Back when I wrote my first post about my biggest financial mistake, I totally forgot about a mistake I've been making for 15 years. Over and over again. In fact, my former co-workers made a powerpoint presentation mocking me, I made it so often. In the last 15 years, I've owned (alone or jointly) 11 NEW cars. This is seriously a problem.
The minute you drive a new car off the lot, it typically loses about 10% of its value, after 1 year, that jumps to 20%, and after 3 years, 40%. While these are just generalizations, and cars do depreciate at different rates, it still adds up to a lot of money. And if you do the math on the number of new cars I've had, it's a LOT of money.
So what's the point of my post? My husband and I did something a few weeks ago that may have changed our lives. We traded in a paid off, 7 year old car, for a 3-year old USED car! And we paid CASH for the used car net of our trade in. How are my co-workers going to add that to the powerpoint?!? It's not normal behavior for me.
I think I may have finally wised up. Our "new" car is great, clean, has about 41K miles on it, and it's certified pre-owned. The only thing missing is the new car smell. Why did we do it???
- The old car was, well, getting old. It had almost 80K miles on it and some of the electronics were starting to fail. Who knew tire pressure sensors were $400 each? I'm not a fan of the uncertainty of car repairs. That's a big reason I liked new cars.
- The dealership gave us a great deal on our trade-in. We kept getting cards in the mail about local dealers wanting our used car, so we knew that it was in demand in our area. It's a sad fact, that if local buyers don't want your used car, you will not get full value on your trade. I don't care how clean it is and how much you think it's worth. Even though the car was old and had some issues, the dealer knew they could sell it and, what's more important, finance it, and make their money that way.
- The used car just came in off a lease. This is why a 2 to 3-yr old car is a great deal. It's most likely been fairly well taken car of, has lower mileage, and you can get it certified. That can get you included scheduled maintenance, a longer warranty, and it takes some of the guesswork out of buying used.
- I like to change my mind. I used to pretend that I was going to keep a car long term. Besides the one we just traded in, we hadn't kept any of the others more than a few years. I like the idea of getting a new used car every couple of years, and it's gonna cost me a lot less.
- Our needs/wants changed. With two growing children, we needed more space. What we decided we didn't need was navigation and four-wheel drive. When buying a used car, you need to be clear what's a want and what's a need, because you can't always find one with exactly what you want.
- We had cash and were prepared to walk away. This is a big one. My husband literally went into the dealership and told them, "We have this trade in and this much cash. Either make a deal or don't." This doesn't work for everyone (and he didn't bring me because I have a hard time walking away). We went in with a budget and weren't going to go above it. There have been many times when I've walked out of a dealer with a new car and thought "Do I seriously now have a car payment of $XXX???"
The great thing about shopping for cars these days is that you can get a ton of information ahead of time online to help you negotiate and find the car you want. Many of the dealer websites I visited had links to the Carfax for the vehicle - essential to find out about any accidents in the car's history as well as if it was ever a rental vehicle. Kelly Blue Book's website is a great resource that gives you fair market prices on the car you are looking at so you know what's a great deal and what isn't. You can also price your trade-in there. If you don't like the negotiation aspect of car purchasing, try Carmax if there is one in your area. They offer decent no-haggle pricing on both purchases and trades.
Even if you buy used, a car is a major purchase. If you do your research, budget appropriately, and aren't afraid to walk away, it doesn't have to de-rail your financial plan. I like to think I've learned my lesson, but only time will tell! It probably won't be 7 years before I get that itch again....