I disagree strongly with basically every word of this.
Of course people would buy cars as investments. Thousands of businesses with sane financial plans buy new vehicles every year because they are useful. My car is the cheapest way to provide for 99+% of my transportation needs. I don’t care about driving nice cars, so I buy inexpensive ones and used ones. For cash. People who care about new cars might want to spend more of their money on new cars, and sure, good for them. We all get to decide how we spend our money. But going into debt for “wants” is just so bad long term. Just wait a little and earn interest while you save up instead of paying interest forever.
Putting a vacation on a credit card is a bad idea, but it’s like 1/10th the bad idea that buying a $30k car on credit because it makes you feel good is. That’s absolutely crazy.
Suggesting that someone go test drive some new cars when he starts out saying “I don’t really want a new car” is terrible advice!
I think that is an excellent way to think of it. The other variables I think you should take into account are what maintenance is going to be necessary in the next two years on your current car. 3 oil changes? you’d be doing that on the new car anyway, so it’s a wash. But, if your current car is going to need tires, brakes, a timing belt, coolant, etc. in the next two years, then that ~$800 savings is going to be quickly wiped out. If your current car already has new tires, and no impending expensive maintenance items, then that is a point in favor of keeping it.
As mentioned, safety is a big point in favor of a new car.
Are you interested in electric cars or other new technology? Then that is in favor of waiting. There will probably be several new options in the EV space in the next 2-5 years, so if it’s something you’re interested in, but none of the current models meet your criteria, then that is an argument to wait.
Depreciation of your current car is another factor. At 12 years and 130,000 miles, it might have finished depreciating, but if another two years and 20,000 miles drop it’s value considerably, then that is a point in favor of buying now.
I last bought a new car in 1985, and for 33 years would by cars like 5 years old and drive them until they were done.
Then I decided to treat myself, and I’m happy. The HMI works and is intuitive, the headlights are excellent, and the maturing electric drive does what I wanted and expected.
I’m 2/5 of the way through the payments, and although the money would be nice I like driving the car.
The only car I bought in the US was new. I’d looked at used cars, but with the “end of year” offers, the new one actually was priced lower. So, I bought new. Wanting to buy a new car (or a new to you car) when the old one still works well means that you can take your time to study the market. Pick the model, pick the place, pick the time.
If you don’t care about driving nice cars, then this just doesn’t apply to you. Well, actually, it does. Because I said everyone has a price point where the money is no longer worth the enjoyment the car brings. For you, that price is super low.
But I don’t think you understand investments. Financially sound companies are not buying or leasing cars as “investments”. Those are operational costs. Just like utility bills, machinery and other expenses.
Even if you have $10,000 cash at hand to buy a cheap car, you shouldn’t necessarily be paying cash for the car. You should be investing it. Even basic index funds can beat the interest on a car loan.
I don’t care about paying less than 3% interest on a car when I’m making 4 times that in actual investments. Paying cash for a car that I could have invested elsewhere is throwing money away!
So far you’ve compared a car purchase to a vacation purchase and a TV purchase, so it’s clear how YOU value the vehicle; however I think more people are in the “other” camp, i.e., we see the car as a means of transportation to get to and from work, etc., not as the “entertainment item” (the category that clearly includes really nice TV’s and Vacations). Of course each individual has his or her choice, and has to decide whether it’s worth spending many thousands of dollars on these features in his or her vehicle.
I spend my frivolous make-me-happy money elsewhere, so the same basic idea applies. But I don’t go looking for ways to spend money, nor do I borrow for that kind of thing.
Well, certainly one of us doesn’t understand what the word “investment” means. Buying a big chunk of machine at one time to cover ongoing needs is an investment. The returns are all the costs that the machine covers. Taxi fares are expenses. Buying a car is an investment. Utility bills are expenses. Buying a generator is an investment.
You seem to think that the only things that count as investments are assets that appreciate in value. That’s not true. An investment is anything you put money into now that provides positive economic value in the future. That economic value can come through the utility of what the thing does, not just financially.
This is so silly. You think Americans buy 17 million cars a year just because we like them? No! It’s because cars are the most economical means of transport for most people.
Leveraging your car loan into the stock market is also questionable advice, but it’s fine, I suppose, for anyone with a high risk tolerance. I would still not advise most people to do it, but it’s not crazy. This is not remotely the advice you were giving when you said, hey, put a vacation on a credit card because you’ll feel good. Go test drive some new cars because dropping $30k on something you didn’t really feel that you needed will make you happy.
I’ve still not decided for sure, but I am 90% leaning toward waiting at least a year and, during that period, banking what would have been the monthly payments for a larger down payment 12 or 24 months from now.
Not previously mentioned: my current vehicle has new (within the past year) tires, battery, brakes, and alternator. I know a million other things could fail, but those three are common and I feel good about things as winter approaches.
And, if something major does go wrong, then I’ll go to Plan B.
That’s why Chevy is still turning out Corvettes and Dodge is selling hundreds of thousands of HellCats each year? Because they are the most economical means of transportation? Because they are investments?
What’s wrong with test driving a car? He may not know what he’s missing. Or, he might see that he isn’t missing much at all and it will make his decision to wait a few years that much easier.
I’m also at a loss to understand how buying a new car is ever the “most economical means of transportation” rather than a car that is at least a couple years old. I doubt the majority of those 17 million new cars sold last year were all bought by people whose current vehicle finally broke beyond repair. And why did they opt for a new car, instead of more reasonably priced, low mileage car under warranty that is a couple years old?
Like I said, if we treated new cars like investments, I think we’d never buy them. We’d probably just buy used cars.
We can’t all buy used cars. Where would they come from? If there’s a need for X new cars a year for people to do what they do with cars, then someone has to buy those cars new.
For a lot of reasons. The market is pretty efficient, so the cost premium on a new car over a used one isn’t nearly as high as people seem to think. Transaction costs are a real thing. Knowing your car’s service history has value, as does avoiding the lemon market.
And, of course, many people make bad financial decisions with vehicles that semi-lock them in to buying new cars because they don’t have enough cashflow to not finance their cars and can roll their existing loans over with a trade-in.
There are plenty of very cost-conscious companies, yet almost all companies of any serious size that buy vehicles buy or lease new vehicles. If used cars were really vastly more economical, there’d be at least a few companies that would go that route. I believe the reason is largely transaction costs, although I don’t know for sure. I don’t have to know to observe the effect. And again, those companies are buying cars as investments. You still seem to think that the term investment only applies to assets expected to appreciate.
Do you think that disproves anything I said? You said that no one would buy a new car for practical reasons as an investment. And that’s obviously wrong! Pointing out that some people buy cars for not-practical reasons doesn’t help make that point.
The entire context where they were using “investment” was in regards to cars depreciating in value, and that being a reason not to buy now. So using the term in that way makes perfect sense.
I personally do not call all non-luxury purchases that I make “investments.” If that is the normal financial term, fine, but it isn’t what was meant here. What was meant here is that treating a car like something you’d buy hoping it would increase in value is a bad way to buy cars.
The fact that the car will lose its monetary value over time is not a good reason to delay buying a car.
You’re buying into the same incorrect definition of investment, though: assets that increase in value. That is only a subset of investment.
The main point of the post I originally started responding to was that no one would buy a new car if they subjected the decision to prudent financial analysis, so don’t bother to consider the financial impact, treat yourself! The first half of that isn’t true, and the second half is very bad financial advice.
It is probably true that almost no one would buy a Corvette after such analysis.