Why I Don’t Buy New Cars

Photo (cc) by fazen

I’m 54 years old and have yet to own my first new car. In this article and the next, I’m going to explain why I never buy new and show you exactly how to find a $5,000 car.

When I graduated from the University of Arizona in 1977, my parents gave me a 1975 Toyota as a graduation present. Much to my parent’s dismay, however, within a few weeks I’d sold that car and used the proceeds for the down payment on my first house: a 900 square foot concrete box in a dicey section of Tucson that I bought for less than $20,000. For wheels, I borrowed a couple of thousand dollars from a credit union and bought a 1958 Triumph TR3; a car I drove every day for more than a year.

While I did ultimately sell both house and car for a profit, the point of this little story is that the way you approach cars, houses, saving and investing is really limited only by your imagination. And most people don’t seem to have much.

When it comes to buying cars, the vast majority of people I’ve known over the years approach the subject with no imagination at all. They simply do what the commercials tell them to and what their friends do: trudge down to the nearest dealer and buy a new car. If they want to feel like informed consumers, they comparison shop, kick a few tires and talk to a few salespeople in an attempt to get a decent deal. But even if they drive the hardest possible bargain, that new car is still guaranteed to lose thousands of dollars in value before they can get it home.

And that’s especially true if they pay interest by either financing that car or leasing it. Paying interest to finance a depreciating asset is not how you get rich. In fact, with the possible exception of gambling, it’s one of the fastest ways to get poor.

I’ve explained this concept several times during my TV news career and written about it in books.

Check out the following news story I did about opportunity cost and new cars, then meet me on the other side for more.

So the point of this story is that when you buy a new car with $5,000 down and make $400 monthly payments for five years, your opportunity cost is about 30 grand: money you could have had if you’d earned 9% rather than paying it.

Whenever I run an example like this, I invariably and understandably get responses like this: “I can get a car loan for less than 9%.” And “Please tell me where I can earn 9% on my savings!” Both statements are valid. I used 9% in my story because it better serves to illustrate the point: paying less, or earning less interest, would indeed lower the $30,000 opportunity cost of owning a new car.

That being said, however, there certainly are people who pay more than 9% on a car loan: plenty of them. There are also plenty of people who can and do earn more than 9% on their savings: the stock market has averaged about that much over the last hundred years or so. Although, it didn’t do that for the first 10 years of this century and has never done it without risk.

Bottom line? The next time you’re thinking about shelling out for something really expensive… especially if payments are involved, don’t just consider the cost. Consider the opportunity cost: the money you could have made by putting those payments somewhere else. Then think about ways to make more on your savings and to spend less on life’s major expenses, like cars.

Speaking of which, understanding opportunity cost is only half this story. Tomorrow, I’ll post the next part where I go over the details of finding and buying a $5,000 car.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

5 Ways to Avoid Taxes on Social Security Income
5 Ways to Avoid Taxes on Social Security Income

Here’s how to minimize and delay the chunk that Uncle Sam claims.

7 Hobbies That Help You Live Longer
7 Hobbies That Help You Live Longer

Research shows some hobbies can add years — or even decades — to your life.

My Favorite Amazon Purchases From 22 Years of Shopping There
My Favorite Amazon Purchases From 22 Years of Shopping There

Yes, I’ve been shopping on Amazon since the 1990s. These are among my most beloved buys.

What Brand Makes the Best Rechargeable AA Batteries?
What Brand Makes the Best Rechargeable AA Batteries?

The best battery depends on what you need it for and how big your budget is. Here’s how to find the cheapest brand that will do the job you need.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

This Simple Mistake Might Weaken Your COVID-19 Vaccination
This Simple Mistake Might Weaken Your COVID-19 Vaccination

Avoid doing this before you get vaccinated.

10 Cars You Are Most Likely to Keep for 15 Years
10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

9 Things You Should Never Leave in a Car
9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

9 Mistakes People Make When Cleaning With Vinegar
9 Mistakes People Make When Cleaning With Vinegar

Cleaning with vinegar can save you a lot of money, but using it like this can cost you.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

10 Things Successful Retirees Do Differently
10 Things Successful Retirees Do Differently

These habits and characteristics can help put you on the track to success.

7 Costly Health Problems That Strike After Age 50
7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

29 Purchases That Can Save You Money Every Day
29 Purchases That Can Save You Money Every Day

Sometimes, you’ve got to spend to save.

7 Things I Never Buy at Costco
7 Things I Never Buy at Costco

A bulk buy isn’t always the best buy.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.