Purchase the vehicle of your choice, but wait until it is at least two and preferably three years old. You will unavoidably save hundreds of thousands of dollars over the course of your lifetime by doing this.
When I was 23, I wanted to purchase a good four-door car and the Cadillac STS caught my eye. The base price of the new model was more over $50,000, and when any small additions were added, the final price was close to $55,000. Even though I was young and doing well, I wasn't doing well enough to spend $50,000 on a new car.
Before the Internet revolutionised everything, I was leafing through my local newspaper when I came across an advertisement for a 212 year old Cadillac STS for $19,500. The vehicle had a warranty that was extended to 90,000 miles and had less than 40,000 miles on it. Beautiful, glossy, and freshly serviced, it was.
Given that the initial owner was paying the depreciation, the price was appealing.
The average automobile loses 11% of its value as soon as you drive it off the lot, and a further 15% to 20% over the first year of ownership. Depreciation (loss) during the second year is another 15%, totalling a loss of at least 45% for the first two years.
Typically, the base price rather than the extras is used to determine depreciation. This can be the sporting package that costs $10,000 more but only reimburses you for $2,000 after the first year or two. Therefore, it's quite easy to discover lovely cars with manufacturer warranties still in effect and spend between 35% and 50% less than the original buyer did when the car was bought new.
I had the vehicle for four years, had hardly any maintenance paid for out of pocket, and sold it for $3,500.
So what sort of deal is available today? One of my childhood dream cars was a Ferrari Testarossa, which cost roughly $200,000. Currently, you can purchase one for roughly $50,000, and because its owners take such good care of them, the majority don't have many kilometres on them.
Consider the Present (for Loans)
By limiting the duration to no more than 36 months if you finance your auto purchase, you can save a significant amount of money. This reduces interest costs and accelerates the building of automotive equity.
Because the monthly payment is larger than if you finance over six years and higher than a monthly lease, this could be challenging. Your monthly payment will be $749.27 and your final payment will be $26,974 if you finance $25,000 for three years at 5% interest. Your monthly payment will decrease to $402.62 if you extend the loan for an additional six years, but your total repayment will increase to $28,989. You would need to spend an additional $2,015 on the car.
Assuming you finance the automobile for six years after making a little down payment, your loan pay-down will proceed much more slowly than the car's depreciation, putting the car """"underwater"""" nearly right away. In the course of the three-year programme, you pay off the car quicker than it depreciates, offering you choices in the event that you need to sell it.
Take up a five-year option instead of a three-year option if you really can't afford it and send a little extra each month to the principle to pay it off sooner.
Because the monthly payment is less when leasing a newer model, you might not want to do that. When I discuss several additional strategies to save a tonne of money when buying a car in the following piece, I'll explain why.
Unbelievable as it may sound, investing in your 401k or IRA may not be as wise as purchasing your own vehicle!"""