Very few people who blog about personal finance are going to tell you that you don’t need a car. I would not go so far as to say that you don’t need a car. Unless you happen to live within a short walk of your job as well as a grocery store, you probably really do need a car. I will also concede that most families need two (2) cars. With many households requiring employment of both spouses, doing errands and coordinating work schedules with one (1) care is almost impossible until retirement.
That being said, you cannot underestimate the importance of your decision regarding the type of vehicle that you will buy. Day in and day out potential bankruptcy clients at Halcomb Singler go through their monthly expenses. One or two of those monthly obligations typically occurs in the form of a car payment(s). It is not uncommon for those vehicle payments to be $800.00 to $1,000.00 per month over the course of 5 to 8 years for vehicles that cost more than $30,000.00 each. For people who are struggling to pay bills, $800.00 to $1,000.00 extra each month in their budgets would make a huge difference.
First, I really wish that everyone would consider the fact that a car is a depreciating asset. It is going to go down in value each and every year. It is not financially wise to spend a lot of money on a car. So, what is a lot of money? This week one person at church told me that it was impossible to buy a car for less than $30,000.00. I cannot overstate how much I disagree with that statement. Select a slightly used, lower mileage vehicle and it is completely possible to spend under $15,000.00 on your car. I know this can be done because I have done so when purchasing my last two vehicles. Just realize that it is possible to drive a vehicle that is not an SUV, does not have a backup camera and does not have navigation. These extras really add up in the price of the car. It is simply a tool to get you and your family from point A to point B. Spending too much can have a devastating financial impact.
Second, if you buy a vehicle for $15,000.00 instead of $30,000.00 perhaps you will be able to buy cash and eliminate the approximately $3,000.00 in interest charges that you would pay over the course of a 72 month loan. Or, in the event that you did need to finance the car, you would pay less than half the interest for the $1,500.00 car. But everyone realizes when they buy a car that the more expensive the purchase price the more they will have to pay per month and in order to finance the vehicle. What people often forget is that there are many other costs involved with vehicles that are also important in your household budget.
Insurance costs can add up. Your car insurance premium is based, in part, on the value of your vehicle. Of course, it costs more to insure a $30,000.00 vehicle than a $15,000.00 vehicle. In Indiana, the cost of your car registration is also based on the value of your vehicle. A $15,000.00 vehicle will run you about $150.00 currently for vehicle registration. Your $30,000.00 vehicle will run you double. Then consider what kind of gas mileage you can expect with your new vehicle. Not only will the SUV cost more to purchase initially, it will certainly cost more for gas. Also consider whether the vehicle will require premium fuel, which runs about 30 cents per gallon more than regular unleaded. Finally, consider the repair costs. A Volvo is probably going to cost more for repairs than a Ford or Toyota. In addition, all of those added items such as navigation, a backup camera and a heated steering wheel are just additional opportunities for things to break. The bottom line is that it is impossible for your navigation screen to break when you don’t have navigation.
So, don’t get caught up in the pitfall of thinking that you have to spend $30,000.00 if you are going to buy a car. Plan ahead. Cars are mechanical and will wear out and break down. Spend some time now saving for a vehicle to replace your current car. When you have to sit down and write a check at the car dealership it is a lot more difficult to overspend. Your future self and your budget will thank you for not tying up $1,000.00 of income on payments for vehicles that will only continue to decrease in value.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.