"Name me something that you use less than 4 percent of the day, all the while it loses value."
There are days when I feel like I drive the oldest car in town. Everyone else seems to have spiffy new rides with all the bells and whistles; meanwhile, I'm puttering around in a bare-bones 2006 Toyota Matrix with a stick shift, manual windows, and no plug-in of any kind for my phone. It's almost at the 250,000-km (155K mi) mark. My husband's car is even older. His 2002 Acura RSX has clocked 368,000 kilometres (229K miles), though it does have automatic windows, a sun roof, and even seat warmers, which are mind-boggling luxuries for me.
We talk about our cars, wondering what we're going to do when the Acura bites the dust. Mainly our conversation revolves around how we'd afford another car, which inevitably spills over into wondering how everyone else affords their shiny new cars. We just don't get it.Well, I do get it in theory. People finance cars. They take on monthly car payments. I could do the same thing, but I don't want to because, well, I think it's insane. I'd rather save money and go on the occasional vacation than pour it into a hunk of metal that sits in my driveway.
As finance blogger High Five Dad puts it, "Name me something that you use less than 4 percent of the day, all the while it loses value." That doesn't even address the 10 percent drop in value the moment a new car leaves the lot. After five years, a new car has lost 63 percent of its value! And yet, people talk about owning new cars as if it's a rite of passage, a source of pride, something they 'deserve' because they've graduated or started a job.
Lloyd has written a lot about the emotional advertising surrounding car culture and how it puts cyclists and pedestrians at risk; it drives development of car-friendly infrastructure and creates a world that's far dirtier and more dangerous for people to live in. He's even called for a ban on 'sexy' car advertising.
But what about the financial repercussions of such ads? Billions of dollars are spent by car manufacturers each year in trying to convince men that trucks will make them manly, and frazzled moms that minivans will make life with kids easier to handle. Aside from the annoyance of reinforcing tired gender stereotypes, such advertising puts people at a real financial disadvantage, if they cannot resist it. It results in them taking on colossal amounts of debt that affects their lives in the long-term.
High Five Dad explains why car loans and interest are something from which you should run screaming:
"When paid over the course of 48 months, a $25,000 loan at 4.5% interest will result in monthly payments of $466.08 and a total cost of $27,965. When paid over the course of 84 months your monthly payments are lower at $347.50 but the total loan would cost you $29,190 — more than $1,200 versus 48 months. For higher interest rates, the difference between short and long term loans will be even greater."
Millennial Money Man has looked at the car loan numbers and calls them insane:
“Since 2002, the average car loan term has slowly crept past five years, and is now inching past 6.5 years. In 2014, 62 percent of the auto loans were for terms over 60 months. And nearly 20 percent of the loans were for 73- to 84-month terms.” Instead you could do this:
"The average new car costs $32,086, not including accrued interest at the end of your loan term. With that amount of money, you could pay down your student loans, invest it in the stock market for the next 30 years and turn it into $559,881.52 at a 10% return, or use it to purchase your first real estate investment property. All of those things are awesome. The main point is that you have options to start your path to becoming wealthy or become debt free."
He himself drives an older model Chevy Colorado, which he describes as "a Ferrari for my bank account." It's quite the image. We could all benefit from thinking of old cars as racy sports cars for our bank accounts, speeding us toward a finish line that holds far more freedom than any heavily-financed, comfy ride could ever offer.
I'm a big Mr. Money Mustache fan, and he's given me a couple nuggets of wisdom when it comes to thinking about purchasing vehicles:
1) He says $15,000 is the most you should ever spend on a vehicle. It's enough to get you a good used car that shouldn't need significant repairs for a while.
2) Cars don't cost you money per month. They cost you for EVERY MILE. Just because it's sitting in your driveway doesn't mean you should drive it.
"As soon as you start using it, you are burning gas, oil, tires, wearing out each of its approximately 20,000 components, increasing your risk of a crash, and connecting a large-diameter Shop Vac hose to your Money Mustache [read: bank account], ripping out precious strands right from their follicles."
The solution? Save your money. Wait till you can afford it. Pay in cash. Buy the vehicle that does whatever you need it for the most. Forget the whole "what about driving your friends' kids to hockey?" argument that I hear regularly. Rent a van for that twice-a-season event, and you'll more than make up the difference in gas savings by driving a tiny vehicle the rest of the time.
As for that Tesla Model 3 that my husband paid a refundable deposit for two years ago? We're going to be cancelling that order. As fun as the technology is, and as cool as Elon Musk might be, we can't justify spending that kind of money on a car. I'd rather go on a fabulous trip... every year... for a decade.