The Expatriated Consumer

Imagining life without debt. Working to make it reality.

The housing slump on four wheels…

Posted by Max Finkle on May 28, 2008

Big news today, in the local paper, that the current housing slump is having an effect on new car purchases. Lenders have begun to clamp down on financing for vehicles, much the same way they had previously for homes. They’re taking a more strict approach in approving loans, and they are doing what they should have been doing all along and granting loans only to those who can truly afford it.

I’m wishing that was the case a year ago when I financed my minivan. The honest truth is that we can’t afford it now. We couldn’t afford it then. $400 a month in payments for transportation, not including insurance on a new vehicle. The reasoning behind the purchase seemed solid at the time, as we had a new baby, and we couldn’t fit the infant car seat in either of the cars we had at the time. The move was made simply for the safety of our family. Can’t count the dollars in that decision…

At any rate, we decided to upgrade. Presidents Day sales abounded, and there was incredible rebate offers, and price cuts. Our $30,000 van was purchased for $23,000 at 6.99% financing with no money down. The nice financing officer at the dealership crunched the numbers with me, and everything looked hunky-dory. Honestly, our budget still hasn’t recovered.

What the article really brought to mind was that I’ve always held to the idea that you drive your car into the ground. After pounding the daylights out of my first car, as a new 18 year old driver, I bought my first brand new car. I drove it for 12 years. When people asked me why I continued to drive it, I reasoned that it was cheaper to repair it than it was to have a monthly payment. There was a little inconvenience involved, but maybe three times a year I’d have to get something fixed, and since it was in the shop, I had regular maintenance done as well, such as oil changes and tire rotations, so it really wasn’t in the shop anymore than a new car would’ve been if it was being maintained properly. The bill was just a little bigger.

The time to trade a car in is when either your budget is healthy enough to absorb the additional cost, preferably as a cash transaction, or when the cost of maintaining the car exceeds the value of the car. The threshold I adhere to is if it costs me more than $100 a month to keep it on the road, it’s time to seek an alternative.

If you need to buy a car, consider a couple of things:

– Safety. Who cares what your driving if you’re taking your life in your hands when you get behind the wheel? What are the crash test ratings on the vehicle? Take a look at recall notices for the vehicle you’re considering at sites like http://www.servicebeacon.com/ . Read up on consumer ratings, and check out Kelly Blue Book to really get the low-down on any vehicle your considering.

– What are you using it for? If it’s going to be your family vehicle, and you’ve got 4 children, a Honda Civic hatchback isn’t going to cut the mustard. On the otherhand, if you’re simply using it to commute to work, there really isn’t much better out there in terms of value for the dollar, gas mileage and reliability. I don’t know anyone who REALLY needs a 4X4 SUV to commute back and forth to the office, except to make a statement to coworkers maybe.

– Consider buying used. Buying new is neat, but that’s all it is. It’s bragging rights. Search out alternatives in the used market. Late model used cars on the market can be had for a fraction of the cost of new, and while there are risks involved, such as poor maintenance history, or unreported accidents, new cars have their problems, too. When the time comes, I will be looking harder at the used car market.

– How much can you afford? Remember to calculate the cost of insurance payments in addition to the car payment if you must finance. Other costs that need to be considered are title and tax, inspection, & regular maintenance such as oil changes and tires. Tires are a biggee, because lots of cars have fancy rims and sporty (read: expensive!) tires. Can you reasonably afford to replace a flat in the event that something goes wrong? Some tires sell for upwards of $200+, and rims can sell for over $300 apiece. I know $500 just for parts, then the labor for mounting and balancing and alignment makes me take pause. God forbid, if that same pothole that tore a hole in your tire and damaged your rim, also ripped out your exhaust system, can you shell out the additional $700 for that repair? If you can’t afford to maintain it, you can’t afford the vehicle.

– Gas mileage. What’s the MPG in the type of driving you do most? Sure, the payments may be lower on one car, but if it gets 10 mpg less than a more expensive alternative, do the calculations to determine what’s best for your wallet. This alludes to another thing to consider:

– The potential resale value. In the current climate of higher gas prices, dealers are becoming more reluctant to take gas-guzzlers for trade-in because they’re expecting the market to take a dive and they don’t want to be stuck with them. Despite the fact that the plan is to drive your car into the ground, one man’s garbage is another man’s treasure, and you want to maximize the return on your investment. Take a gander at Kelly Blue Book for an idea of what vehicles are selling for. That can give you a realistic basis for the potential resale value in your vehicle.

– Save yourself the $20 bucks and skip the CarFax report. I know a couple of autobody repairmen and know that accident damage is often fixed without the insurance company’s knowledge, and there is no official record of the damage to the vehicle. CarFax merely datamines public access databases, and if the data ain’t in there, you don’t find out about it.

The bottom line is that you need to cover your bases when you buy a vehicle. Know your budget restrictions, consider your needs, and take the time to evaluate your situation to make the most of it. And avoid trying to keep up with the Joneses.

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One Response to “The housing slump on four wheels…”

  1. […] Original post by The Expatriated Consumer […]

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