First of all - the rule of thumb is NEVER buy a new car unless you have money to burn. Vehicles devalue so quickly, the financing usually leaves you paying for something that is not even worth the remaining balance you owe. In fact, as soon as you drive the car off the dealers lot you can take a few $1000 off the price you just paid. 0% financing may make is look more tempting, but its still a bad deal.
Now, having said that, I just bought a new car :) But I did so with my eyes wide open. You may recall from a previous blog that my van died. We decided at the time to try living without owning a vehicle. We tried the experiment for 3 weeks. The money savings were great, but here's what we found. We were spending up to 1 hour/day trying to arrange for borrowing a vehicle to get our family (7 of us) to the places we needed to be at. That time (and to a less degree, the stress of feeling like a burden to those we were constantly asking) was something we didn't fully consider.
The time I would have been working was spent thinking of who to ask, making calls, leaving messages, returning calls, worrying about not getting to meetings I had, etc...
So in the end we decided that although we could live without a vehicle, it was causing more pain (time loss, stress) that it was saving us (financially). In fact this was triggered by a friend who discovered my situation and suggest a vehicle and described some financing I hadn't heard of before. It seems car companies are desperate to sell vehicles these days. So, in the end we bought a new car - a Kia Rondo 7-seater.
Here's why I did it:
I know the principles well. I know its a bad move, but as I've been explaining to people I know, at the moment the only vehicle I could afford is a new one. Sound counter-intuitive? It is! But here's why its true:
- I'm an entrepreneur try to get my business off the ground. If I buy a used vehicle, the surprise repairs will be VERY VERY painful. I need to be able to plan my payments for the next 2 years. A new car is almost guaranteed to not have any problems (and if it does, the cost is covered under warranty). So with a new car, I have a fixed loan repayment that I can count on with no surprises.
- Yes the 0% financing was enticing, but more enticing for me, and that which made me go for it is the future value financing. Future value financing means that for a 5-year term about 75% of the vehicle is financed and then at the end I still owe a balloon payment (the remaining 25%) which I can pay cash or refinance. Now let me be upfront - this is a TERRIBLE decision on the books because by the time my 5 year term is up, the balloon payment will likely be more than (or very close to) the value of the vehicle. However, for my short-term need - that of a LOW, steady payment, this was the only way to get a monthly payment low enough. If I had brought a used vehicle, even thought the sale price would be lower, this type of financing would now be offered and I'd have larger, unmanageable payments.
My wife and I were able to use CalendarBudget to quickly determine that we could make payments for a new vehicle. We are banking on our personal economy improving in about 1.5 years. If that fails to be the case, then we also have some countermeasures in place. But, in the end, the dependable, manageable low payments are just what we need for the next 2 years or so.
So as crazy as it sounds, the only car we could afford is a new car.
Now that we have the new vehicle, there is also a noticeable feeling of improved self-worth. We've been "slumming it" with a low quality, broken van for quite a while - then going to nothing for 3 weeks, we truly appreciate having a working car again.
I want to repeat however, that buying a new car is generally NOT the right decision to make. In fact, I was reluctant to blog about this here, but I think my reasoning is not incorrect.
Now, I open the flood gate of comments telling me how wrong I was or to support the decision :).