Decisions in Real Life: Purchasing a Car

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 Edmunds.com’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.