I have a friend, who recently traded in a used car that he owed less than $2,000 on for a newer used car that he is now making payments of $400 per month. The reason behind the decision, as he told me, was that he was in financial trouble, and the car he had needed new tires. Anything sound wrong with this picture?
Working through the numbers, he was going to end up paying the financing company a grand total of around $24,000 at the end of the 5 (yes I said five) year note he took out. This is a mistake, a big mistake. He was looking at about $400 for some nice tires for his other car, and instead of paying for the new tires, he buys another car. Now he is stuck trying to find an extra $400 per month to pay for this new car when he didn’t have the $400 before to pay for the new tires.
Bottom line is, don’t get caught turning a bad situation into a disaster. Stick with low, low cost vehicles that are foreign (I personally like Honda’s the best, but Toyota’s are good too) and that are mechanically sound. You will probably have to buy models that around 10 years old to get a low price, but I promise you, they are worth it. Right now I am driving a 1993 Acura Integra, it gets about 26-30 mpg, I paid $2,500 cash for it, no car payment, low insurance cost (liability only), and the car runs great. Are you going to have more maintenance problems with an older car? Most likely yes, but the maintenance costs, especially on these foreign cars, should be far less than payments would be on a new car.
So don’t act on emotion, take time to think it through. Ask yourself questions like, how much would it take to repair my car, and how much is my car worth? Can I sell the car I have and have enough money to buy another one for cash? And the most important question, Do I really need another vehicle? I mean think hard about it, do you really, really need that new car? Most likely you don’t, so look at it logically, not for the shiny pizzazz of a new car.