I have a car that I haven’t replaced in over a decade. It’s quite old that its sound system still accepts compact disks (CDs). So forget Flash drives and Bluetooth devices. CDs are where it’s at when it comes to its sound technology.
For illustration purposes, here are the numbers regarding my car. These values are not exact values because, I do not have them now. But I do remember the approximate values.
Model: 2012 (purchased 2011)
Downpayment: 300k
Monthly Amortization: 21k
Years to Pay: 5 years
After the 5-year period however, the monthly payment is now zero. I can still remember the priceless elation I felt when I went to the bank to pay the last installment. It was being freed from an invisible shackle. That is how I hated the feeling. It is now truly my car (and not the bank’s).
I do not have the best knowledge of car maintenance but I have kept it in good condition. It is also a Japanese car, which are known for their quality and reliability. So through the years, I had a relatively few problems with it.
Now, if I purchase a new car, I gain the following:
- new car smell
- latest generation car technologies in the car
- pride of ownership
At the same time though, I would have the following:
- loss of liquid cash for downpayment
- possible monthly amortization again
- high insurance premiums of new cars
- fear of it being scratched or worse stolen.
At the end of the day, the combination of higher financial obligations while providing incremental value at best, the prospect of a new car is not something that looks attractive to me at the moment. I’m finding it difficult to replace my old reliable clunker. Nothing beats no monthly cost while still getting decent utility out of it.
However, the reality is nothing lasts forever. There will come a time when repairs and maintenance will finally catch up. When that time comes, it is better to get a new one.
However, the next time I’m going to go about this:
- I should not buy with a time-pressure (i.e., it should be pre-planned and not when the need to get one is high).
- Take time to shop banks for the best rates. And, if it falls on times of high interest rates, I might look into purchasing it straight cash.
- If I’m going the bank loan route, I would like to pay as much down payment as possible and get a 3 year payment period instead of 5 as this is a depreciating asset.
- Purchase only what I need. I’m ok with not the fanciest vehicle, as long as it serves 90% of my needs.
- Foreclosed vehicles that are 1 to 2 years old are also a good avenue to explore.
The lesson here is this: A brand new car is good for one’s ego and/or vanity. You look great in people’s eyes. You will perk up for weeks on your new toy. But you will also be silently burdened with the fresh set of financial obligations.
On the other hand, sticking it out with an old, reliable car that does not cost you a penny each month (except for maintenance of course) is leaps and bounds ahead.
Let’s be wise with our money. Put it where it will work for us, not us working for it.
Until next time.
