Used Car Finance

The First Huge Expense

The first huge expense of buying a car is the cost of insurance.  Immediately after driving the vehicle off the lot, it’s time to make a call or visit an agent.  By law, if you want the privilege of driving, your car must be insured for at least liability.  If you have to take out a loan, your bank will demand proof of full coverage that will cover the lien, if the car is damaged in a collision.  There is no way to avoid the inevitable; there is no grace period; the need for insurance is now.

Naturally, the insurance for a new vehicle is substantially more than covering used transportation.  The cost depends on the value of the vehicle.  If the car is totaled in an accident, you will need the insurance company to pay the replacement value.  The loan will need to be satisfied, and you will need money for a down payment on different wheels.

So, insurance is one reason why to consider buying a used car. The insurance premiums will definitely be more affordable.

The Second Huge Expense

Although there is usually a grace period of several weeks, the second huge expense comes when it’s time to pay for the taxes and license on the vehicle.  If you live in a state with 8% taxes on all new purchases, and the price of plating your car depends on its current value, you could be looking at thousands of dollars. Even if you will only be driving your car close to home, it will still cost a bundle.  You won’t be able to save up for this expenditure, unless you want to park the car in your garage and simply admire it for awhile.

Conversely, a used car will save you a lot of money now and when it’s time to pay that second huge expense.  Because the car is a little older, and the biggest chunk of depreciation happens in the first year, the license fees will be significantly reduced.  Of course, even if you are purchasing a car that is only a year or two old, the taxes will not be as steep.

The Third Huge Expense

The third huge expense of owning a brand new car is the monthly payments.  Although buyers may have carefully saved for the down payment, calculated the cost of the tax and license fees, and contacted the insurance company for a quote, they are ill prepared for the increased financial pressure of monthly payments.

Today, it’s not uncommon for a buyer to sign a contract committing to six or seven years of car payments. A lot can happen to change the family budget in that amount of time. An unexpected illness, a new addition to the family, a change in jobs, and many other life events can drastically influence the ability to maintain those car payments.

For many new car owners, the car is less than a year old before they place a placard in the window that says, “For Sale by Owner”.  Hopefully, they will be able to sell the car and at least break even.  Sometimes, it’s possible to work out a deal for the new owner to simply take over the payments.

But, it would be a lot easier, if consumers truly counted the cost of buying a new car, before getting into financial trouble. More people would realize why it’s important to consider buying a used car first. The insurance premium will be a lot cheaper.  In fact, if no loan is required, the driver is only obligated to insured the car for liability to cover the expenses of the other driver, in the event of a collision.

Paying for the taxes and license is less likely to cost about as much as the initial down payment on the vehicle. Although it’s smart to take advantage of the grace period, in order to put off the recurring expense of license plates for another month, it won’t be because you are frantically working two jobs to save up the money.  

Finally, buying a used car makes sense simply because it doesn’t put as much of a long-term hardship on the family budget.  Six or seven years is a long time to be committed to a car payment.  Instead, consider buying a used car and saving on the first three big expenses of vehicle ownership.  Then, you will spend more time enjoying the ride and less time worrying about how you are going to continue paying for it.