Cars, just like houses, are probably going to be one of your biggest purchases in your whole lifetime.
Cars are trappings of luxury. To the observer, it’s a reflection of your success as in individual. For such reason, it’s sometimes tempting to opt for the one that makes you look the most successful — the brand, the overall appeal, which come with a hefty price tag, may precede all other factors.
But, should that be the case?
Here are some car buying tips you need to know before putting your signature on the dotted line.
A car is a luxury item.
Buy a brand new car only if you’re indeed rich; otherwise, you will only be putting yourself in a difficult situation. How much assets do you have, if any? How about your liabilities? Do you have an emergency fund stashed already? What do really need a car for? Chances are, you won’t be driving the President around the town so we think it’s better pick something that suits your purpose.
Buy used and pay cash (or most of it)
Sweet truth about cars: they drop over 40% in value in the first two years. Would that car still be in good condition? You bet. And this is good news for value shoppers since the person who bought the new car absorbs the cost of depreciation. Maybe he is really rich, maybe he’s not but, what matters is you saved a lot.
Top Tip: People who need to relocate or need cash as soon as possible are often the ones who are open to price negotiation. Haggle and hustle but don’t be pushy.
Rule of thumb: Your “new” ride should not exceed half your annual income.
Remember that income only means potential money. It is not yet in your hands and it could change depending on your employment, business or other income source.
If you earn $75,000 a year and own two $35,000 cars, you may look rich but it’s also probably the reason why you don’t have any money.
If you can’t pay off your car in 18 months, then it’s better to sell it and get rid of the debt.
If the value you have decided to sell it at could not cover the debt, a small loan at a low interest from a credit union might help. Then get a used car using cash.
Remember: Cars are just material things that have their own purpose in our lives but they are often sold as extensions to our egos and self-worth. If we fall into that trap, bad debt could be an outcome. If we choose cars as a way to fill a void within us, sorry but cars just cannot do that.