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Posted by on in Debt Management
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When You Should Buy a New Car

When You Should Buy a New Car

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 :).

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  • Kevin Brady

    If you want to buy an inexpensive car you can buy one from Enterprize Car Rental in the US. US prices are lower than Canadian prices anyway and Enterprize sells for about 10% less than blue book. I am looking and a Buick Enclave CXL. $29,000 from Enterprize in the US with 20,000 miles $60,000 plus in Canada new, $52,000 with 30,000 KM.

  • Jo

    I am in desperate need of a newer car; the one I am currently driving is 15yo. The engine still purrs, but the suspension system and paint are all shot. The car gets me to work and back, and fortunately, the grocery store, Target/pharmacy, and my job are all in the same shopping complex. I can do all my errands there, with the gas station on the way home, without having to put more miles on it.

    Granted, I am not taking care of it with the exception of replacing the tires with used tires as needed. I put only half a tank of gas at a time because I know one day it's gonna just up and stop running. Then, I'll be in the same situation as you were with your van. My question of what to do next will come up, too. Reading of your plight has helped me realize that perhaps, like you, this is what I might have to do.

    You did right by posting/blogging. Without realizing it, you helped at least one person - me - to give thought to my own circumstances. For this, I thank you.

    I do have a question. How low was your payment? My credit rating is fair, but as you said, right now dealerships are just about ready to give people a car that they'll work out some form of financing. So, feel good about what you did and don't worry about how others feel.

  • Kevin Brady

    Well it may be that I have to buy another car. Thursday night, it was very icy in Oshawa and I got rear ended on Thornton Road. I drive a 1999 Dodge Durango and was hit by a 2009 Chev Geo but he was really flying. I was doing 40KMPH and it is estimated he was doing 80 to 90KPH. The impact sent us doing donuts down the road but the real killer (of my truck) was hitting the curb broad side. When I came to a rest my front wheels were on the curb and my back wheels were on the edge of a sheer drop down about 60 feet to a ravine.

    I was planning on buying a car from Enterprise Car sales in the US but I might not have time, they don't have many for sale yet. I am partial to the Buick Enclave (big Tiger Woods fan) The version I am interested in sells new in Canada for $53,000, add delivery and taxes and your at $60,000. The same car from Enterprise with 20,000 miles on it is $29,000. I may buy a junker to tide me over until more become available. Any suggestions?

  • CalendarBudget Blog Admin

    My goodness, I'm glad to hear you are ok!

    From a purely financial point of view, buying new is crazy, unless you are not concerned about parting with your money.

    If its just a matter of time, you may be able to negotiate a longer-term inexpensive rental from Enterprise while you shop their US division. Keep in mind though -- if you buy a US car, the speedometer will be in miles (km in the inside of the ring - which was really annoying for me when I bought a US car once). Although renting is also throwing away money, in the long run, I'm betting it will be much less than the overhead and immediate depreciation of a new vehicle. Renting may buy you time and save you a bundle all at the same time.

    If you want to go even less expensive - see if you have any friends with an "extra" vehicle and offer to pay them to borrow it until you find another. The money is always better going to a friend than a car rental place - and you'll pay much less to a friend. The borrowed car will not be a great ride, but you'll probably be doing your friend a favor with the income and you'll save even more.

    If time were not a concern, car auctions are another great way to find a deal, but they take time and you need to go with someone who has a license to buy there.

    Hope that helps, and thanks for your comment/question.

    Best of luck!

  • Julius Miller

    Hi!. Hey for the blog. I??e been digging around looking some info on this topic, but i think i?? getting lost!. Google lead me here good for you I hope! Keep up the good work. I will be popping back over in a few days to see if there is updated posts.

  • Roger Caughell

    If you're a Canadian car buyer, consider joining the Automobile Protection Association (APA) - a consumer group that provides 'lemon-aid' reports and a buying service. I have purchased four cars over the years, each time using APA information, and saved a lot of money on the purchase prices.

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