This is a lesson that many people dont learn until its too late, until theyve been burned with their automotive buying decisions. Car dealers like to sell cars based on what kind of payments you can afford. With todays long term car loans its pretty easy to make a long term mistake because of short term thinking.
One thing to consider is the number of miles youll be putting on the car. This is one place where people often hurt themselves. Lets say, for example, that you work close to home and you put 11,000 miles a year on your car. Your car is old and breaks down a lot. Youre tired of expensive trips to the shop and youve used almost all your money on this car.
You have very little to put down on a new car. But the dealer offers you an irresistible deal on a new car. In fact, you find that you can buy a lot more car than you thought. Very little money down is required, and you can "afford" the car because the payments are low. Theyre stretched out to 60 months.
So you make the purchase and drive the car off the lot feeling very good about your new ride. Youre now living large. With a 50,000 mile warranty it will give you years of trouble-free service. You think that you are in great shape, and you might be just fine. ON the other hand, things can change and you might end up in trouble.
Fast forward two months and you lose your job. Youre fortunate to find another one. But its farther from home and you now put on 20,000 miles in a year. At 50,000 miles the warranty is done, but youre only halfway through the loan. But the loan is structured in such a way that youve only paid off about 25% of the loan. The car stars breaking down at about 60,000 miles and you consider buying another one.
You go to the dealer to find out what you get. But you find that you are "upside-down" on your current car. That means that you owe more on the car than what its worth. You are now in trouble because of a decision that seemed like a good one a couple years ago.
The better way to go is to buy a lower-priced car than you can afford. You never know how things are going to change and how your monthly expenses are going to change in the future. The objective with cars is to get in front of the game instead of getting behind the proverbial 8 ball. Instead of being lured into a fancy car with a long term loan you should look at a much shorter term loan and consider a used car with low miles. In the long run youll build more equity. With discipline and long term planning you can one day pay cash for your cars and be relieved of financial pressure.
Dont fall for the tricks dealers play on unsuspecting buyers. Get smart and plan well. Your wallet will thank you for it in a few short years.
Driving for recreation? Something that will help you stay planted in the seat is a seat belt device called the CG Lock. Available at AutoWerks of America, provider of parts and equipment for German car enthusiasts.