I Bought My 1st Cash Car
How I went from car lease to buying my first car in cash
After 3 years of driving a newly leased vehicle, it was time to make a decision: continue making monthly car payments, or return the 2015 Ford Focus to the dealer. I shared many great moments with my car, but could not justify investing nearly $15,000 into a leased car while also aggressively repaying student loans over the next two years.
“The estimated average transaction price of a new car or truck sold in the U.S. in April 2017 was $33,560.” — USA Today
We’ve often heard that cars depreciate as soon as they’re driven off the lot. This is a sad truth and made me carefully weigh my options. The sticker price on new, and even many used, cars at the dealership is often due to intangible characteristics that don’t necessarily make cars more safe or efficient (e.g. fresh paint job, dealership customer service, or status). It’s important to carefully evaluate what is a want versus a need when researching options based on important factors such as your average daily commute, family size, terrain and weather conditions, or local transit options.
Why was it important to buy a “cash car”?
By definition, a cash car is one that is purchased in full, without financing. This means a buyer purchases a car for the sticker price (or less if negotiated) and avoids interest paid in fees to the bank or dealership. Buying a car without a monthly payment is important because cars quickly depreciate in value. According to a 2017 AAA survey, the average cost to own a car is $8,469 per year, based on 15,000 miles of driving. The survey further details “Depreciation — the declining value of a vehicle over time — is the biggest, and most often overlooked, expense associated with purchasing a new car. New vehicles lose an average of $15,000 in value during the first five years of ownership.” This can be a major setback in achieving long term financial goals. Create a new normal by doing the math before you make your next car purchase!
“New vehicles lose an average of $15,000 in value during the first five years of ownership.” — AAA
Because I’m still in Baby Step 2 of debt repayment, I set an initial budget of $3,000 for a new car. After a few days of research, I knew I wouldn’t be able to find what I was looking for at that price point. I adjusted my budget to $5,000. The key was, I didn’t see this as a “forever car”, but something safe enough to get to and from work and ride in the city, at least until I’m debt free.
Sounds great, can you breakdown the math?
Six months before the end of the lease agreement (Oct. 2017), I decided I would turn in my car at the end of the term instead of purchasing it. I saved approximately $200 each pay period, contributing towards my “New Car Sinking Fund”. My sinking fund contributions accelerated when I turned in the car, allowing me to eliminate $560 (average) in monthly costs associated with ownership. Saving money incrementally over the span of several months made the process of buying a car less stressful.
How did you find your new vehicle?
When I decided to turn in my vehicle, I knew I would be purchasing a used car. I told my parents and a few friends about my decision. Initially, I searched on Kelley Blue Book, but quickly gave up. A few months later, my Mom called to let me know a family friend was selling a car that met my budget. It was reliable, had only one previous owner and was in great condition with less than 90,000 miles. The minor trade-offs were traveling home to retrieve it and light body work to remove blemishes from the paint. Buying a car from a known source and having a chance to inspect it in person was comforting in what can be a chaotic process.
What advice would you offer someone buying a cash car?
1. Set your budget before searching for a car. Create a savings plan or “sinking fund” and set a realistic goal for buying a vehicle that meets your needs within your budget.
2. Use your network to help identify potential sellers; it’s more comforting to purchase from a known contact than from online or even a dealership (when possible)
3. Be adaptable, don’t limit yourself to a vehicle by make and model alone or the color of the car, especially if the car is a transitional vehicle while paying off debt
Answers to other common questions about buying a cash car
- What about safety — Review the annual Consumer Reports auto reliability survey & CarFax.com
- Credible sites to search for used cars? Kelley Blue Book, AutoTrader, iSeeCars, the Klipnik message boards and CarGurus.
I’ll be sharing more about what I did to save money and get around town during these past three months without a car in a future post! As always, feel free to reach out with questions and comment below with your experiences buying a new or used vehicle. What would you do again or change?
If you liked this article, click the 💚 below so other people will see it here on Medium.
