In the previous post, we were introduced to Cayla, who is a 22 year old young professional. She is actively pursuing financial independence, so she knows that a car isn’t a real asset. But, she just moved to a new city and is thinking about buying a car. She has $3,000 saved up and ready to go. But before she started test driving different options, she decided to do a little research on the costs of owning a car.
She first looked at buying a new car for $25,000. After her down payment of $3,000, she would have a car loan for $22,000. After she added up all the costs, she realized that a $25,000 new car would actually cost her $24,100 in the first year alone. So she decided to look at two other options: buying a used car and not having a car at all.
How about a used car?
Since the option of buying a brand new car turned out to be a complete financial disaster, Cayla started thinking about getting a used car.
She set her budget at $10,000. This means she would still need to get a car loan for $7,000 since she only has $3,000 right now.
She wanted a used car that was dependable and didn’t have a lot of miles on it. She also wanted one that got excellent gas mileage.
2014 Honda Civic
After doing some research, she also found out these tips for buying a used car:
- Choose a car that holds its value, which means it won’t depreciate much from the time one buys it to the time they sell it.
- Make sure the car has a clean title, which means it has never been deemed a total loss, which could happen after an accident.
- Make sure the car has a clear title meaning the person selling the car doesn’t owe money on the car.
- Try to find a car that has had few previous owners; one previous owner is best.
- Check Carfax to see if the car has been in any accidents.
- Get a popular model – ones you see everywhere on the road. These sell easier when you are ready for an upgrade. Think Honda Accords and Civics, Toyota Camrys and Corollas, Ford Fusions and Focuses, etc.
- Once a car is chosen, have a mechanic do a PPI (pre-purchase inspection) before the purchase.
Cayla found out that most people buy a used car either from a car dealer or from an individual. Buying from a car dealer usually has less risk because the dealer needs to have satisfied customers to stay in business, so they typically sell quality used cars. Buying from an individual can save some money because an individual doesn’t have to pay for running a business.
This was all a bit overwhelming for Cayla, so she decided to use a car broker (also called an auto broker or vehicle broker). She used a third party website (Angie’s List, for example) to find a trustworthy car broker. She met with the broker and told him exactly what she wanted. He then shopped around for Cayla to find her the perfect used car.
The broker found Cayla a five-year-old Toyota Camry for $10,000 with 80,000 miles. He made sure the title was clean and clear and that it was accident-free. She had a mechanic who she trusted complete a PPI on the car, and the results were good.
So she crunched some numbers again:
- Down payment: $3,000
- Sales Tax: $600
- Car payments: $1,500
- Insurance: $2,500
- Deprecation: $800
- Maintenance and repairs: $400
- Gas: $750
- Registration: $550
- Car washes: $100
- Parking: $3,600 ($15 per day at work)
Total for a used car for the first year: $13,800
Better…but still not great.
In the next post, we will follow Cayla’s examination of the final option – not having a car at all. We will also find out which option she chose and why.