a few thousand dollars. I could have easily financed a car at the time with average credit but the allure to owning my car out right out weighed having the newest and shiniest model. Thank goodness because when it came to purchasing a car I knew nothing.
I never asked the private owner about mileage or previous ownership or any of the normal car buying questions. After a brief inspection of the late model Honda Accord LXI sport car, I had to have it. I drove the Honda for two years before deciding to upgrade to a practical family vehicle.
Two years later and what I thought was two years wiser I felt more comfortable financing a car. I traded in my Honda that I paid $2,500 for a 1999 Chevy Lumina minivan. The dealer gave me $2,000 for my trade in, on the purchase price of $12,000 for the new car. When the dust settled I financed the new car, tax, tag, title and dealer fees for a little over $12,000 with 13% interest rate over 36 months.
Initially I saw the benefit of purchasing my first car in cash because it reduced the cost of my next vehicle. However, after financing my second car I began seriously researching car value, depreciation and financing. An in depth look at car depreciation helped me to decide that financing is a short term solution that over time could turn into a financial downfall.
That was more than 10 years ago and still today you need to factor in how much your car value will depreciate after purchase. According to a 2010 Forbes.com article, new cars typically lose about 20 percent of their value the moment they’re driven off the lot, and about 65 percent after five years. Forbes turned to Kelley Blue Book, an Irvine, Calif.-based company that determines the market value of a car at a specific time to find which cars lose their value the fastest.
Since purchasing my first car more than 10 years ago, I estimate saving over $6,000 in interest and financing fees. On average I was able to keep $500 in my household budget for other purchases or savings annually.
Elliot, Hannah (2010, October 27). Cars That Lose Their Value Fastest. Forbes on the Web. Retrieved April 13, 2013, from http://www.forbes.com/2010/10/27/cars-resale-value-lifestyle-vehicles-depreciation-residual-used.html