True cost of buying a car

Have you ever considered the true cost of buying a car?

For now lets ignore maintenance and repairs and insurance.

You go to a dealer and pick out a car. Then you ask about how much the new car is going to cost. You may talk about it look at sticker price etc. but eventually a price is reached.

Let’s stop here! New car cost say $15,000. But the dealer will quickly start talking about how much you will pay per month. Let’s add up all those payments. and you get what? Maybe $25,000.

Unless you are paying cash, you are paying $25,000 not $15,000

But we are not done. The dealer was “giving” you $5,000 trade-in. Maybe if you sold the car yourself you could have sold it for $6,000.

So now that $15,000 is really $36,000.

Maybe you should reconsider buying or maybe you should do some more shopping at other dealers. Compare that bottom line number $36,000 when comparing deals.

This is a sensible way to look at the car buying process. It is also why I pay cash for my cars. I do not spend a great deal. I could afford the monthly payments on an E-class MB, but I’ve never spent over $25,000. I can’t part with $50,000 when I can buy a car for half that which suits my needs. I just put a new compact sedan on the road for under $10,000. I worked hard to find a great deal and bought it for well under MSRP.

The Time For Payments Should Occur Before The Purchase And . . .

. . . you should be making them to yourself, in your own bank account. Like JT Sanders, I always pay cash. I never trade, either. Trading-in a car vs. selling a car and then buying can cost you. However, some people would rather lose a couple of bucks (or hundreds) to save them from the hassle or possible repercussions. I respect that. Chances are they have already gotten their money’s worth from the car.

Also, writing out that check for tens of thousands of your hard earned dollars makes you think twice whether or not you really need to be spending so much. I’ve done that. Maybe there is a better use for the dough. I now buy “slightly used/highly depreciated” cars and drive until the wheels fall off. Get some factory warranty for peace of mind. It works for me.

“True cost of buying a car”? I always seem to know what that is. I don’t know where this “Take out a loan to buy a car” syndrome comes from. It should be the “Buy a car and start saving for the next one” syndrome. Possibly, but not necessarily, the only purchase one should make with a loan is a house.

Good point; in 2007 I bought a new car and wrote a check for it; no trade, etc. I did not have the entire amount in my account, but borrowed $10,000 from my bank line of credit at 5% FOR 6 MONTHS. Today I can borrow that money for 2.5%. I sold my old car privately and got twice what a dealer would allow! Total cost of selling $50 for an ad in the bargain finder.

Dealer financing car be very expensive if you take 5 years to pay for the vehicle. My sister is a cost accountant and she has always paid cash or drawn from her bank line of credit at prime plus 1%.

The above cost is just the beginning!! Personally, I usually figure the total life time ownership cost, which includes gas, depreciation, maintenance and repairs and insurance. For the amount of driving I do, a Toyota Corolla would be less expensive to own than a Volkswagen diesel with the same equipment.

Your lowest life cycle cost would probably be a Yaris if you kept it 15-20 years. But as Tom and Ray often point out, buying a good 2-3 year old used basic car and keeping it a very long time is the cheapest of all.

It’s amazing, isn’t it, just how much cars really cost. The purchase price just gets you in the door, and financing makes a car cost much more than it seems.

This is why I always buy used cars and, if at all possible, pay for them in cash. Let someone else take the depreciation during the first few years, and I’ll keep all that interest for myself, thank you. Then I try to keep the car(s) as long as possible. I firmly believe that maintenance is much less expensive than replacement.

Unfortunately, many people don’t have the luxury of paying cash and must finance, or at least they believe they must. This makes the banks rich and the borrower poor. How many times have we read posts from people who are WAY upside down on their cars, and keep rolling their debt into yet another loan?

Unfortunately, this is what “they” want us to do; live in debt and keep making payments until we die.

This is a topic about which volumes could be written. I’m glad I have, at least for now, escaped the cycle of loan and repayment. It’s nice not to owe anyone any money. I just hope I can keep it that way.

Good point, financing a car drives up the costs of ownership dramatically. For years American’s have been on a “buy on credit” spree which has ended and put us in a depression. Everyone wants the cosumers to come back and start buying again. But without a house that appreciates so you can refinance and take the proceeds to pay off your credit cards people are not returning to the mass consumer mindset of the past.

When you advocate saving and buying cars for cash, it is almost anti American. We are supposed to return to the days of take out loans, make the banks rich, and spend, spend, and spend somemore.

I don’t think it is going to happen and our economy is going to have to adjust to Americans buying what they can afford and not running up more debt.

Agree; the last time I had to budget for a car was 1965! Ever since I’ve either saved up enough to pay cash, had a company car, or written the car off against business expenses. My total actual outlay on car buying expenses since 1958 has been about $46,000 and we have been a 2 car family since 1972.

One could also argue that cars have cost too much for too long, and we’ve just accepted that.
Hyundai is a good example of inexpensive, yet fully loaded vehicles

Unless the the dealer is having a push pull or drag sale, where they give you a fixed amount any car, like say $1000, your almost always better off selling to a private party.
That being said my buddy took advatage of a push pull or drag, and got $1500 trade in value for a 1989 Geo Metro sedan that needed MAJOR work, and had been sold privately would probably only fetch about 300 or 400 dollars.

Something does not seem right with the math example.
New car with financing charges= $25k
Minus trade in value= -$5k


If you could eek another $1k out of the old car sale, the total outlay would fall to $19k.

I don’t see how you arrived at $36k, care to elaborate?
Even if you meant to say that a private sale would yield an additional $6k over the $5k from the dealer’s wholesale value, that only comes to $25k + $6k= 31k - $5k = $26k.

Anyway, they have truth in lending forms for homes. Always seemed to be compensation for those fiscally challenged to me but perhaps this would be a good idea for car sales as well.

That’s why I always buy the same car … an old Sable wagon. The first one cost $3000 ('88 model in 1999), the second cost $2000 ('93 model) and they are now selling '95s for $1000 (I haven’t purchased yet 'cause the '93 is running perfectly). I use the '88 for parts so it’s cost me almost nothing for parts to run the '93 for the last 6 years.
Another advantage of buying the same car is that I know every weakness the car has, so almost nothing takes me by surprise … last problem was the fuel pump relay, I replaced it with the '88 part. (pre '95 Sables need no advanced scanning tools to read the computer codes).

I know that it’s human nature to switch brands if cars give us trouble, but when I’m dead there will probably be an old Sable in my drive-way (and a lot of money in my bank account).

Gary, economically your reasoning is flawless.

But persoonally I want to die $10 in debt. My inheritance to my kids is having given them the tools and the help to succeed by themselves…and then being there for them as long as I’m around. It sounds cheap, but in reality I’m giving it to them as I go…free of inheritance taxes…rather than as a part of my estate.

I respect your approach. And the fact that you don’t place undue importance on what is in reality a simple piece of machinery. Too many people do.

Right on! “Die Broke and Stiff the Undertaker”. That is the title of a recently published book for peoplwe who worry too much about money.

Even though my life time expenditures buying cars since 1958 are only $46,000, I like to spend all that money saved on interesting things like world travel, etc.

Finally, someone caught it…

Have you noticed that LEASING a new car is seldom mentioned anymore?? They took such a bath when used car values plunged and the leased cars came back WAY upside down on their books few companies are willing to offer attractive leases again.

When you are buying transportation, only one thing matters. Cost per mile to own and operate.

Here is something else to consider. Since new car sales have plummeted, in a few years there will be few decent used cars on the market and used car prices will soar…

No equity in your house at all?? I’m sorry, I realise it really is none of my business but I just got my life insurance license here in Canada, and I’m just curious since I deal with such things as deaths and stuff.

Have you heard of these second mortgages that basically sell your house back to the bank while you continue living in it??

Also you should realise that if your assets cop out to be -$10 your estate will still have many expenses and thus be thousands more in debt, though I imagine in the US it works quite differently from Canada.

I also agree that too many people place values on their cars and/or drive cars they cannot afford. However, I would like to state that just because some people enjoy spending money on food or vacations or world travel etc, cars are a just as legitimate hobby. Like travel or boats or really many other things, most of it is business related but some of it is ‘hobby’. If you love cars and spending money on your collectible cars is what you want to do, I say all the more power to ya, go buy your 59 Caddy and go for sunday drives if it brings a smile to your face.

totally: I believe you are referring to mountainbike’s post. Most of us are financially very responsible, and have no mortgages or any consumer debt. My response was to enjoy life suffuciently so that you are not a burden to you kids when you are alive and you don’t leave enough to your kids to make them lazy. My mother-in-law is doing exactly that.

Buffet is leaving virtually nothing to his offsprings!

The book I referred to focuses on adjusting your life style to your own needs rather than your kids. The underlying truth is of course that consumer goods are not an investment, but a cost (depreciating asset), and cars are one of the worst items to spend your money on.

Yup, my house will have equity. And then there’s the life insurance.

However, I can’t fault those that access “reverse mortgages” in order to enjoy the equity in their houses while they’re still here to do so rather than leaving equity. I might even do that myself at some point, but I’m not there yet.

The life insurance will cover much more than my heirs’ costs to dispose of me and clean up the details. I’ve seen to that. If I don’t do a reverse mortgage I may give my house to my kids with a lifetime right to live there while I’m still kickin’ to avoid probate.

My costs of disposal will be minimal. After cremation in a pine box that meets the minimum standards of the state laws, the ashes will be split. Some will be interred in the VA cemetary (free) and some will be set adrift in international waters on a 3’ handmade fully seaworthy sailboat I made. There won’t be any services, headstone, or burial costs. My kids can visit me in the VA cemetary, keep some of the ashes if they choose, and/or think of me out sailing the oceans. All is in my will and the kids know my wishes. At my age and having already had a heart attack I’ve made sure everything’s covered.

I appreciate your thoughts and suggestions. It’s nice to know that there are people out there who care about others and offer advice in important matters such as this. The world needs more of it.

true that. It might actually be more cost effective to buy new and SAVE money at that point.
I know Hondas and Toyotas hold their value, and a 2~3 year old vehicle is a grand or 2 below that of their new car lineup.
Also, right now a new GM or Chrysler vehicle is something to think about since you can save a bunch of money. Say a new Impala is going for $27k sticker price and a similarly equipped Camry is $32k(can’t really compare OnStar to a normal GPS system, so i won’t select that option for the Camry).
With rebates and incentives, the Impala could be had for maybe $24k out the door, the Camry maybe $32k out the door with a bit of negotiations and a willing salesman. That $8k you saved by going with the Impala could buy a brand new engine AND transmission if something terrible happened to it.