I Purchased My First Car, 8 Things I Could’ve Done Differently
First and foremost, before I make any big financial decision, I always ask myself questions like, “Is this purchase within my means?”, “Do I really want this?” and “Will I enjoy this a year from now?”. These are the primary questions that factor into how I spend my money. If my initial gut feeling is telling me not to do it, I tend to back off from that purchase.
In 2013, I purchased a black Dodge Challenger SXT Rally Redline edition for my 24th birthday.
At the time, I was driving a silver 2007 Dodge Caliber my mother had bought for me as a graduation gift. It was paid for in cash so the only expenses I had to worry about were insurance and maintenance. But, there always is a but right lol. I really, really, reallyyyyy wanted a new car and I was kinda tired of being 6’6 squished in a Dodge Caliber. I was fortunate enough to graduate college without any student loans and I recently just paid off a $3000 debt I owed to my University. So here I am living debt free while settling into my new career as a software engineer just wanting to splurge on something new. Honestly, I don’t have any regrets, I just wish I did things a little bit more differently.
CAR PRICE
MSRP $31,190
Price Paid $28,690
GA State Taxes $1,435
GA State Fees $53
Dealer Customer Service Fee $489
New Max Care Coverage Plan $1,997
Optional Gap Insurance $800
Total Purchase Price $33,464
AUTO LOAN
Amount Financed $26,364
Length of Loan 75 months
Monthly Payment $435
Loan APR 7%
Finance Charge $6,261
Total Payments $32,625
DOWN PAYMENT
Trade In-Allowance $4,600
MFG Rebates $2,500
Total Down payment $7,100
TOTAL COST TO OWN
(Down Payment + Amount Financed) $39,725
I calculated how much gas it would cost me to commute from work every day via Fuel Economy and gas prices were estimated to be around $90 — $110 per month. Then I researched the average monthly insurance payment for Dodge Challengers within my area via Nerd Wallet and insurance costs were going to be around $70-$100 per month. Therefore, I was looking at a $435 car note, around $85 for car insurance and roughly $100 for gas. That’s $620 per month I would be spending on a car. One nice incentive the dealership added were for 4 free oil changes within the first two years, so that saved me some money on maintenance. Also, I got to keep my new ride clean so that’s an extra $30+ per month on car washes.
Furthermore, I’m looking at a total of just under $700 monthly to “maintain” this car.
This projected total was under 15% percent of my salary at the time, so I decided this purchase was within my means. I initially planned on refinancing my 75-month car loan after 18 months for a lower interest rate. However, little did I know the dealership was going to apply to 10 different banks that day. Each application puts a hard inquiry on my credit report and these take 24 months to be removed from your credit. On top of that, each inquiry drops your credit score by a couple points. After 18 months went by, when it was time to refinance my current loan I couldn’t even qualify for a rate lower than 6%. A one or two percent lower interest rate is not even worth the refinance in my opinion. In conclusion, I’m paying a larger monthly payment in order to reduce the amount of interest financed and to become debt free faster. I’m currently on pace to pay it off 28 months earlier than expected.
8 Things I Could’ve Done Differently
- I could’ve sold my car and used the money for a larger down payment. The dealership gave me $4600 for the trade-in and sold it on the lot for over $10,000.
- Built up my credit history to qualify for a 3% instead of a 7% interest rate and saved $3,680 over the life of the loan.
- Applied for a loan through a credit union or bank on my own instead of through a dealership. Then I could’ve just negotiated the sales price. Car salesmen get bonuses for selling you loans with higher APR rates. They literally would do anything to make you seem like you can afford a car. Anybody can “afford” anything if you stretch out the payments long enough.
- I could’ve purchased gap insurance from another source because more than often it’s always cheaper than from a dealership.
- I could’ve started up a ROTH IRA (Individual Retirement Account) and made those same payments of $435 monthly to fund it with diversified investments. Assuming these investments gained a 6% return annually, I could’ve possibly saved $37,775 within that 75-month time frame.
- I could’ve saved up $32,625 for a down payment on a home. ($435 x 75 months)
- I could’ve started up a new business or bought a franchise under 15k and built up a 15k emergency fund.
- I could’ve saved up enough to buy a new or used car in cash $$$ NO INTEREST OR MONTHLY PAYMENTS how about that!!!
Overall, I’m glad I made these decisions because I learn best from my experiences. I absolutely love my car and it’s a luxury I’m willing to pay for. At the end of the day, you have to live your life and be conscious of the decisions you make. If I had any student loan debt I definitely would not have bought a brand new car. I just want people to look at all the variables before you make such a huge financial decision. Ask yourself, “Is this purchase within my means?”, “Do I really want this?” and “Will I enjoy this a year from now?”. Don’t purchase a car or anything in life because someone else suggested it.
Try to focus more on the maintenance rather than the acquisition.
Will you still be able to make payments if you lost your job? Or if you came down with a medical emergency? Would a child coming into your life affect your monthly payments? Just prepare for every scenario. You are always in control of your life and the financial choices you make can have a huge impact on your future so choose wisely.
sources:
http://www.bankrate.com/
https://www.nerdwallet.com/
http://www.fueleconomy.gov/
