The easiest way to avoid these costs is not to buy a vehicle. As retirees, we did some soul searching recently about whether we should keep a second vehicle. We budget $800 a month for transportation. We could almost cut it in half if we got rid of one vehicle. We decided to keep both vehicles for the convenience.
Our second vehicle is a 2004 Chevy Venture van. It has about 170,000 miles on it. We currently have less than $2,000 saved to replace it. If the van does die, we would try to get by without a second vehicle, until we have enough money to replace it.
The way to avoid finance costs is the obviously to buy a car with cash. If you don’t have the cash to buy it, you need to do some soul searching about whether you can afford it. I can’t say that we bought all our cars in cash over the last twenty-five years. Of the seven vehicles we bought over the last twenty-five years, we financed two. We bought one new with an auto loan from the local credit union, and we bought one by using a home equity line of credit. I do regret buying the new car. The payments were difficult to make, and I encouraged my wife to switch from working half time to full time to help make the payments. I don’t regret using the home equity line of credit at about 4%, although buying in cash would have been better.
Obviously these costs are lower, if you buy a less expensive vehicle. Most of our vehicles were around $5,000. There are a number of internet sites that list good cars for under $5,000. I’ve never had huge ego involvement with what kind of car I drive. However, I was embarrassed by a vehicle we recently got rid of, because it had very bad visible rust damage. It had suspension problems and was unsafe to drive on the highway. The suspension problems couldn’t be repaired because of terrible corrosion. We made the mistake of buying this vehicle without having our own mechanic do an inspection.
If you aren’t willing to go under $5,000, at least buy used. According to Consumer Reports, vehicles depreciate heavily over their first two years. I discovered on Edmunds.com that the Honda we bought would have depreciated heavily over its first three years. We looked at kbb.com end Edmunds.com for prices when we bargained for a used car. When we bought a new car, we got information from our credit union on the dealer’s cost, which helped in bargaining.