Updated: 9/16/2010 9:00 AM ET|
The joys of a $5,000 used car
If you're not hung up on that new-car smell, you should be able to find a reasonably priced auto that, given proper maintenance, will be on the road for years to come.
It used to be that a car was toast at 100,000 miles. Worthless.
"Used up," agrees Phil Reed, a senior consumer-advice editor at Edmunds.com.
Today, that's a costly misperception. "For a lot of buyers, their frame of reference is out of date," Reed says. "Now you can easily go 200,000 miles with regular maintenance."
Heck, why not aim for 250,000? Or more? That dissonance between what many people believe and how well most late-model cars are built has produced a tantalizing buying opportunity: the $5,000 used car that you can drive virtually indefinitely.
It won't have that new-car smell, your retinas won't be scorched by its shine, and the neighbors won't be jealous. But the compensating virtues are overwhelming.
"A conservatively driven and well-maintained $5,000 car should last 10 years," says Steven Lang, who owns two used-car lots and half an auto auction, and writes frequently on used cars at The Truth About Cars. "Cars are engineered today so that you'll get tired of them long before they tire out on you."
You could save a bundle, learn a lot about cars and maybe even improve your social standing.
Do you want a new car -- or $239,505?
According to CNW Market Research, the average new car in the United States sells for $30,266 and is financed for 58 months with a monthly payment of $411. After a house, that's the largest purchase most people will ever make. In the new-car world, however, $5,000 isn't much more than a so-so down payment on a Honda Civic or even a Ford Focus.
Imagine, however, that you took the $411 average new-car payment and socked it away in a savings account paying a lousy 3% interest. Discounting taxes, you'd wind up with more than $26,570 in cash at the end of five years -- less than the term of many car loans. If you kept that up for 15 years, you'd have $93,286 in the bank, including earned interest of $19,306. After 30 years, you'd have $239,505, including $91,545 in interest -- and that'd be enough to buy a new Ferrari.
But you'd be better off buying another $5,000 car, because saving money on the purchase is just one of its joys:
- You'd save on sales tax. In most states, the department of motor vehicles collects sales tax on any vehicle purchase. In Washington state, the sales tax on a $30,000 car is more than $2,400. Sales tax on $5,000 is $400. "I don't recommend this," Reed says, "but people say they paid even less, and the DMV never checks." Let your conscience, clergy and criminal defense attorney be your guide.
- You'd save on registration. It's virtually always cheaper to register an older car than it is a new one, and often by hundreds of dollars.
- You'd save on insurance. Finance companies and banks require that you carry comprehensive insurance on any vehicle on which they hold a note. The cheapest 2010 car to insure, the Mazda Tribute, would cost a 40-year-old nearly $1,100 a year to insure, on average. All you must carry on a fully paid-for $5,000 car is the state-mandated minimum liability coverage. That could save you $500 a year or more, usually much more. MSN Money columnist Liz Pulliam Weston recommends dropping collision and comprehensive insurance when the premiums, plus your deductible, total more than 10% of the value of your car.
- You wouldn't sweat the scratches. Every $5,000 car comes with pre-installed wear and tear at no extra cost. If someone dings it, so what? It's just one more divot in the finish, adding character that reflects favorably on you (see the next point). Go ahead, park it outside . . . during a snowstorm.
- You'd bolster your self-image. Stop trying to impress people with sheet metal and adopt an image of easygoing self-assurance. The right $5,000 car doesn't tell the world you've arrived but that you've determined that what "the world" thinks doesn't matter.
Do you have the right stuff?
Of course, living the $5,000-car lifestyle isn't for everyone. If you're a mechanical wizard with a garage full of Snap-on tools, then $5,000 may be too much to spend. If you're uncomfortable speaking with a mechanic, then maybe something with a warranty is the peace of mind you need.
And $5,000 is still, well, $5,000.
Many banks won't finance a car that's not sold through a manufacturer-affiliated dealer or secure a loan with a used car that's past a certain age or mileage. If you can't save up the necessary cash, your alternative for purchasing a $5,000 car may be an unsecured personal loan, and the interest rate on those can be high.
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