How would you like to purchase a new vehicle with cash and never have a car loan again?
How would you like to save thousands of dollars? Listed below is my approach to car savings.
My car purchase plan is simple, I prepay my payments. I set up a separate saving account (trust me this is the best way to go). If you don’t, this money will get spent on other things. When it is time to pay my monthly bills, I put $400 into that account.
- The average price of a new vehicle is $33,000
- My savings account $400 x 12month = $4800 a year x 5 years = $24000
- The average depreciation of a new vehicle after 5 years is 60% (By checking depreciation websites to find a vehicle that retains its value, you can increase your 5-year depreciation to 60% to 45% and save even more money).
- $33,000 – 60% = $13,200 (this will be your trade-in value after driving your vehicle for 5 years)
- With a trade-in value of $13,200 + savings account value of $24,000 = $37,200
- You would have $37,200 to purchase your new vehicle.
How much money will this save you? To understand this you need to know how your local dealerships make money off of you. Your dealer makes money:
- Marking up your loan interest rate (a dealer will try to mark your bank interest rate up 2 to 2 ½% over the bank’s rate)
- Selling products like a warranty, gap insurance, credit life-disability insurance, rustproof, etc.
- Servicing your vehicle
Be purchasing a new vehicle with cash I save money:
- Paying 0 interest over the life of a loan saves me $3700 over 5 years. The average price of a new car is $33,000. The average interest rate for a new car for 72 months is 4.21%.
- By purchasing a new vehicle, I don’t need any of the dealer’s products. My new vehicle comes with a 5-year bumper to bumper warranty and maintenance package and there is no need to protect a loan with insurance. The average price of a warranty is $1800. The average price of a gap insurance is $500
- Low maintenance. I spend very little money on servicing my vehicles, oil changes, tire rotation only.
Additional saving comes by contacting the internet manager with your purchase. You will get the lowest price off of a new car invoice. The dealership knows that internet shoppers also do their research on prices.
Let the next customer pay for that shiny new car dealership. You can take your saving to the bank.
$3700 interest + $1800 warranty + $500 Gap insurance + $500 vehicle servicing = $6500
That is $6500 in savings every 5 years. If you have 2 vehicles like me that will be $13,000 in savings every 5 years or $65,000 over 25 year time period. Sound pretty good? Drive new vehicles and save $65,000 over 25 years. It works for me and it could work for you. Your first vehicle will be the hardest. When I was in my twenties I drove the modest used vehicle until a build up my savings. After that is was smooth sailing to debt free for life
Click Here to value you current car with Kelley Blue Book