I really don’t like spending my hard-earned money on buying a car so it is always a challenge to me. I have a simple principle that car’s price shouldn’t exceed the amount of two-month wage. It means that I don’t think it’s a good idea to take a loan for a car or buy it with leasing. I think you just cannot afford a car if you need to take a loan for it – simple as that.
Usually, I hear about these arguments when people decide to buy a brand new (a.k.a. expensive) car:
- It will not require frequently visiting service so the price is actually similar;
- It will be economical (will not use a lot of fuel);
- It will be safer;
While I agree that new cars are safer then old ones, the other two arguments are just an excuse to spend a lot of money on something you cannot afford.
I am living in Lithuania so it may not apply to other countries but it is really more expensive to maintain a new car vs. old car. For example, changing oils and filters (which is required for both new and old cars) will cost ~150EUR for a new car vs. ~50EUR for older car. I also hear complaints how expensive the repairs are from my friends who purchased new cars.
I only bought my first car back in 2014 – it was this beautiful VW Polo Boulevard which I bought from a friend for 260EUR.
It had some corrosion and I agree that it actually looks ugly but I just wanted something to go to a swimming pool and to workplace comfortably when the weather got too cold for riding my road bike to work.
Anyway, I think that the purchase of VW Polo was really a successful one. Its engine was very small (1,0l) which meant that it is very economical and the insurance was as cheap as it could be. I didn’t need to go to a service at all and it delivered what I needed – going to work and to swimming pool during the cold winter months. Maybe it was a little bit strange to see a man in a suit coming out of such a nasty car but somehow it didn’t bother me. I also used this car to pick up my then-future-wife to our dancing lessons. I guess the fact that she didn’t care what car I am driving shows that she was seeing more in me than just the visible things 😀
After driving it for ~10 months, I got a bump to the back of the car and received a paycheck of 380EUR from insurance and then sold the car for 45EUR. So, I actually earned 165EUR profit from this car and was driving it for 10 months without any problems.
After I got rid of VW Polo, I was driving my girlfriend’s (currently wife’s) Peugeot 206 for a couple of years. Unfortunately, in March 2017 I crashed it really badly and it was not worth repairing it. So we lived without a car for half a year and we managed it pretty well but we decided that we still need one. Our parents live in different cities, so it is not comfortable to plan trips to visit them without a car. We also need a car to visit friends that live in different cities, go to some hikes or other towns in Lithuania, go to triathlon races with my bike etc. It’s really inconvenient to always stick to train schedules, ask for friends’ help and maybe not having a car was one of the reasons why I skipped all triathlon races this year.
So I was constantly monitoring the market and tried to find a car which would be nice, economical, practical and also fit my main rule – would not exceed two monthly salaries.
Fortunately, I came up with a really nice opportunity. My good friend was planning to change his car and I thought it would be great if I could buy his current car. After speaking to him, we agreed that the selling price would be 3000EUR for his 2009 Skoda Fabia*. After consideration and speaking about it with my wife we decided to take the deal and I am presenting our newly purchased car:
I think it suits my needs very well:
- This one is actually nice and both me and my wife like it;
- It is economical (1,4l diesel);
- It has 4 doors (we used to have a 2-door car and it was not that comfortable);
- It’s a small car and it’s a great thing when you live in a city. Since we have no children yet and don’t take many long trips, I prefer having a small car vs. a big car;
- It adheres to my rule of two-month-wage;
- It has valid technical check-up until 2019-05 and separate winter tires so it will not require any additional immediate expenses;
- I bought it from a reliable friend so I am sure that there are no hidden defects.
The bad part is that saving for the car put me on back foot in the investments field for the last few months. However, this was long time coming so I am happy to put this matter behind me and focus on saving more for investing each month.
So this is what I think about buying a car. Of course, this is my personal opinion and I am not trying to persuade that it’s the right thing to do for everybody. Everybody has different needs and desires, other countries have different rules, laws, servicing fees etc so maybe this only applies to Lithuania and my personal experience.
Please let me know what you think. Are you taking a loan to buy a car? Are there any additional taxes in your country if you drive an older car? Perhaps you manage to live without a car altogether?
*(I think Skoda is not available in U.S.A so readers from U.S. will not be familiar with this brand)
Thank you for sharing your experience! I am trying to follow The same ‘2 wage’ rule when it comes to buying a car, however sometimes it is hard to whistand presure from society (especially from poeple you care :D)
Trust me, I know what it means exactly 🙂
BI, I think that’s a good rule of thumb to have when buying a car. I’ve had horrible experiences with cars. There was a period of time when all I drove was used cars. Then, my car broke down, so I do what I normally do and bought a used car (off Craigslist). Well, that broke down. It’s been a while now, and I think I bought another used car after that, that also broke down. So, I was at the point where I really needed a reliable vehicle for work and didn’t want to risk getting another used car. So, I decided to lease a vehicle.
Leasing a vehicle seemed great at the time. And, the best part was that I didn’t have to worry about maintenance because all I had to do was bring the car in for routinely maintenance and the leasing company would cover it. It solved a need that I had. After that lease, and because of life’s circumstances, I had to get another lease. I ended up going from loving leases to realizing how much of a waste of money they truly are. That being said, I do think that they have their place and that they can be quite useful depending on the situation.
Now, because of work, I’ve been without a car for the past year. And, I fully expect to be without a car until no earlier than Fall of next year, which, at that point, I will have to decide if I want to purchase a used or new car (no more leases for me). Although I’m focused on investing, I don’t want to go in debt to owning another vehicle. I have saved 10k already, which I am hoping is enough to buy me a decent used car. I may even try to save the full amount to purchase new. But, luckily for me, I won’t have to face that decision for another year.
Just felt the need to share my car story. I guess I was inspired to do so by the post.
Wow, thanks for the detailed comment about your experience! I agree with you that it all depends on situation. Perhaps I was just lucky with used cars as I didn’t need any major repairs.
And it’s great that you manage to live without a car at the moment! I think your savings will definitely be enough to buy a decent car when you decide to do so.
This is a smart way to buy a car and how it should be. In the U.S. majority of people buy cars using loans which then puts them in a situation where they end up with a more expensive and luxurious car which they can’t really afford and down the road they run into financial difficulties.
I’ve always bought a car with cash. I also don’t like car shopping, so I like to keep my cars for a very long time. I’m still driving my nearly 17 year old Toyota and it still runs well.
Mr. ATM
Hi Mr. ATM,
Thanks for the comment! Trust me, it’s not only U.S. where majority of people buy cars using loans. I see a lot of luxurious/new cars in Lithuania. I was surprised how people can manage to buy such pricey cars in such a relatively poor country. I then came to a realization that most of those cars are bought by using loans or they belong to companies etc.
Congrats on realizing that it’s not smart to borrow money for buying a car and it’s not necessary to change it if the old one still works! 🙂