I recently sold my 2002 Volkswagen Passat.

I didn’t want to do it.

The car was in great shape for her age (my car was a lady) and she was a smooth ride.

Although my car had been very well maintained she was pushing 300,000km and the dash board was lit up like a Christmas tree…time to sell.

Another motivating factor, I recently had a baby. I need something a bit bigger to accommodate all of baby’s things!

So, I am now in the market for a “new” car.

When I say “new” I mean new for me.

I will never buy a new car…..(I mean maybe if I become a multi-millionaire or something…but even then I don’t know if I would…I digress).

“Why?” you ask.

Well, let me tell you!

Why I Will Never Buy a New Car

A new car is not an “investment.”

What is an investment?

According to Investopia: “An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future.”

Appreciate means that it will increase in value. For example: Traditionally, a house is seen as an investment because over time it increases in value. Let’s say your parents bought your family home in 1990 for $300,000 and today it is worth $700,000. The home can be seen as an investment because it is now worth $400,000 more then it was when they purchased it.

Cars do not appreciate in value over time. Quite the opposite. According to Carfax a new car loses approximately 10% of its value the moment you drive it off the car lot. By the end of the first year that car will loose another 10% of its value….that’s 20% gone within the first year.

Within the first five years the car will loose approximately 60% of its value….yikes.

So, if you are thinking about financing a car because you believe you are making an “investment,” think again!

I don’t want another monthly payment.

Mortgage, property taxes, utilities, condo fees, insurance…..I don’t need another monthly payment.

This is why I pay for all large purchases with cash….with the exception of our house. Our cars, vacations, furniture, even my wedding ring have all been purchases with cash in hand. If we don’ have the money, then we don’t buy it.

Preet Banerjee has a quote in his book “Stop Over-Thinking Your Money” that I think is quite relevant here….he says,

“Think of borrowing money as negotiating a pay cut with your future self.”

You might think it’s a good idea to take out a loan to purchase a car today but what will your future self think when that new car smell has vanished, your vehicle has depreciated by 60% and you are still making payments??

I don’t want to pay interest.

Let’s say you are going to buy a shiny new car. The car costs $27,000 and you have saved up $3,000 for a downpayment. So you need to borrow $24,000 from your bank. At an interest rate of 5% and a 60 month term (that’s 5 years) your payments will be around $450/month and you will pay over $3000.00 in interest. So your really paying over $30,000 for that car.

Not to mention that by the time your car payments are up your car will only be worth 40% of what you paid for it.

It’s just not worth it.

I don’t feel the need to Keep Up With The Joneses…anymore.

For me a car is just a way to get from point A to point B. Now, don’t get me wrong. I don’t want to be driving a junky old rust bucket. But my priorities are that it is affordable and safe.

I wasn’t always this practical.

Let’s take a short detour down memory lane…

When I was in grade 4 my family lived on an acreage where there was no garbage pick up. Since we were responsible for driving our garbage to the dump my dad purchased an old yellow pick up truck that was strictly for garbage runs.

At the age of 10 I flat out refused to get in this truck. I’m not sure where this sassy attitude came from but I was absolutely over the top embarrassed at the thought of being seen in it. When my parents did force me inside the truck I would sit on the floor to ensure no one saw me….unsafe and ridiculous.

Fast forward to my 16 year old self. We had moved to a new home in a new city but we still lived 30 min from town. When I got my drivers license my parents were happy to provide me with an old, white 1989 Toyota Celica that allowed me to drive myself, and my siblings around. This relieved them of their taxi duty and gave me the freedom I so craved.

Instead of feeling grateful that my parents bought me a car I was annoyed at the age and appearance of said car. I would park as far away from school/the mall/the movie theatre as possible and run away from ‘Old White’ (that was her name) because I was embarrassed of her. I was a 16 year old brat and I wanted something shiny and new. How entitled.

My point here is that I get it if you want to have a nice, new car. I especially get this if you are in high school and you think everyone is judging you based on what you wear and what you drive. BUT, is it really worth going into debt just to look cool?

You might say yes, that’s fine… but you know what’s NOT cool? Buying a new car and not being able to afford the gas to drive it.

Hopefully I have convinced you that a used car is the way to go. If you are considering this as an option then here are some things you should consider before making a purchase:

How much should I spend?

Obviously this number will differ for everyone depending on the make and year of the car you are interested in as well as your financial situation/ how much you have saved.

Personally I am looking for a small SUV, no older then 2010 and aiming to spend between $10,000 and $12,000. It is possible to buy a safe and perfectly functional vehicle for this price.

If you absolutely need a car before you have had a chance to save up enough money here is a rule of thumb you can follow:

20:4:10 Ratio

• 20: You should put at least 20% down. So if you are aiming to by a car for $10,000 you should save up at least $2,000.

• 4: Do not exceed a term of more then 4 years. This means when you take out a loan and they ask you how long you want to take to pay it back you should not go over 4 years (48 months). If you can pay it back sooner, that is better.
  • According to the Government of Canada the average term loan is over 72 months…that’s more then 6 years. People tend to extend their term to decrease their monthly payments. But remember, the longer it takes you to pay off your car, the more interest you pay.

• 10: Your total car payment should not be more than 10% of your gross income (that’s your income before taxes). This includes your principle (main car payment) + interest + cost of insurance. If you make $50,000/year then you should not be spending more than $5000 on your car per year.

Where should I shop for a used car?

Here are some suggestion to get you started:

• Kijiji: You can find some great deals on Kijiji. There are both private and dealership seller.
• Auto Trader: Auto trader is another great resource when searching for a used vehicle. Similar to Kijiji there is a combination of private and dealer seller. The auto trader website does provide more detailed information then kijiji.
• Canadian Black Book: This is another options similar to Auto Trader.
• Facebook Groups: When I was selling my Volkswagon I joined a VW Buy Sell group. I have not yet used it as a resource for shopping for a car.
• Auctions: It is possible to get a great deal at a car auction but this option is a little too sketchy for me. My husband and I went to an auction last year and it was totally overwhelming. Let me paint a picture:
  • An auctioneer stands in the middle of the room on a riser and a parade of cars and trucks slowly drive by as interested bidders watch from the bleachers. There were also swarms of people…well it was exclusively men, that would go right up to the car, or jump up on the back of a truck to get a better look. For me the atmosphere was way too much….granted, I was 6 months pregnant and it was February in Calgary so I was bloody cold and miserable.
  • You are usually able to view the cars online before the live auction. You can also go down to the lot to take a closer look at the vehicles. However, you are not able to take the car to a mechanic so there is so risk involved with the purchase. Since some of these vehicles are repo’s you don’t know how well they were maintained or if they were in an accident.
• Friends and Family: This is actually where I’ve had the most luck. So ask your network. I tend to feel more comfortable buying from someone I know. There is less of a chance they will hide something from you.

How do I make sure I’m getting a good deal?

It is up to you to do your due-diligence when shopping for a used car. It is possible to get a great deal but it is also possible to get ripped off. Before you make a purchase be sure to do the following:

• Shop around. Spend some time looking at vehicles online/in person using multiple sources (go to a dealership, look on kijiji, look on the auction site etc.) This will allow you to gain an understanding of what the vehicle you are interested in should cost.
• Go and see the car in person.
• Ask questions (see list below)
• Take the car to your mechanic. As I mentioned, you can’t do this if you are purchasing from an auction. It will probably cost you between $100 and $200 to get them to check over the car to see if there are any major issues. Trust me, it’s worth it.

What questions should I ask and what should I look for when purchasing a used car?

Here’s a list of questions that you must ask before you purchase a used car.

Some of these questions can be asked over the phone or in an email before you take the time to go see the vehicle in person. When you do go to see the car you should consider each of these points.

By asking these question you will get the information you need to make a good decision and it will show the seller that you know what you are doing.

1. Are you the first owner? How many owners?
2. Were you the main driver of the car? (No offence 16-25 year old guys but I would rather buy a car from pretty much anyone outside of your demographic. You tend to be the hardest on your vehicles.)
3. How many km?
4. Has the car been in an accident — ask for the CARPROOF report
5. Why are you selling?
6. Highway or city km?
7. Has the vehicle been well maintained? Can I see the records? — This way you can see if they took the car in for regular oil changes etc.
8. Does everything work (windshield wipers, blinkers, AC, defrost, heat, stereo, windows, locks, cruise control)
9. Is there any rust, dents or damage?
10. Has the car been repainted?
11. How old are the tires? Do you have a set of winter and summer tires? Check the tread on the tires
12. Is there a spare tire and jack in the car?
13. Did you smoke in the car?
14. Were there pets in the car?
15. Is anything leaking from the car? You should also check for this yourself.
16. Inspect the windshield and windows for any cracks
17. Inspect the interior to see if it was well maintained
18. Can I take it for a test drive? You NEED to actually drive the car
19. When you take it for a test drive turn down the radio and listen for any strange sounds
20. Look at the dashboard, are there any warning lights on?
21. Can I take it to my mechanic for an inspection?

When it comes time to purchase…

• Make a budget and stick to it.
• Don’t be in a rush to purchase. Give yourself time so you don’t feel pressured to make a purchase. You want to be able to hold out for the right car.
• Negotiate. Be reasonable, especially if you think the car is fairly priced, but always try to haggle. You never know unless you ask! You are in an especially good position to negotiate if you are buying with cash.
• Ensure you have your insurance lined up (call your insurance company, you will need to know how many km are on the car as well as the VIN (Vehicle Identification Number).
• Complete all necessary documentation (e.g. Bill of Sale).

If you are not interested in purchasing a used car there are other options.

If you don’t have the money in hand to buy a car and you live in a city where you don’t need a car to get around then consider your other options.

Uber. / Car to Go. Etc. If you don’t need a car on a regular basis then consider the ride share options offered in your city. By using these services you can save so much money (no car, no insurance, no gas, no parking, no maintenance).

Public Transit. I live in a city where everybody drives…partly because transit is sub-par and partly because that is the culture. However, if you live in a city with good public transit then take advantage of it. It’s cheaper then owning a car/paying for parking and you can get stuff done on your commute (read a book, listen to a podcast, read a blog post!!)

Bike or Walk. I walk to work every day and I love it. Even when I was super pregnant and it was -30 (celsius) I still made the trek! When you are a looking for a place to live really consider your proximity to school/work/grocery store/restaurants. It’s nice to have the option to walk or bike. An additional bonus. If you walk or bike to work you save money on gas and parking and you also get some exercise!

This post is coming to a close!!

I understanding having a car is a right of passage. It’s a feeling of freedom - knowing that you can go anywhere, whenever you want. But having a brand new car is not worth going into debt. Remember, a car is not an investment.

I will leave you to ponder a relevant quote from Dave Ramsey….

“We buy things we don’t need with money we don’t have to impress people we don’t like.”

Related Posts

Stop Trying to Keep up With the Joneses

References

Post Cover Photo by Brooke Gajdica on Unsplash

Old Truck Photo by jamie r. mink on Unsplash

Bike Photo by Priscilla Du Preez on Unsplash