Automobile

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For most people an automobile is one of the larger expenses they encounter. Because of this, people tend to think of their cars as an asset. It is important to realize that a car is a rapidly depreciating asset and its value will go down over time and with use.

There is one point in time where a car loses a great deal of value very quickly and that is when it is first driven off the lot. A used car with 1,000 miles on it is worth significantly less than a new car with 200 miles on it simply because people want a car that is brand new. You can save a significant amount of money by purchasing used vehicles--even if you get vehicles with very very low mileage. Ideally you want someone else to take the big depreciation hit of driving it off the lot.

When looking for a car, make sure you consider the cost of maintenance. Some cars are very expensive to maintain and others are considerably less. A common car is generally going to be less expensive to maintain than a less common car because more people will be familiar with working on them. Also if you need part, you may be able to find a good deal on the used market.

There are various ways to finance your car purchase. Paying cash for a used vehicle is ideal. If you can't pay cash you may be able to find a dealer who will finance the purchase with a 0% loan. Unfortunately you will probably only find a deal like that with a new car purchase. Another option for financing an automobile is to take out a home equity loan. This type of loan is secured by the equity you have in your house, so it will typically carry a lower interest rate than what you can get for an auto loan.

Staying out of debt is of course ideal, but if you have to take out a loan be sure to do a good analysis and understand the total cost of each loan from each source.

Consider Inflation[edit]

One part of this analysis that is often overlooked is inflation. When you buy a car with money now, that money is generally going to be worth less in the future. If you spend $15,000 on a car today an equivalent car 10 years from now might cost $20,000. In some cases it can even make sense to take a loan for a car if you can find a good deal at 0% interest rate. These aren't normal terms, but they happen occasionally when dealers are having a difficult time selling inventory.

This type of arrangement works particularly well if you have money in the bank to cover the cost of paying back the loan. Your money earns interest in the bank and you pay off your interest free loan over time. With inflation your payment is worth less in real money in the future so it actually allows you to buy the car with less money (in inflation adjusted figures) than if you were to pay for the entire thing up front. Plus you have the interest your money makes sitting in the bank.

You shouldn't use this reasoning to buy a vehicle you don't need, but it is something you should consider when you need to get a new vehicle.

Buying a Used Car[edit]

Usually the best deals in vehicles are in the used market. Ideally buying a car with 10,000 to 40,000 miles on it gives you the best discount off the new price while still giving you a warrantee. You want to have enough of a warranty to that if anything is likely to go wrong it will happen before you are out of coverage. Be sure to read the fine print and make sure you look at what is actually covered. There are warranties that go to 100,000 miles but only cover components that are very unlikely to go bad.

The service history of a used vehicle is very important. If a car has had all of the scheduled oil changes and service, it is likely that it was taken good care of. If you see a used vehicle that has never had an oil change, there may be many other issues that you don't see in the way it was cared for and driven.

Another good thing to be aware of is what type of miles have been put on the car. A car that is used mainly for long trips is going to be in better shape than one with the same mileage that has been primarily driven off road.