At the age of 28 I’ve had 3 cars so far in my life.
The first one, at 16, was a pickup truck. It was all manual (even the transmission) and I had to mentally calculate how much gas to put in it without filling it up, otherwise the gas tank would overflow :/
The second one was a Honda CRV and dammit I loved it. It had simple styling, was deadly reliable, got great gas mileage and was a lot of fun to take on some light offroading. Lots of long trips, soul searching, solitude, and deep thinking took place in that car. And then the engine needed major work just shy of 170,000 miles, and I decided I’d had enough.
Now, I’m in my early/mid 20’s, I had just been promoted and was making over $35k a year, and I’m buying a car. By myself. With my own money. For the first time.
This could have easily gone very wrong… While I can definitely pat myself on the back for what ended up being my final decision, I still also got very lucky with what has been the biggest purchase I’ve ever made excluding a degree.
Things I Did Right
- I chose a good, practical, used car: a two year old Corolla with 50,000 miles on it.
- I knew I was going to pay it off and keep it until the wheels fell off, so I decided I was willing to pay more for a newer car. Looking back, I could have gone older, but I don’t have any regrets (possibly because I’m done paying it off).
- It’s been extremely reliable, easy to maintain and gets great mileage (as expected).
- I knew what I wanted to buy before I bought.
- I picked the car I wanted and found a dealer that had it, instead of picking the dealer I wanted to buy at and finding a car that I liked.
- I paid it off early.
- I originally took out a 60 month loan. Thanks to buying a used version of a car that’s already affordable when new, I had pretty low monthly payments, somewhere around 10% of my take home pay.
- When I had extra cash I made extra payments but knew that if I needed to get tight I could still afford the minimum payment for quite a while.
- I paid it off in about two and a half years. Yes, my interest rate was around 2% and I could have come out ahead by making minimum payments and investing the rest, but I don’t regret it one bit.
I was lucky in a lot of ways – mostly that I had at least some financial sense. Enough that even though this was a new experience for me, I came out making pretty good decisions. I could have easily bought a car that was flashy, more expensive than I could afford, and unreliable and inefficient.
That being said, there’s still plenty I’d wish I’d known, and I definitely took some unneeded risks.
What I Did Wrong
- I financed through the dealer first, THEN refinanced through a bank.
- My rate through the dealer: around 7%. My rate through my bank: around 2%. Luckily I did this within the first couple of months so I didn’t pay much extra interest. I DID end up paying like $150 to transfer the loan. Considering I paid off the car early, I’m not sure I saved much more than that in interest, basically making the whole thing a wash.
- I didn’t set a down payment amount.
- I had an idea of what I wanted to put down, but ended up putting down more on the spot. Had I done better at pre-planning my financing options I probably would have put down a little less and kept the rest in savings…
- I bought at an out of state dealer and made a commitment to buy the car before seeing it in person
- Fortunately, this worked out okay. Finding the year, make and model of the car I wanted at a price that worked was nearly impossible. I was also buying a newish car, still under warranty, from a dealership. Still, I bought a one-way plane ticket and made plans to drive the car back home the same day. Imagine if something went wrong!
- I wouldn’t have done this for an older car. Still, having to buy a car in order to get home when you work the next day is pretty risky.
- I didn’t transfer my insurance – so yes, I bought a car, drove it home (to another state) and for a week or so after that WITHOUT insurance…Oh man!
There’s one thing left to mention that I’m not sure about putting under either right or wrong:
I bought the extended warranty.
You know, that thing that dealerships tack on at the end, that only adds $20 to your monthly payments? I bought one on a Toyota Corolla! The most reliable appliance ever built! It cost me about 10% of what I paid for the car. And you know what? I used it!
Shortly after I bought the car, I ended up having to replace the water pump (and I think the radiator?). The kicker? The cost of the repairs was right around what I paid for the warranty. I paid a $100 deductible and was provided a rental.
I know, I could have not bought it, and stuck the money in a savings account. If I need a repair, great! If not, then I still have my money. Staying away from the warranty is usually presented as the logical choice, but after buying one (and actually having to use it), I don’t think it’s quite so clear.
Obviously the reputation for reliability of the car you buy should be considered, but I bought what is arguably the most reliable car ever made and needed a major repair before 70,000 miles. If you never use it, you lost money. Use it once, and you probably broke even (or came close). Use it more than that, and you saved money. Regardless of what you do (I don’t think there’s a right or wrong answer here), just do your research first. Don’t buy it on the spot, at the last minute, when you’re about to sign on the dotted line.
I have about 1,000 miles left on my extended warranty – I’m also coming up on a pretty big number – 120,000 miles, before the end of the year. I’m still planning on keeping the car forever, so I’ve got some big maintenance coming up. I also want to make sure if there’s anything I can get fixed still under the warranty, I do it before it runs out.
So it’s got me looking back on my time owning this car. Financially, owning and maintaining a car is EXPENSIVE – there are ways to be smart about it and reduce those costs, but between purchase price, maintenance and repairs, gas, insurance, etc., it’s not the most cost-effective way to get from point A to B.
I was a young guy with a good paying job for my age and on the hunt for a new car. The biggest purchase I’d ever made by myself. It’s still the biggest purchase I’ve made (I haven’t bought a house yet, as far as I know!). Hopefully what I learned will come in handy next time I spend that kind of money.