I am going to start writing regularly about the money mistakes I have made in the past. Since there are so many, I will never run out of stuff to write about!!
Paying too much for a car is never a good idea
I was 20 years old, living with my parents and knew (and cared) very little about money. I was going to be moving from the midwest down to a beach town in Florida for a bit of a sabbatical, so I wanted to get a more reliable car to get me down there. I had a 10 year old car with a lot of miles and needed to get something newer and a bit more reliable.
A red convertible that was for sale caught my eye, and just like most 20 year olds, I just had to have it and nothing was going to stop me. It was 8 years old instead of 10 years old – wow – quite an improvement Bob! And because it was a convertible, the seller priced it high and I took the bait! I got so excited about getting a convertible that I didn’t even care about price – as a result I paid way too much!
The after-effect of paying too much for a car
It is obvious that overpaying for something isn’t a good idea, but with cars it is especially a bad idea. The reason is that cars are depreciating assets, so if you take a loan out for your purchase, you immediately enter into a race to pay the car loan down faster than the value drops. In my case with the convertible, I did a lot of things that ensured I was going to lose this race…
- I took a loan out on a car that was already 8 years old (and not very reliable)
- I paid about $2500 more than the car was worth
- A couple years later I was in a hurry to sell it
Needless to say, a couple years later I was sitting with a car that was worth $1000 less than the amount I owed the bank. Bummer.
What I would do now
If I were to do it all over now, I would…
- Go to consumer reports and sign up for a one-month subscription ($6) and find out which older cars are the most reliable
- Use cash that I had saved up to purchase the car (or take as small a loan as possible)
- Know my price I am going for and find the most reliable car in that price range
- Drive it as long as I could – meanwhile saving up to purchase the next (and nicer) car with cash
There is a great quick video that does a great job answering the question “Should you buy a used or new car?” I highly recommend it and encourage you to check it out!