Should you buy the $25K or $60K car? Well, it depends.

Not too long into my career and shortly after Leah and I got married, we realized we really needed to consider buying a car that was a bit more trustworthy than our existing situation. Mine had a pretty large dent from a deer that had ran into our car a few years back and some of the mechanical necessities seemed to be close to the end. Leah’s air conditioning and power steering kept giving out and we weren’t sure it made sense to put more money into that car. 

So, ultimately, we started thinking about what we valued and what we would need in a car - these were what we found important us. Before you read more, please know, that this is going to vary individual to individual, family to family. I’m wanting to share our process to hopefully help you through yours and think about what you personally value.

Reliability

We wanted a car that could get us from A to B without worrying if it would get us there. We had previously had cars that left us stranded once or twice and weren’t looking to buy something only to have this continue. We also didn’t want to spend time or money with our car regularly in the shop.

Good gas mileage

We have family all around the midwest that we visit often, I travel a decent amount to and from meetings, and we also visit family in Montana and at the time, drove that 17 hours each time we would visit. Having good gas mileage would help us keep gas cost in check.

Value

We wanted something relatively low cost but had low mileage and could last us a good amount of years as our family grew.

Ultimately, we found a car that met all of these needs and ended up spending around $24,000. 

What I wanted to do today is compare the long-term impact of purchasing a $25,000 car versus a $60,000. 

If someone were to purchase a $25,000 car at 3% for a 60-month auto loan, their monthly payment would be $449.

Now, let’s look at a purchase for a $60,000 car at 3% for a 60-month auto loan, that monthly payment would be $ 1078. A difference of $629 a month.

If you were to invest that $629 every month for the 5 year life of the loan, and earn 8%, you would have right around $44,497 in your account.

Now if you did this earlier in your career, similar to our example, and allow that $44,497 to grow another 25 years while it gains that 8% interest we mentioned earlier, without adding another penny, that $44,497 would grow to more than $300,000!

A huge addition to your families nest egg that came from a simple car buying decision. Now, this isn’t to tell you not to buy the $60,000 car. It is to encourage you to weigh your options and think of the expense not just in the “can I afford the monthly payment” but rather “what is the long term impact of having this higher payment”. If the extra monthly payment and forgoing the long-term compounded savings is worth it to you, then by all means, buy the $60,000 car. I’m not telling you which decisions to make, I’m telling you to think further down the road and make a fully informed decision!

What do you value when it comes to buying a car?

Shean