Saturday, December 19, 2009

The True Cost of Car Debt!

In order to remove the splinter from another persons eye, you must first remove the beam from your own. This is a loose interpretation of Luke 6:42 and Matthew 7:3. In this spirit I'm going to give some hard-learned advice that I want to share. Debt is by many, including a mechanic I talked to, a necessary evil when it comes to having a decent car. In fact a lot of people I've talked to believe me to be crazy when it comes to paying cash for one, not to mention have it work right.

I'm not about to argue the advantages of a $2000 car over a $20000 car. This is a situational observation that will have to be determined by your own financial situation in which you yourself must honestly assess. I'm going to give you the facts, give my two cents and let you decide. However I will strongly suggest all through this writing that you are not what you drive.

Today, I received an email from Hyundai Motors with a link to the website. I clicked on it and in particular noticed the Sonata and Azera. The former starting at $18,000 and the latter at nearly $25,000.

I got on the automobile mag website with the Hyundai Azera because I know someone who just a 2009 one through the cash for clunkers program. This person probably earns $25,000 a year before taxes are taken out.

The first year she owns this car, she's going to pay $6,601 in depreciation, $1335 in financing (with tier one credit) $1342 in insurance (probably more because she's younger) probably about $100 in state fees (or more) $1928 in fuel (or more because she drives 40 miles a day to work alone) and another $55 in maintenance costs (this is probably more too). All told, she's paying at least $11358 in the first year for the privilege of owning the smell of a new car. This even though she's only feeling $4757 the first year, depreciation is the biggest expense of any new car and will be paid when she trades it in. By the time her car is five years old, she will have paid $17,640 in depreciation.

Compared to this "sneak thief" of auto ownership, the five year price of nearly $12,000 for fuel is a distant second. This car is going to cost her $42,869 over five years, and this is if she does the maintenance perfectly and doesn't crack it up. This doesn't take into account manufacturing defects with are a reality with any car. These are the pesky things that the manufacturer likes to blame on the customer. I have a laundry list on my own car, and it was two years old when I bought it nearly five years ago. Now I have a seven year old paperweight I can't drive and spent too much money on. I'm probably going to have to sell it for scrap because in good conscience, I cannot sell it to a party as a daily driver. I have a reputation to protect. Such is the school of hard knocks.

My parents get flak for driving "crappy" cars, but considering the alternatives I believe they're a lot better off paying cash for their rides. They avoid the expense of depreciation, increased insurance and financing, which on the Azera, would have them about $25,000 a five year period. Unless the repairs are costing a prohibitive amount, (more than half the value of said vehicle at a time) or the body is eaten with rust, it's a good idea to keep it. If you can't keep it, the solution is to find another ride you can comfortably pay cash for.

In my situation, it's going to cost me at least $3500 to make my ride roadworthy. The engine (another manufacturing defect) has a poor reputation for reliability to say the least. The car is worth nothing even if I fix it because of this reputation (and the fact it's a Chrysler, sorry) and I've have to sink another $6,000 into it when the engine does blow or lose my $3500 in hypothetical repairs. Dave Ramsey once said that you need to buy a car you can afford to push off a cliff (preferably without your family inside) without feeling financial pain. This is arguable because the authorities could fine you for littering, but hey, I get the gist. The other adage he provides is "forget the cheese, I just want out of the trap." In a few weeks, I'm getting rid of the Dodge and buying a garage sale car.

Dave Ramsey is one of those people who is a gift from God as far as I'm concerned. He's someone who's convicted me and I have nothing but praise for it. Thank you Dave and more importantly, thank you Jesus for making sure we all have a means to get where we need to go. Maranatha!


Dave Ramsey radio program.

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