Paying Cash For A Car?
Elaine From Massachusetts asks:
“Given the fact that more people are traveling further for better paying jobs — How does your concept of purchasing a car cash apply? I travel a total of 100 miles a day round trip for work. Travel time is about 1 hour 15 minutes peak times and when it snows it can take over 2 hours. YES, a new job closer to home would be ideal but close to home does not have anything but small mom/pop stores and Wal-Mart / gas station/ Auto Zone/ Home Depot/ Sears…. no big companies that pay like HP, EMC, 3Com or Verizon. The current truck I am driving has 250,000 miles. It is TRYING to make it through the winter.. Help!”
Mike: Hi Elaine,
We try to purchase used cars in good shape for cash. Generally, we shoot for around $5000 for a car with 50K miles or less. We have not always had the cash, and in that case, we’ve bought the $5000 car using a zero percent credit card. We don’t recommend that because you still have to pay for it eventually and using credit just delays the inevitable. If you do use credit, I’d still bite the bullet and pay it off as fast as you can even if you get a no interest loan.
Regarding your question about long traveling distances, there are only two options that we can see. Either expect to pay a lot for traveling expenses or move home and work closer together. We used to live in a remote area in rural Idaho. I drove 100 miles each way to work and it was 70 miles to the nearest town where we could go shopping. There weren’t many places to work in the town of 400 where we lived and most of those paid only minimum wage. Eventually, we had to move to a city where we were closer to jobs.
If all of the workplaces are far from home and the shopping is far from home, it seems like the easiest way to reduce traveling costs is to move closer to the city where you work.
Alternatively, you could develop a web business or some other home business, but beware that web businesses take just as much work as any other business and take time to set up before they make money. The “up” side is that if you’re living in a house that has been in your family for 7 generations, you can keep your house and also reduce your traveling cost.
I may have misunderstood the question, but whether or not you have a new car does not seem relevant to your driving distance. If you want a more fuel efficient car, you can buy a gently used car with cash and be way ahead on your costs rather than buying a new car. When we did the math, we figured that buying a brand new car to save money was not a good idea. If you want a new car and you are willing to pay for it, go ahead and get one. If you don’t need to save money and you really want the car, that is a choice that you are free to make.
As far as costs, though, consider this: If you buy a new car for, say $25,000, you will pay substantially more than the $25,000 cost if you get a car loan (because interest and fees add additional cost). If the new vehicle gets gas mileage twice as good as a $5000 used one, the amount you spend on the price of buying the new car will far exceed the amount of gas money saved over the life of the car, not to mention the higher insurance and license tag costs.
If we were in your situation, I’d start looking for a good deal on a used car in good shape that I could hopefully buy with cash by the time the truck goes to truck heaven. If you look at a lot of cars and if you check them out carefully, you can get a better deal than you might think. If you don’t know anything about cars, enlist a friend who does to check it out for you. When you think you’ve found “the one”, you can pay a mechanic to check it out for you to make sure it is in good condition. This usually costs around $50.
For us, we would continue to buy used cars if our income was higher and then use the extra money to pay off any debts or invest the savings in something permanent like real estate.
Just to be clear, don’t feel like you need permission to buy a new car if you want one. If you can afford a new car and are prepared to pay for all of the costs, go ahead. Our point is that financial matters are all in a balance and in order for everything to work out, all of the money you spend has to work out to less than all of the money you bring in.
If you do decide to buy a car new, don’t make that decision based on the fact that a car salesman says you can get a loan. Make sure you do the math and feel comfortable with the cost. The salesman wants to make money and it’s not his problem if you have trouble making your payments.
I hope this helps!
-Michael
For more easy and practical ways to save money and get out of debt, check out Dig out Of Debt and learn more about how to keep more of your money.
photo by: amagill
I agree with the advice about purchasing a good used vehicle for cash, but what if you don’t have cash but need the car? Financing rates for used cars is higher than a new car and the monthly payments can be just as high, plus you have to factor in repairs and potential loss of use for repairs. Also, our credit is bruised and our credit union won’t give us a loan, but the car dealer will. Any advice or thoughts on how to manage this circumstance?
It’s so funny that you ask this because I just got this email how to buy a car with no car payment.
There is no reason to have a car payment. You don’t need more than $1,000 or $2,000 to get a car to get you around. We have paid this for several cars that have lasted us MANY years. Even with MAJOR repairs it has been MUCH MUCH less to buy a used one than new.
I have a very old car which I paid less then $1800 for. That was my most expensive car. Up till then I only paid about $500 for one and they lasted me about 5 years and most of the time sold them for $500 when I was done with them. I average about $250 – $500 a year car repair and that usually is things you would normally have to pay for on a new car with a warranty like brakes or electrical.
Forget any financing. Try not to go through a car dealer but ask family members, neighbors or people you work with if they know of anyone selling an inexpensive car. If you have 2 cars try getting rid of one and someone ride the bus or carpool and save back the money you are paying for the car payment to in a few months get a used car. Depending on how far you have to go to work by the time you pay for a payment, insurance, gas,tags etc. it might even be cheaper to get rid of one car and take a taxi to and from work for a few months until you saved up the money to buy a used one.
Get out a pen and paper and add up all the expenses which are involved and see what you can come up with. People always worry about repairs on an used car but you can get a lemon whether it is used or new and new warranties don’t cover everything. My son and parents have in the past bought new cars thinking the same thing and they have had to have way more car repairs then I ever have on my used ones and even now their new car warranties have ran out and the a/c doesn’t work, windows don’t work etc.
So really put pen to paper. Tags, insurance and repairs are less on used cars just that alone would probably cover any repairs you would need for the year and you wouldn’t have a car payment. Even now if I would have to put a whole new engine in my car it would cost me a fraction of what I would have paid in payments, tags, insurance etc. on a new car.
Before going through the car dealership for financing. Do a couple of months with putting the payment into a car account. Don’t touch it and in 2 months if you did a bi-monthly payment you could have enough saved for a used car or at least a down payment for it.
That way you pay for a car but no interest. And when you do walk into a place you can pay cash for the used one.
Make sure when buying a used car that you get a mechanic to check it out for you. It costs about $150. here but it is money well spent. If it isn’t fit mechanically you are only out $150. not the thousands it could cost you.
I have been following your blog for quite some time now and have never commented before. On many things you have great ideas. However, all things do not apply to everyone in every state. I live in the New York City area and some of these suggestions simply don’t add up. I have a good job here and family and friends so I’m not relocating any time soon regardless of expense. Used cars here in NY are just someone elses headache, people run them to the ground and then only want to sell them to you when they are garbage. The first used car my boyfriend and I purchased we got for $1000. It needed about $600 dollars worth of work. It wasn’t awful but it was stolen in a good neighborhood for what was inside so we were out that money. But even if we had kept the car, it needed an alternator and other expensive parts down the road according to our mechanic who is very honest. Then we got a used truck, thinking it would last, about $2000 and 7 months later between what we paid and repairs it was dead. We could have saved that cash for a down payment on something new. We finally just leased a new Honda civic and we pay less than 400 a month for insurance and car payments which is a good price for this state. We had to charge the money down, but this is really the only debt we have. It was well worth having a car that starts everyday and the peace of mind it brought knowing we won’t need a tow. It has a full warranty as well. Just my thoughts, I wish all of your advice applied to NYC living, I use what I can, especially grocery tips, but sometimes the advice you give doesn’t add for where we live.
Normally we delete comments like this but we wanted to address it because this “I just can’t do it” mentality is what a lot of people have.
No, not all money saving ideas are going to work in all places. You have to make due with what you have where you are. The entire point is IF YOU DON’T HAVE THE MONEY, DON’T BUY IT! I’m not sure why people can’t understand that concept but if you can’t afford it, you just can’t afford it. If you are choosing to live in NYC then that’s your choice. That means that you are going to have pay the expense of living in a city that expensive.
As for the cars, I have not once seen a case where paying cash for used car was not a good deal, not even your example. You said “Then we got a used truck, thinking it would last, about $2000 and 7 months later between what we paid and repairs it was dead.” That is still $800 less than paying the $400 a month for a lease.
We had the lemon of all lemons on used cars. We spent over $8,000 in buying it and repairs. The transmission and engine both went out on it the first year. (We did not buy the car my in-laws bought it for us. It would not have been our choice of cars.) But still it was a LOT cheaper to pay $8,000 over 5 years on it then to spend $24,000 on a new car or lease.
As for buying cars, our last car we purchased from Florida. With the Internet now you aren’t limited to the selection that you have just in your area, so that’s not a good excuse for buying a new car.
If you have the money to pay for “peace of mind” that’s fine but if you don’t then you shouldn’t be charging it or getting a loan to pay for it.
Is it peace of mind when the bill collectors are calling? No
Is it peace of mind trying to figure out how you are going to pay your medical expenses? No
Is it peace of mind knowing that all your bills are paid and you don’t have to worry about your debt. Yes.
Excuses like these are what keep people in debt and then they expect others to bail them out through bankruptcy.
This is for everything. If you can’t pay for college without student loans then get a job at night to pay for or take longer to get your degree.
If you can’t afford your house payments, sell it and get something you can afford.
If you can’t afford to pay for medical insurance then get rid of the cable, the coffees etc.
If you can’t pay your bills but have adult kids living at home, charge them rent.
If you have to get a loan for a car then you need to find some other way to get around until you can afford it.
The entire point is if you can’t afford it, don’t buy it! It doesn’t matter where you live.
It is possible that the peace of mind that comes from knowing your car will start every day for work is more important than the savings on a truck that is not reliable any more.
You know I have a 25 year old car. I have had less problems with it then friends and family have had with their new cars. New cars don’t always start for different reasons and if you keep up the maintenance on an older car the same way you should a new car (oil changes etc.) they run just fine. You can have a lemon in a new car or an old car. It is an excuse I find many people like to use to justify spending money on a new car often. My parents had a brand new Prius and the first trip they took with it broke down on them.
Plus buying a new car you have no peace of mind every single day because you have a big debt of a new car payment. I would rather once in awhile have to deal with calling a tow truck on an old car then to each day worry and kill myself working to pay for a new car.
No. The stress from debt is worse.
You need a car to get to work.
If you buy a used car, it could break down often and you an lose your job. I’ve seen it happen multiple times to younger folks.
You know Fran that is really not true about used cars breaking down more that new ones. I have had used cars for years and my friends and co workers have had their cars break down and be late for work when way more than I have. As a matter of fact I have only once not been able to make it to work with my car breaking down and that wasn’t because it was a use car but just that I had to park my car outside with the wind chill of -15.
It really is a myth I think that many use as an excuse to buy a new car. As a matter of fact I was talking 2 a tow truck driver a few weeks ago and he was admiring my almost 20 year old car and started telling me that he has to tow 10 times more new cars than used and I bet if you talked to other drivers they would tell you the same.
Also most places if you are a good worker, show up to work on time and don’t take needless days off most bosses are understanding. What I am finding is most young people now a day are don’t do any of those things and often the boss is looking for a reason to get rid of them.
How do you buy a car from another state? You have to bring it to your mechanic which would add to your costs of buying a used car and if your mechanic doesn’t recommend it, then what? You are out a lot of money.
Usually when we say buy out of state we know someone who lives there and use their mechanic.
I don’t understand why it’s OK to borrow money to buy a house and not for a college education.
Harriet, the difference is people need a roof over their heads to protect them from the elements. You don’t need a college education to survive. There are thousands and thousands of people in the world and in the States who do just fine and many of those very well without a college education.
I am not against getting a loan if you really have to for things like necessities homes, medical or even a car but what happens is when people get a loan for anything which they have no way of paying back or in order to get something they want and can’t afford that is when it is wrong. For example if you need a car to get a job fine but don’t take out a loan and buy a $36,000 car which you maybe can’t afford or you aren’t wise enough to think if something should happen like I get sick and can’t work will it be something I can still pay. Get a loan for a $5,000 car which is more manageable. But we usually convince ourselves with all kinds of excuses that we deserve this or that so we get what we want not what we can afford.
Do you know how many e mails we get from people who have taken out huge school loans and 15 years later are still paying on them, they never got or could find a job for what they went to school for so now they have a low paying job and a huge school loan. Don’t let people fool you it happens all the time. Years ago it used to be if you had a degree the moment you left school you could get a job in that area and have your loan paid for in a year or two but that is not what happens now.
School costs so much and jobs for people with degrees are just not out there as much. Plus people with degrees have a certain large amount they think they should get because of their education but are finding companies aren’t paying like they used too.
Another thing which happens is at the time people are getting school loans they are often single with no thought of the future and don’t think that maybe in a 3-4 years their lives could radically change; illness, getting married, having kids, kids who are seriously ill, finances take a nose dive and on and on which will make it hard to deal with a school loan hanging around your neck.
A home loan if you choose wisely and don’t get carried away you can usually sell your house and if not make money at less you don’t take a loss. Now there are always exceptions to the rule I know that but I am talking about most of the time. I say this because I know we will get someone saying I got the job of my dreams and paid all my loans in a year. That is not the norm and not what I am talking about at all.
We had a family once write they had spent thousands and thousands of dollars for school loans and a few years into the marriage her husband decided to be a pastor instead of a lawyer and they had all of this debt. What should they do? This isn’t uncommon at all. This is the norm.
I want a mink coat and a BMW to make my life easier but the bottom line is I can’t afford it so I make the best with what I have and can afford. A college education is nice but you won’t starve or die if you don’t have one but if you don’t have a roof over your head you just might freeze to death.
What you guys say is hard to hear but the truth hurts sometimes. Dh and I have a lot of $ in combined student loans and as we are getting older it is really worrying us, that we will have “college-age” children and still be paying off our loans. It is exactly like you said: our jobs did not pan out as well as we had thought they would.
Now, back to the topic of the car. This is really the area where it pays to learn how to be handy. If you have teenage sons seriously consider having them apprentice under a mechanic. When I was younger, my dad would purchase cars for a couple hundred bucks, work on them every weekend for a month or two, and then we’d ride in them for years. Once he bought a car for $75! He ended up driving that car all the way from kansas to florida with no issues. Even mantainance is cheaper if you learn to do it yourself, such as oil changes, air filters, etc.
If you are grossed out with the thought of a used car, save up more $ and check out your local car rental. They sell newer model cars and are usually in pristine shape with relatively low mileage. Of course they cost more, but still less than brand new.
That is a wonderful idea!!! Even if they just took auto mechanics in school it would save a ton!
I agree Elizabeth. Sometimes I wonder if the education which would save the most money is what I call basic life classes – auto mechanics, basic home repair, sewing, accounting, yard work etc. I know my husband who had a college education helped us more financially by using his woodwork and metal training among other things what he went to school for.
Great advice!
About the car. I paid cash for my 2005 car. It was a year old when I bought it from my dealer. It was a rental from LAX airport. I know this because this written inside the gas door. I paid $14k for an $18k car. The car had 17,333 miles on it. Still had the warranty. Now it has 65k miles. I’ve only just has a brake job done. It was still original brakes. Mechanic was surprised. Only replaced 2 sensors that is it. 2 sets of tires. I buy more expensive tires and they last me 5 yrs. It is maintenance and how it’s driven. I’m not a hard driver per say, but my cars are expected to perform. I think my truck driving skills have kept my cars in shape. I will say this: do not lend your cars to anyone. They will not drive you. At as you will. My 17 yr old car ended up with a crippled engine due to people using it and not checking oil or coolant. I live in desert country. Not one of the 4 relatives took care of my car when they ran it hot. Cost of new engine-$5000 to put in a $500 car. So I took my savings and bought my car. I would not lease a car. Waste of money. My car runs like new. Buy what you need and live below you need level. These ladies know what is best. PS, I also drive a 49 y/o vw bug and a 46 y/o Ford p/u. Both look awful but run. Plus 2 diesel dodge trucks that are 23 and 19 years old. Those were bought new, but kept up.