Is it wise to buy a brand new car?

October 14, 2014

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The 2nd largest expense by most families is on automobiles on their auto loan. I have encountered many people who needed to return their car because they defaulted on their loan.

All things considered, is it wise to buy a brand new car? 

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If you buy a brand new car, the moment it leaves the car outlet, it will automatically depreciate around 15-25%. Considering this alone, it is not advisable to buy brand new.

Now if you still want to buy brand new and you will use a loan, spend only 15% of your monthly net spendable income on automobile. It includes insurance, maintenance, etc. It means your down payment should be high. Save enough for equity so you would only pay a minimal interest. Paying for a car in 3 years or less is advisable.

Oh, and insurance is a MUST!

Proverbs 22:3 A prudent man sees danger and takes refuge, but the simple keep going and suffer for it.

You can Sell your car when it had run for 200k miles. If you will buy 2nd hand, a good buy would be one that ran 10-12k miles for a one-year used car or 8-12k miles for a two-year used car. Buying second hand means you are letting the original owner pay for the depreciation.

Remember, cars are not assets. They are liabilities. You need to pay for gas, maintenance, insurance, etc. Just the other day, I paid P200 for parking in a mall. Having a car is like having another child in the family. The difference with this child is that it never grows up to be independent. As long as this child is with you, it will draw money from your pocket forever.

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3 responses to “Is it wise to buy a brand new car?”

  1. Chris says:

    I appreciate what you wrote. We have similar beliefs. It makes perfect sense.

  2. Ma Louise says:

    Thanks, really helped.
    Were now on debt because we had loaned a car last four years ago, business went down, now we cant afford to pay our monthly due

  3. Melvin says:

    Loved reading your article. But I believe that cars can also be an asset. That is, if you need it in your daily life and use it to earn money. If someone bought a car for leisure purposes, I agree that it’s a liability. Just my two cents.

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