When you borrow money to buy something that loses value, this is a bad idea. And nearly all cars do lose value over time.
Cars depreciate. We purchase cars to get us from point A to point B, and we pay a hefty premium to have them. But when we pay interest on an item that is depreciating, this is poor money management. Next time you buy a car, follow these tips instead to make a smarter financial move:
Don’t finance. When you want a car, you probably aren’t lusting after the bargain model. You probably want as much car as you can get, and a loan officer is on site to help you get more car than you can afford.
It doesn’t make a lot of sense but it doesn’t have to. Buying a car is often an emotional thing. People get very attached to their cars, they get proud of their cars, and they want cars that are nice and shiny and new. Because of these emotional reactions, we can be talked into taking out loans with horrible terms and extreme interest rates. We pay much more for our cars as a result.
No leasing. If you wanted to buy a house, you wouldn’t rent an apartment instead would you? It would still give you a place to live, but would be a waste of money. Leasing a car is just renting a car, but over a period of years rather than days or weeks. The dealership will also add cost to the leasing agreement to cover the damage they expect you’ll do to the car.
This is seen by many people as unfair. You end up paying for damage, before you do anything to the car, because other people in the past have damaged cars. Worse, you pay a great deal of money for years, and at the end of the period you don’t have a car to show for your thousands spent.
Never buy new. When you buy a new car, you are paying for the car but much of what you pay is for the ‘new.’ The minute you purchase the car and drive it off the lot the value drops very sharply, some say by up to half. This is because it can never be sold again as new. Your purchase loses value very quickly and if you need to resell it you will take a sizable loss.
My other articles on the video distribution amplifier can be found on my site at http://videodistributionamplifier.org.
