Hey Cool Car Fans,
Now you may think that is a crazy title to an article here at CoolCarGuy.com, but allow me to explain. It’s not that I believe it is a good idea to put yourself into debt with a car loan. The fact is that most people don’t have enough money to pay cash for a vehicle, unless they are trying to buy something for under $6,000 it seems. Here is the reality though and this is why I suggest that people take out a car loan instead of buying a worn out vehicle for $6,000 or less.
Right now, there are two different Honda Accord’s listed online that I pulled to illustrate my point as to how crazy people are when it comes to buying vehicles. The first one is on the website of JFR & Associate, Inc. where I have my license listed to sell vehicles as an Independent Contractor. If you want to buy this vehicle contact me and I’ll get you financed on it, even if you have credit challenges.
The first vehicle is a 2011 Honda Accord EX with only 17,691 miles that someone can buy right now for only $17,800 and here’s the listing and a couple of photos…
Year: 2011
Make: Honda
Model: Accord
Trim: EX Sedan AT
Mileage: 17,691
Stock #: GJ028616
VIN #: 1HGCP2F72BA028616
Trans: Automatic
Color: Gray
Interior: Cloth
Vehicle Type: Sedan
State: CO
Drive Train: FWD
Engine: 2.4L L4 DOHC 16V
Now contrast that with a 2005 Honda Accord that I pulled off of Autotrader that is being listed online by another dealership with 169,519 miles for $6,994. If you want this vehicle, do not call me about it because I won’t sell it to you, even if I could get it from the other dealer. I do not advise that you spend this much money for this vehicle, as I’ll show you in a minute.
Somebody is going to go and buy it though, after they take a class at some Church from some financial guru, about how they should never have a car payment! I see it all the time and it’s stupidity in action. Instead of making payments on a vehicle that will last them at least five years, they will be making unknown car payments to a mechanic for unknown and often costly repairs. Instead of driving a vehicle with a low car payment that has 151,828 fewer miles, they will opt to pay cash for a vehicle like this and think they are being smart financially.
First of all, we know that there is a huge market for vehicles under $6,000 because people are always looking for vehicles for their teenage children. In addition, there are millions of people who have filed bankruptcy or have other financial issues that will not allow them to get financed on a vehicle (so they think). As a side note, if you filed bankruptcy and have $3,000 or $5,000 to put down on a vehicle, I’m pretty sure that I can get you financed on a newer vehicle, instead of having to settle for somebody’s problem car.
What this means is that you could buy the 2011 Honda Accord, drive it for 150,000 miles and probably sell it for $6,000 based on what this 2005 is selling for right now. The 2005 is nine years old, which means that you could drive the 2011 Accord, make payments on it for five years, drive it another year and a half, after it is paid off and recover $6,000 of the $17,800 that you spent on the vehicle. And you can use someone else’s money to finance it and be in a much better position financially, while driving a much nicer and safer vehicle.
Let’s say that you drive 20,000 miles a year, which is more than the average of 15,000 miles a year. In six years, you will have put on an additional 120,000 miles, plus the 17,691 miles for a total of 137,691 miles, which is still less than the 169,519 that the second vehicle has currently for $6,994. You can drive it for another year and a half to equal the same number of miles! This means that the 2011 Accord, if you keep it in good shape and maintain it, like you have to do with either vehicle, would only cost you $11,800 to drive for 7.5 years, plus interest or about $1,573 a year, plus interest! That is dirt cheap because of the way the Honda Accord obviously holds its retail value.
Yet, the experts will tell you to never have a car payment and to instead drive around a car that is virtually worn out and that you’re paying a massive premium for to begin with. In my opinion, you should be financing the one that has already been hit with major depreciation and that you can get an incredible deal on and then sell it to the guy who doesn’t want to have any debt. I never keep vehicles with these kind of miles to sell to my clients because I don’t want them to have problems down the road.
Let me illustrate this one other way for you in case you’re still skeptical. Let’s contrast these two vehicles using a leasing scenario to really drive home the point. If you were to lease a vehicle, like this 2011 Honda Accord or even the 2005 back when it was new, and you were given 15,000 miles on your lease then you would have 45,000 miles on the vehicle after three years.
What would happen if you went over 45,000 miles? A leasing company is going to charge you $.15 to $.25 per mile depending on the vehicle and the structure of the lease, when you turn the vehicle back into the leasing company. Now let’s look at those 151,828 additional miles on the 2005 compared to the 2011 and do some simple math that the financial guru’s, obviously do not understand about vehicles. It’s clear they don’t get it because they keep telling people to buy worn out cars and trucks.
If we now take the 151,828 miles , which is the difference in miles between the two vehicles above and multiply it by $.15 a mile, it is $22,774.20 and at $.20 a mile it is $30,365.60. I won’t bother with the $.25 a mile calculation for this illustration. I think the point has been clearly made as to which vehicle is the better option and why you should consider financing the more expensive vehicle, instead of trying to pay too much for the worn out one.
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Auto Consultant – John Boyd: The Cool Car Guy
John is an auto consultant with his license at a car dealership in Denver, Colorado. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide! Call or email John about your next vehicle! jboyd@coolcarguy.com or Twitter @coolcarguy