Buying a car is a necessary expense for people in most parts of the country, but it should not be confused with an investment. Even if you buy the model with the highest resale value and keep it in perfect condition, the car will still be worth less when you sell it than when you bought it. With this in mind, I base my car buying decisions on the following criteria.
First, is it a model with a history? I try not to buy cars in their first or second model year. The first few years of a model are filled with “oops” moments and little glitches that will be worked out in the next year. Also, it will be easier to resell a car if it is a model other people have heard of and want to own.
Second, is it a company with a good reputation? No matter how much money I make or how much disposable income I have, you couldn’t convince me to buy a Jaguar. I have never met a person who owned one that didn’t have a laundry list of car troubles. I also try to stick to American made cars, but that is more out of loyalty than out of reliability. If you don’t know about the reputation of the manufacturer, simply do a web search for the make and model of your prospective car and the word “problems.” The amount of information you can find on online forums is amazing. Incidentally, I do the same thing for customer electronics.
Third, can I afford the payment on a 3-year loan? So many people finance a car on a 5-year note then get tired of the car, or it has been run into the ground, in three years. They take the outstanding balance on the car and throw it onto the loan for the next one. It is a cycle that will lead to constant debt and being so far over your head in a car loan you can’t sell the car and get out of it in an emergency. It is not a good thing to owe more on a car than it is worth. The easiest way to avoid it is to pay cash for any vehicle you purchase. The second best way is to take out a short-term loan and get the car paid off before you will need a new one.
Fourth, do I like to drive it? I commute 30 minutes to work everyday. That’s an hour in my car just to do my job. I also travel around the state both for personal and business purposes. Since I spend so much time in my car, I try to make sure it is comfortable and performs well with my driving style. Car salespeople don’t always like it, but I never buy a car without taking it out on the highway during the test drive.
If the car meets all four criteria, I buy it.
An additional point of advice:
Don’t buy a new, new car. Your car will depreciate by $5,000 or more the moment you sign the paperwork. Instead, buy a car after the new model years have come out. By looking at the Kelly Blue Book price of the previous model year, you can minimize the immediate depreciation. You can also look for “program” cars. These cars were used by the dealer either as a loan during repairs or as perks for their employees. These cars have low mileage and were well cared for, but will be significantly less than a new vehicle of the same make and model.
Whatever you do, just remember cars are a purchase. They are no different from a computer, cell phone or entertainment system. The only distinction is in the price tag.