Decisions in Real Life: Purchasing a Car

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Last updated on July 22, 2019 Comments: 5

This is the first part of an open-ended series about major decisions that require consideration from a financial angle. The important point to note is that the financial angle is only one of many aspects that should be considered, and this fact is often ignored in some writing circles. This part pertains to purchasing a car.

When writing about personal finance, there is an expectation to center discussions around money. For example, when a personal finance writer tackles the decision to purchase a car, arguments are usually for slightly used rather than new (to save the inherent depreciation “expense” associated with driving the car off the lot), buying rather than leasing, Kelley Blue Book’s used car values, and all operating expenses (figured conveniently in’s useful True Cost to Own ratings).

Personal finance writers infrequently take other, less measurable factors into account. Aspects like “fun” and “prestige” do not often rank high on writers’ list of factors effecting a decision in which money plays a large role. In fact, these human desires are sometimes ridiculed or seen as obstacles to overcome. After all, a car is simply a tool to help you move from point A to point B in a fast and safe manner. Perhaps it is the automobile industry that has convinced us that there is more to driving than a mode of transportation. Otherwise, why pay more than the cost of the car that finds the right balance between safety and affordability?

I could write a list of ten financial things a purchaser should consider before buying a car. In fact, here is that list.

  1. Consider not buying a car if you already have one.
  2. Consider buying a slightly used car rather than buying a new car or leasing any car.
  3. Consider selecting the base model rather than one with the extra features.
  4. Buy the car with the lowest True Cost to Own.
  5. Get a CarFax report so you won’t be in for any maintenance surprises.
  6. Negotiate the final price before discussing trade-ins or financing.
  7. Research your choices for their reliability in reputable, independent sources.
  8. Read the contract or agreement before you sign.
  9. Don’t get the dealer’s extended warranty.
  10. Don’t take on debt.

While those suggestions will help you spend no more than absolutely necessary, they are rules to be broken. I’ve broken several of them with my most recent purchase (a 2004 Honda Civic when it was new). Even though I new I could have saved some money immediately by buying a lightly used vehicle, I didn’t. I expected to be a heavy driver and I wanted as much reliability as possible for as long as possible, so for me, a new car was a better option. I also took a low-interest loan to pay for the car. I was prepared to pay cash but a very low interest rate was offered to me, so I was able to let my savings earn more interest while paying off the loan.

Consider this. New Jersey residents take an average of 32.4 minutes to get to work each day. That adds up to almost 12 full days of non-stop driving each year. That’s a lot of time to spend in one environment. I have no problem whatsoever with someone who wants to make the time spent traveling as enjoyable as possible. That enjoyment may come at a cost.

Buying a car is just one example — and not even the best example — of how major purchasing decisions can, and often should, take more than just the “bottom line” into account.

Article comments

Anonymous says:

To expand on what I wrote, let me tell you what I would do in Aryn’s situation: Buy a 9-year-old Subaru wagon. That’s what I did 2 1/2 years ago. Still drives like a dream and looks great. Cargo space? Check. iPod? My used car came with an amp.. plugged in a headphone-to-RCA cable and I was good to go (you could get one installed pretty cheaply). Fuel? It only gets 27-28 on the highway. However, given the enormous premium you pay for a) a new car (price, insurance, registration) and b) a Prius, I come out way ahead.

I did have some major engine repair recently (bent valves), but my annual maintenance still averages less than $1000. 165k miles and going strong.

That said, a car is all utility for me. Having a “new” car does nothing for me. If it does for you, more power to you. Just be aware that it will be more expensive, and don’t let the magical “MPG” fool you into believing that a Prius is cheaper in the long run. Just admit that you want a new car and are willing to pay more for it.

Anonymous says:

Instead of just “buy new” or “buy slightly used” or “buy a junker”, try this: Calculate your total cost-per-mile for each option. It’s pretty easy.. Figure up the number of years the car will last, and the mileage for each year to get a lifetime mileage. Divide by MPG to get total gallons used, and find the lifetime gas cost. Do the same for registration, insurance, and maintenance. Some of these will be big guesses, but you get my point. Add everything together (including the cost to buy the car, and if applicable, subtract the ending trade-in value). That’s your grand total you will spend on this car during its lifetime. Divide by lifetime mileage, and there’s your cost per mile. You can also get your cost per month from this.

My cost-per-mile on my current car is $0.33. Of course, this doesn’t take anything subjective into account. But if the cheap car is going to run you $0.40 while the luxury one is $0.75, you might have to sit down and think about how much it’s worth to you.

Running a cost-per-mile estimate is also essential if you’re trading in “to save on gas.” Quite often it’s not an overall savings at all!

Anonymous says:

For most of us, driving is probably the riskiest thing we do (in terms of death) on a daily basis. I always like to have a reasonably new car in order to have the latest safety features. It seems like every five years or so, the industry comes out with a new technology that can really impact your chance of getting in a crash and/or your chance of surviving if you do. First it was airbags, then electronic stability control, now side impact head protection airbags will soon be standard on all vehicles.

Of course driving safely is the most important thing, but you can’t control all the loonies out there and somehow 40,000 Americans do manage to get killed every year. To me, I find the impact to my net worth of replacing my car every 5-7 years vs. waiting till it falls apart to be worth it.

Anonymous says:

I completely agree. I will soon be in the market for a new car, and I’ve pretty much decided against used. The biggest deciding factors for me will be fuel efficiency, cargo space, and iPod jack. Right now it’s looking a Prius offers all three, but it certainly does come with a slightly larger price tag! I think it’s a fair trade-off.

Anonymous says:

As a car fanatic, I would say that it’s not the automotive companies that have just convinced us that cars are more than just trasnportation from point A to point B. They create experiences and feelings that we enjoy. Whether it’s driving them, looking at them, or appreciating how others consider you because of which car you own, these are all worth money to many people.

To add to your list I would put…

– length and coverage of warranty for hassle-free ownership
– buy versus lease then buy (surprisingly, the lease then buy idea can work in your favor very well)
– cashing in equity on a car you own at the right time to buy or lease your next vehicle
– looking at products that will become available in the next few years to decide if you should wait to buy, (as in more fuel efficient alternatives)
– true resale value that factors in rebates instead of what the magazines tell you
– cost of repairs
– ease of doing your own maintenance / service
– likelihood that you’ll like the car you buy enough that you won’t want to buy another car for a longer period of time