I still get letters in the mail offering to reduce my monthly car payment or buy the car back because the 2008 Honda Civic seems to be in short supply at the Honda dealerships in the area.
I can see it now. A bevy of people banging at the door of the many Honda dealerships near me, begging the malevolent car sales team to sell them a Taffeta white 2008 Honda Civic with two broken door actuators and a trunk light that has never worked reliably. Moving like zombies from one dealership to the next, eventually the dealerships capitulate and send out letters to everyone who owns one seeking their assistance before the hordes revolt.
It’s all a ploy to get me locked into another financing agreement to purchase an expensive automobile and saddle myself with a new car payment.
I won’t do it. Would a new car be nice? Of course it would be nice to drive around a car that has a two digit mileage when I got into it the first time. The new car smell and cross-my-heart-and-hope-to-die type of promise forsaking the consumption of french fries in the car would give me a sense of confidence and order.
But then I am reminded of how I am not obligated to pay anyone $479 or anything else every month simply for the good fortune of having reliable transportation. When people ask me silly questions about my car or the largely unused bike rack on the back, I smile. I am more free because I drive a paid-off, ten-year old vehicle.
By the numbers
According to Edmunds.com, the average monthly payment of a new car is $479. That’s a huge amount of money. Many are locking themselves into five-year or even seven-year contracts to finance the car. Now, I am no stranger to making bad purchases which does include an unnecessarily fancy new car (see above) back in 2007. I really hated the way it made me feel, having to allocate $378 dollars a month, every month no matter what, for 60 months. I hated it so much we paid it off two years early. My wife and I bought that vehicle and almost immediately had buyer’s remorse. Well, it is now 2017 and I am still driving that car to and from work. It just passed 100,000 miles! The car is practically new, with just a bit more than a lot of junk in it that I need to clean out myself.
What if instead of putting that $479 a month towards a new car, you instead decided to invest it for ten years in a Vanguard taxable brokerage account that only had holdings in VTSAX. Well, using the calculator I discussed on this blog post, it is a simple thing to calculate what you could earn over ten years. 12 payments a year of $479 is $5,478 a year; however, you will earn far more than $54,478. If you earn just 7% interest over the ten years, you will actually end up with $79,416.94. If after a long time of driving that car that is saving you $479/month, you decide you need a more reliable car, take $10,000 out of the account to buy a reliable used car. You will still have a huge amount of money continuing to earn money for you via compounding interest.
So the next time you see some silly car commercial telling you that they have a “Spring Cleaning Sales Event” or some other hogwash, remember they are just hoping to spring-clean out your wallets and bank accounts. If you don’t have huge stacks of cash sitting in the corners of your house collecting dust, see the gimmick for what it is and choose to drive reliable used cars.