Car Buying Philosophy That Saves Money

If you graduated medical school or any college with tons of student loan debt, chances are you have little extra money to purchase a new car. Most people are still driving their car from undergrad, with the sole purpose of getting you from point A to point B. Once you start making a salary, and that car is beginning to reach the end of its life you may be in the market for a new car. Here I will provide five tips that helped me secure reliable transportation without the huge car payment. 

I do not share the same views as some who believe you should be able to buy a car for $2500 and allocate the money saved elsewhere. Sure, a case can be made for a beater that you use to commute back and forth to work. It will save you money provided the car continues to run reliably and doesn’t require a major repair such as a transmission. I believe the success of this plan depends largely on how far you commute to work and whether or not you can live with poor reliability. I was tired of driving a car like that, and while I see no reason to purchase luxury model cars for commuting purposes, I knew I wanted something with good reliability ratings, good gas millage, and some functional features like hands free calling. 

Tip 1: 

Never buy new. One of the main reasons financial gurus recommend you do not buy new cars is they depreciate in value rapidly beginning the moment you drive the car off the dealer lot. Most cars from reliable brands like Honda, and Toyota will run from 0 to 100,000 miles without any major mechanical failures. If you do the routine maintenance and replace parts that are subject to wear such as tires and brakes, you should be good. Most new cars lose 20% of their value in the first year, this has been fairly consistent over time. It makes far more financial sense to buy a certified used car from places like CarMax, or the local Honda dealer. Most of these cars have been on the road for 2-3 years and have less than 30,000 miles. They have already suffered the initial depreciation and can be purchased for much lower prices. The dealers usually replace many of the commonly worn parts such as brakes, filters, and tires. All of these cars go through a thorough inspection process and are carefully selected for quality. If the car has 25,000 miles on it, you still have 75,000 good miles before you have to worry about major mechanical problems. Most of the maintenance items were already performed by the dealer prior to the sale. The fact that many of these cars have been on the road for a few years, allows organizations like consumer reports to gather data on the reliability, safety, gas millage, and customer satisfaction. This lets you make a more informed decision. The long-term reliability of a brand-new car will not be available since there is no road time for that year. You are stuck basing your decision off of the initial road testing which clearly cannot provide data on long term reliability. I would suggest getting the consumer reports, and looking up the models you are interested in, and seeing how they fared over time. 

Tip 2: 

Spend the extra money for a 100,000-mile warranty if it’s a reasonable price. Normally I would say this is a mistake, but the warranty is further protection, and if reasonably priced might save you in the future. Since many of these cars do have more road time, some of the non- maintenance items have the potential to fail. Things such as third brake lights or starters can cost several hundred dollars out of pocket. If it fits your budget it’s not a bad investment, if it doesn’t it’s not essential either. 

Tip 3: 

This tip involves gap insurance. Gap insurance is another debatable point. I believe it depends on how fast you plan to pay the car off. Gap insurance provides protection if the event you are in an accident, and the car is totaled. The insurance company will give you the value of the car at the time of the accident which may or may not be what you owe on the loan because of depreciation. If you are like me, and you pay your car off in one year, gap insurance is an unnecessary expense. The risk is low enough to take the chance and save the $600. However, if you plan to take a 5-year loan to pay the car off, there are far more opportunities to be in an accident, and the car will lose most it’s value over that length of time. In this case it’s best to protect yourself with gap insurance. 

Tip 4: 

Avoid luxury, and performance cars. Luxury brands like BMW, and Mercedes Benz make cool cars, with the driver’s comfort in mind. However, the prices are significantly higher and the maintenance over time will continue to cost you throughout the life of the car. If you are on a budget, it’s going to be hard to afford a car like that, and the overall reliability on some of the cheaper models is actually poor when you read through consumer reports. Performance cars are not built for reliability or practicality, they are intended to go fast, and handle well often at the expense of these things. This was a hard-learned point for a person who built several Ford mustangs over the years and wasted countless amounts of hard-earned money. From a financial, and daily driver standpoint it makes no sense to buy one of these cars until you have saved enough money to comfortable afford a weekend car. 

Tip 5

The final tip is to make sure you do all the routine maintenance at the dealer specified times. The easiest way to figure out when you need to change the transmission fluid, or cabin air filter is to look at the owner’s manual. The philosophy is simple, $140 for transmission fluid is a lot cheaper than precision machined parts. 

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