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Think long term (for models)

Buy the car you want, but only after it is at least two years old, and three would be better. By doing this, you automatically save millions of dollars over your lifetime.

When I was 23 years old, I wanted to buy a nice four-door sedan and was drawn to the Cadillac STS. The new model had a base price of over $50,000, and with any sort of little extras, the tag was almost $55,000. I was doing very well at a young age, but I wasn’t doing well enough to spend $50,000 on a new car.

I was flipping through my local paper (yes, this was before the internet changed everything) and I saw an ad for a two and a half year old Cadillac STS for $19,500. The car had less than 40,000 miles on it and came with a warranty extended to 90,000 miles. It was beautiful, shiny and newly repaired.

It was an attractive price since the first owner was eating up the depreciation.

Based on the average car, it will lose 11 percent of its value the second you drive it off the lot and an additional 15 to 20 percent the first year you own it. The second year’s depreciation (loss) is another 15 percent, for a loss of at least 45 percent during the first two years.

Depreciation is generally calculated from the base price, not the extras. This might be the sport package that raises the price by $10,000 but only sets you back $2,000 after the first year or two. So it’s quite possible to find beautiful cars with manufacturer warranties still in place and pay 35 to 50 percent less than the first owner when you bought them new.

I drove that car for four years, had very little out-of-pocket repairs, and sold it for $3,500.

So what kind of deal could you get today? When I was young, one of my dream cars was a Ferrari Testarossa, and its price was around $200,000. You can buy one now for around $50,000, and most don’t have that many miles because the owners pamper them.

Think Short Term (for Loans)

If you finance your car purchase, you can save a lot of money by keeping the term to no more than 36 months. This builds equity in the car faster and saves interest.

This can be difficult because the monthly payment is higher than if you finance for more than six years and is higher than a monthly lease. If you finance $25,000 at 5 percent interest for three years, your monthly payment will be $749.27 and your total payment will be $26,974. If you extend that loan to six years, your monthly payment drops to $402.62, but your total payment increases to $28,989. That’s $2,015 more out of pocket to own the car.

Assuming you buy the car with a small down payment, by financing it for six years, your loan payment goes at a much slower rate than the depreciation of the vehicle, creating an “underwater” situation on the car almost from the start . -go. During the three-year program, you’re paying off the car faster than it depreciates, giving you options if you have to sell the vehicle.

If you really can’t afford that three-year payment, take a five-year option and send a little more each month toward principal to pay it off sooner.

Leasing a newer model sounds appealing because the monthly payment is lower, but you may not want to. I’ll explain why in the next post, when I offer several other ways to save a lot of money when buying a car.

Believe it or not, it might be better to buy your own car instead of financing your 401k or IRA!

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