We knew we would not make it out of our debt snowball without having to replace at least one of our vehicles. When we started, we had $191,000 in debt, medical bills and car repairs all around us. And each vehicle was over 10 years old with at least 200,000 miles. We knew a car purchase was in our future.
But we were also determined to incur no new debt.
That meant we would have to do two things I had never done before...save to pay cash for the replacement vehicle and buy a used car.
Before we jump into the 6 things we learned about paying cash for a car, I want to make a disclosure: this article assumes you understand why it is not economically a good idea to buy a new car unless your net worth is over $1M. If you have not come to that conclusion, read this article about why new cars are not a good financial decision.
Now that we have that out of the way. Here are the 6 keys we learned.
Key #1: Have a budget in mind before you walk on the lot.
Since we knew we would need to buy a car, we created a sinking fund to save for it. Click here to check out my article on how to use sinking funds. Debt elimination was still our primary goal, however. So we made a conscious decision to only save $300 each month.
We decided we would use whatever amount we saved to buy a replacement vehicle when the time came. We would only spend what was available in our sinking fund.
The age of the vehicle was then determined by our budget. We spent $5000 on a 10 year old Volvo with 125,000 miles on it because that is what fit our budget. Almost four years later it has over 200,000 miles on it and is still running strong. We have no plans to get rid of it any time soon.
Key #2: Use a reputable dealer.
We knew what kind of car we wanted and opted to do our initial search online. We found the car a few hours away from home. That meant we did not know anything about the dealer. Hindsight is always 20/20 and this was probably not the best decision.
When you shop with local dealers, you can ask friends and family to assist. I would also ask your mechanic for recommendations. Which leads us into Key #3.
Key #3: Once you decide on a vehicle, get it inspected.
This is HUGE! Either take it to a specific dealer (if it's a Toyota, take it to a Toyota dealer) or use a AAA certified mechanic. These are typically mom and pop shops that have gone through the annual AAA inspection process and are certified to work on your vehicle's make and model.
We no longer use a dealership to service our car, since it's one of the two ways dealers make the bulk of their income (the finance department is the other). By using a local repair shop, we get great service and a reasonable price.
They will do a full inspection to determine the healthiness of the vehicle you are thinking of purchasing. If they find anything major, you can use that as a negotiation point with the dealer.
If the dealer does not allow you to take the car to be inspected, find another place to buy a car!
Key #4: Use CASH!!!
Sometimes having cash in hand can create a discount opportunity. So purchase with cash.
AND...take only the amount you are willing to spend. That will help you from overspending. You can't pay more for the vehicle than you have. And if you begin to think about paying more, it creates a built-in cooling off period. That may be the time you need to make sure you are making a wise purchase.
Key #5: Be prepared to walk away.
Don't get so attached that you pay too much or buy a car with a big repair bill. There are lots of other cars to choose from.
This was a huge mistake that we made when we purchased our used car. We were all prepared to have it inspected beforehand and the dealer was prepared to allow us to do so.
But it was Black Friday and the inspection staff at the local mechanic shop were not available. Instead of waiting until Monday, we took a chance and bought the vehicle without an inspection. It did not turn out well. We spent several thousand dollars getting the vehicle road-worthy.
If we had waited, we could have used the inspection report to lower the cost of the vehicle.
Key #6: Look beyond the cosmetics.
You can detail the looks and make it more pretty. This was a paradigm shift for me. I had always driven new cars and had a really hard time wrapping my mind around owning a used car. Having the car detailed helped; but ultimately, I just had to make the decision to be okay.
So many times, we view car purchases as expressions of our personality, our status or success level. In reality, it's a purchase which loses value every single day. It is best not to wrap our identity in something which depreciates so quickly and thoroughly..
Luke 12:15 tells us “Take care, and be on your guard against all covetousness, for one's life does not consist in the abundance of his possessions.” Our car does not determine our worth any more than any other possession. We are wise to remember this when we choose our next vehicle.
And please...do not go into debt to purchase a vehicle. Doing so is the best way to insure you never achieve financial wellness. And that is the ultimate money goal...isn't it?
I would love to hear your thoughts on this. Have you purchased a car using cash? Wished you had? Just want to share your story? Feel free to share below.
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Until next time...be well...be encouraged.