car cents (part 1)
A car will most likely be one of the largest purchases you make, 2nd only to your house. (Or maybe that 72in flat screen tv that looks so good in your bedroom.) And, considering you’ll make multiple car purchases in your adult life, much of your hard-earned income will be poured into vehicles over that 50+ year span. So I’d like to share some important considerations when buying a car.
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A car is NOT a house.
Hopefully that’s quite obvious for you (unless you’re a mobile-home owner.) The point is that a car is a DEPRECIATING asset, simply meaning that a car will LOSE value over it’s life, whereas a house is an APPRECIATING asset. Because a house appreciates, it makes sense to finance your home over a long period of time – as long as you make an adequate down payment you won’t run the risk of owing more than your house is worth.
However, many people take the “house” philosophy into their car purchase. It’s a crime that many banks and dealerships are offering 6, 7, and 8 year loans for a car. If you finance your vehicle for that long, you can pretty much guarantee you’ll be “upside-down” for the life of the loan (owing more than the car is worth.) So here’s my advice:
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Ideally, pay cash for depreciating assets.
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If you do finance your car, make a substantial down-payment (25 – 50%)
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Don’t finance a car for longer than 3 years
Check in tomorrow for part 2…
