I am writing this post to help me not to be tempted to buy a new car because it is, indeed, tempting. Our family is growing, and we are expecting a new baby girl within two months. With the new baby, we will have three kids and will need a bigger car. Currently, we own a 2007 Honda Civic and would like to buy a minivan to accommodate our growing family comfortably.
After researching, we like the Toyota Sienna because of its smooth ride, reliability, and cargo space. My sister has one, and even after ten years, it is a pleasure to drive, unlike the Dodge Caravan. The 2018 Toyota Sienna comes with new safety features, and the powertrain and engine have not changed since 2017. The 2017 model has an eight-speed transmission compared with the six-speed transmission of the 2016 model. This makes a ride even smoother and improves fuel economy.
Benefits of buying a new car
- The car is undamaged by a previous owner.
- The car has all new features.
- A full warranty comes with the car.
- There is a “new interior” smell.
- The color shines.
Drawbacks of buying a new car
- Initial high cost
- High cost of borrowing money to buy a car
- Leaving the dealership reduces the car price by a few grands
If you pay attention at all to drawbacks related to money, you will know you lose money when you buy a new car.
A new 2018 Toyota Sienna LE has a tag price of over $40,000, including taxes. This amount itself scares me. I have to work 5×9 more than a half of a year to earn $40,000. The same model from 2015 can be found at a price less than $30,000, thus saving more than $10,000. Invested, that $10,000 will pay at least $400 a year with a return on the investment of 4 percent. An investment of the same $10,000 in a car will disappear within three years. From a financial point of view, there is no advantage in buying a new car.
Toyota cars will last on the road for much more than ten years, so a three-year- old car bought today will still drive for ten years.
It is more important for me to invest in the following rather than in a new car that becomes a used car when you leave the dealership:
- My kids’ education
- Retirement savings
- Family vacation
- Owning a home (We have investment properties, but we do not live in our own home)
To be honest, if we had all four items above secured already for us, I would buy a new car. However, although we are still budgeting for all of them, I prefer to buy a used car and invest the saved money. It is still not an easy decision, considering the new safety features that the new Toyota Sienna has and the long period of time we aim to keep the new car. It is much easier for me to spend money on equities such as dividend-paying stocks, private mortgage and lending loop that may reward me more than throwing money away on a new car knowing that it will burn very quickly.
How do you resolve this puzzle of buying a new car?