Wealth Management & Financial Planning

Wealth Management & Financial Planning

Purchasing a New or Used Car: The Good, the Bad and the Ugly

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Okay, why read this blog about buying a car from a Financial Advisor?  Well I have seen a fair number of sunsets in my life, and with every one of them I hope I’m a little more informed than the day before.   Experience is a fabulous teacher if you listen. 

That fact is I really like cars!  And I know this sounds crazy, but who doesn’t love that new car smell?  I can, and do, perform a majority of my own maintenance and repairs. I have done so for years.  For over two decades I helped people finance them as well.  In fact, there was a time I knew so many aspects of every make and model that I could tell you the retail and wholesale values within one hundred and fifty dollars of the published book prices.  Cars were my life.

So why talk about it in this blog?  Next to the homes we purchase autos are certainly one of the biggest financial expenditures we make.  How big is the bill for a new ride?  Kelley Blue Book, one of the renowned experts in vehicle valuations, reported in April 2016 that the estimated average (median) price for a new auto in the United States rose to $33,666 up 2% from 2015.  Wow!  I paid less than that for my first home.  (I am dating myself a bit). The fact remains that most people can’t (and possibly shouldn’t) pay for that kind of purchase in cash.  What’s the price tag, you ask, if I finance the whole amount?  Sixty months let’s say at 3%, you get to make monthly payments of $604.93.  Yikes! (Can you also hear Johnny the announcer’s voice in the background saying, “taxes, license and insurance not included?”)

Experian (The credit bureau group) reported through CNBC, that for the first time in automobile history payments are averaging above the $500 mark.  They also report the average term is now 68 months – the longest average term they have ever witnessed.

If new cars prices are averaging somewhere in a low earth orbit, we all know that used average price’s will be somewhere in the Ionosphere as well.  What’s a person to do?

First, don’t make the regrettable mistake of being an “impulse buyer”.  Okay, I hear all of you. “Nope. Never. No way! I wouldn’t do that.”   Ya right!  Driving through the car dealerships at night because you’re bored is one thing.  Calling the next day just to see what the price of that little red hot rod is something else entirely.  Remember that salesman’s job is to SELL you a car!

 Disclaimer time.   Car salesmen have gotten a really bad rap over the years, and maybe in some cases it’s deserved. Today the moods and tactics are different, some would say more sophisticated, and I would agree, but they still have the motivation of “if you don’t buy, my family doesn’t eat.”

If you are in the need/want to purchase another vehicle, the rule is “evaluate your needs and the role the vehicle needs to play.”  With so many different makes and models utilizing available research is vital.  Get on line, look for features, options, dependability. The World Wide Web is full of people that want to share their opinions.  Your local mechanic is one of the best persons to ask questions.  Depending on their business, they are likely to see all manner of makes and models come through their doors, and they usually have a Great memory for the vehicles that have the similar problems.

Additionally, financing the purchase is just as important as the buying the car.  Again, shop around at your local banks and credit unions.  At least get an idea of what the current rates are for new or used auto loans are before you sit down and talk price and financing at the dealership. Do you currently have a mortgage on your home?  Do you have equity? Do you itemize on your tax return?  A home equity loan might be right for you. Often you can get a lower interest rate using your home's equity, however, that doesn’t mean you should stretch out the term to infinity and beyond to lower your payment. The tax treatment for a home equity loan can also be different based on the usage of the loan, be sure to consult a tax professional.

There are a plethora of issues to discuss, but I’ll leave you with this last one.  Should I buy an extended warranty on a new car?  And if available, one on a used vehicle?  Autos have never been more complex than what is rolling off of the assembly lines today.  Most new vehicles have upwards of nine computers handling a variety of functions and with the advent of autonomous features like auto-braking, self-parking and lane change warnings, our cars today carry more computing power than all of NASA’s computers that sent the Apollo rockets to the moon combined.  Also, there is the drive-train, suspension, heated seats, power windows, navigation system, on and on it goes.  None of them are inexpensive to diagnose or repair/replace so the answer is, if you plan on keeping the car for an extended period of time, it is a wise move to take a serious look at the cost and benefits that a solid warranty plan can offer.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm”][vc_widget_sidebar sidebar_id=”sidebar-main”][/vc_column][/vc_row]

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