Tag Archives: low rate financing

I Bought A New Car…Sort Of…

Last month I bought a new car. No, it isn’t new, new. It’s a five year old Ford Fusion, but I love it and I can afford it – something most people don’t think about until it’s too late!

No matter what the incentives, there is no chance I’ll own a new vehicle and pay the average 20 to 30% depreciation in the first year. And low-rate financing doesn’t interest me, because adding interest costs to a car makes things worse and more costly. That isn’t going to happen, because a car payment is the biggest monthly cash flow robber, and I would always be financing something that is worth less and less each month. It’s next to impossible to get ahead, financially, being buried in car payments. Want proof? The average millionaire drives a three-year old vehicle. Here’s another story: Afred Morris of the Washington Redskins signed a $2.2 million contract with his NFL team. Yet he continues to drive his 1991 Mazda 626. “One day, my kids are going to drive that car. If it breaks down, I’m getting it fixed. That’s just how I am,” shares Morris in a Yahoo Sports interview.

In my case, since new wasn’t really new, I was happy to just write a cheque for $6,500 for my Fusion. What I did want to figure out, without attempting to be smarter than a fifth grader, is the real cost to drive my old Buick.

With some easy math, it turns out that my Buick cost me $92 a month to drive. What does your vehicle cost you a month? I love that, because it’s down from the $133 my previous Chrysler cost, but nowhere near the family record of my brother Chris who drove his Olds Achieva for under $70 a month!

To figure out your real cost of driving, just take the price you paid plus any repairs you’ve spent on the car. Don’t include any maintenance, insurance, etc. because you’ll have that on any vehicle. In my case, I had paid $2,400 for the Buick and spent $2,200 in repairs. Deduct the sale price, because it’s money you got back. My Buick found a new home for $800. So price plus repairs minus sale is $3,800. Now I just need to divide that by the number of months I drove the vehicle, which was 41. A $3,800 cost for 41 months made it $92 a month. Compare that to the average vehicle payment of $440 and you get the point.

Vehicle Cost to Drive:

Original cash price of the vehicle: $__________
The total of all payments:
(add up all the monthly payments, because
this will include the interest you paid to
finance the vehicle) . $__________
On a lease, add the monthly payment with
taxes AND the end of lease buyout amount

Add the rough total of any repair bills: $__________

Do not include insurance, gas, basic maintenance, such
as oil changes, tires, etc. Yes, they have to be paid, but
they won’t be too different between vehicles.

Subtract the current value of the
vehicle, or the actual sale price: $__________

Equals the total cost to own: $__________

Number of months you owned the vehicle __________

Your cost per month: $__________
(Divide the total cost to own by the
number of months you’ve owned it)

If you believe that a vehicle is a status symbol, you are likely destined to be broke. If, however, you think of a vehicle as basic, reliable transportation, you will likely be way ahead of millions of people, financially. And remember three other points which will help you to avoid making your vehicle into a money pit:

Avoid having a finance payment on your vehicle at all costs.

If you have one, keep the vehicle after it is paid off and re-direct the same payments to a savings account. You won’t miss the money – you’ve been paying it all these years. But now it’ll grow for you, instead of going away.

If you are in a lease – get out. There is very little chance you will ever have any equity and all those payments are just treading water before you’ll likely be giving the vehicle back to the dealer.