Buying a used car is the perfect way to set yourself up to be rich in the future. I know this is a powerful statement, but it is true. Most of us love our vehicles and take pride in what we drive. The look of our vehicle, the smell of the new car, the reliability of the car, all of these come into play when we decide which ride we want to use for transportation.
However, new cars lose their value like a sinking ship. I’m sure you’ve heard the rumors about how much less a vehicle is worth after it drives off the lot. To combat this loss of value, insurance companies offer additional insurance known as “GAP insurance” to supplement our already high insurance rates.
He Guaranteed Asset Protection (GAP) insurance (also known as GAPS) was established in the North American financial industry. GAP insurance protects the borrower in the event of an accident or total loss of the car, paying the remaining difference between the actual value of the vehicle and the balance still owed on the financing. GAP coverage is primarily used on new and used small vehicles (cars and trucks), as well as heavy duty trucks. Some financing companies and rental contracts require it.
Buying a used car can be your secret weapon
This post will give you everything you need to know about the buying a used car. From how old is too old to which vehicles last the longest. See the table of contents to navigate this page.
I wrote previously about spending money only on things that add considerable value to your life. You may be one of those people who absolutely love their car. You might still enjoy going out for a weekend drive, or rush hour won’t be so bad in your air-conditioned leather seats.
Your vehicle makes you happy and adds value to your life, I get it. But at what cost was that value added?
What have you given up by financing that vehicle? $400, $500 a month? If you make $5,000 a month, $500 isn’t really that notable, is it?
5 reasons why buying a used car can make you rich
If we understand what is making us poor and why it is making us poor, we can better identify what we can do to build wealth.
1. New cars depreciate, quickly!
When I spend my money, I like to spend it on things that add value and maintain value in my life. The truth is, on average, that new car you financed will lose 20% to 25% of its value in the first year. It will continue to lose about 10%-15% of its value each year after that until it is basically worthless.
If you financed a $25,000 vehicle With a down payment of $4,000 at 3.5% interest for 60 months, you would be paying approximately Additional $2,000 for that vehicle at the time the loan was paid. On average, after that 60-month time period, your $27,000 investment would be worth about $13,122 – if you’re lucky.
I know this may sound absurd, but why not buy a 3-5 year old vehicle (with cash) and save a lot of change?
How much can you save? The amount may surprise you.
2. Never Expect Unexpected Repair Bills
Since you’re already paying $400 a month for your vehicle, keep in mind that the air conditioning will turn off right after the factory warranty expires. Do you have a few hundred extra dollars for that repair or will it be charged to your credit card?
Oh wait, you bought the extended warranty?
It would have been cheaper to decline the additional warranty coverage and pay for the air conditioner in cash. Let’s do the math.
According Consumer Reports, The average extended warranty is $1,214. Owners who actually use their warranty only claimed $837 in repairs on average. That’s not counting those who didn’t even use their warranty.
Also, remember that you will need to pay for oil changes, routine maintenance to include new tires, brakes, etc.
Let me guess, they included oil changes.”free“, No? Don’t be fooled into thinking that all they are giving you is actually free. You are paying for it one way or another.
3. Finance games that you will always lose
If you’ve ever financed a vehicle, you know what I’m talking about. The seller will add a lot of extras if he uses your financing. Hopefully, it’s obvious to you that they make more money if you finance instead of paying cash.
The dealership doesn’t stay in business by giving things away, so rest assured, you pay for all those “Additional features» that they are adding.
Another game they like to play is to divert your attention from the list price and have you focus on the monthly payment. They want you to ignore how much you will actually pay over those 60 months and instead focus on how much you will “only” pay each month.
¿Is that monthly payment too high?? No problem! now they offer 72 and 84 month loans to drastically reduce your monthly payment.
No, I’m not kidding, and some of you may even have these loans. If you are purchasing a vehicle, don’t discuss monthly payments: discuss the total price.
4. Buying used cars can be as reliable as new
Confession time: I hate my car, I really do. It has 200,500 miles.
The front driver’s window does not roll down and there is no cruise control. It was made in 2007. I didn’t know they made cars without cruise control in 2007 until I bought it. The seat is starting to tear and the front bumper is not flush because my wife ran over a large object in the road years ago.
I secretly hope I can keep it for 25 years so I can get a historic license plate for my Nissan Sentra, just to embarrass my wife even more.
I absolutely want a new car, but I know I don’t want one bad enough to spend the money right now. I have other financial goals that are more important. My car takes me from A to B, which is what it’s supposed to do. It’s not fancy, but I promise you, nobody (except my wife) cares about what I drive.
5. Funding cripples your retirement goals
If you took that $400 a month and saved it over a 20-year period instead of spending it on new vehicles, you would have saved $96,000. Over a 20 year period that may not seem like that much money.
Now, if you had invested that money and earned an average of 10%, your $400 a month investment could realistically grow by $302,412. By financing vehicles for a period of 20 years, you are throwing away $206,412! This is not voodoo math my friends, this is reality.
As I said earlier, stopping your debt and building your financial future requires a Full shift in your mentality. While the rest of the United States will finance vehicles for the next 20 years, you could get ahead by hundreds of thousands of dollars to be happy with a mediocre vehicle.
It all depends on where you want to be in the end.
How to find the best used vehicles
Buying a used car is a great idea unless you buy a lemon. Nothing is worse than buying a used vehicle that requires a lot more work and money than you have. This section will detail what to look for when considering a new for you car.
– Find a vehicle in your price range
Before considering purchasing a used vehicle, make a firm decision about how much money you are willing to spend. Promise yourself that you won’t spend more than this amount.
Not setting a strict budget for a used vehicle that fits your financial plan is like going to the grocery store when you’re hungry. Chances are you’ll come home and wonder how much you just spent while trying not to regret your decisions.
Set a price and stick to it.
– Vehicle history reports are worth it
For $39.99 or less, you can get a complete vehicle history report that can reveal hidden problems with a vehicle. sites like CarFax can provide you with this information and can often get the seller to pay for the report.
CarFax reports include information on:
– Consider taking the vehicle to a mechanic
Many auto mechanics offer pre-purchase inspections for around $100. If you are purchasing from a private individual, the individual must allow you to take the vehicle to a nearby mechanic to have this service completed. If the seller refuses, he does not buy the vehicle; This is a big red flag.
When I was younger, I bought a used vehicle and didn’t inspect it. I took the vehicle for a test drive and did a courtesy “look under the hood” that seemed normal to my untrained eye.
A month later, after the car started stuttering and sputtering, I discovered that there was a major oil leak in a gas line that had been there for some time. In the end, I had to replace the engine because it was beyond repair.
Save time, effort and money by paying the $100 inspection fee to uncover any other hidden mechanical problems.
– An ugly car can be perfect
Here in New Mexico, we had large hail storms a few years ago that left many vehicles damaged and dented. The exterior of the vehicles has all kinds of defects, but the engines and interior parts are still in good condition.
Luckily for you, a car damaged by hail is worth a lot less than a vehicle without the cosmetic damage. This can be a great way to buy a relatively new vehicle at a great price, if you are willing to drive it with hail damage.
Not all harm is good harm. If the vehicle was involved in an accident but is still running, the frame and other safety components may be compromised. Don’t sacrifice security to save a couple of dollars.
