A few years ago, my extended household saw the purchase of two new cars. That’s right: two new cars. Shocking to those who read financial blogs!
The two purchases were very different in many ways, and I thought it might be worthwhile reviewing the experiences, with the hopes the comparison might be entertaining, and maybe educational.
The Young Adult Buys His First Car, NEW
After college, my stepson started a business for which he drove all over the region. He had access to two elderly family cars, one after the other, both of which succumbed (fatally, for the cars; thankfully, not for my stepson) to his–shall we say, laissez-faire–attitude towards car maintenance.
Based on our estimates at the time, he was probably putting about 200 miles on his car each week, usually at rush hour. Public transportation couldn’t take him to his appointments.
His dad and I thought he needed a reliable car, fuel-efficient given his mileage. Given his prior history with the old cars, we thought something with a warranty would be wise.
He actually came to us for advice and asked about leasing, which we discouraged for several reasons:
- Like renting an apartment, leasing a car doesn’t support a mindset that you are responsible for your property. We thought he needed to be nudged more in the responsibility direction. We also might have had a vision of what his car might look like after several months: definitely not pristine, and likely to incur a fine when he turned his car in at the end of the lease.
- We were pretty worried he would exceed his allowed mileage, given his higher mileage use for his work and his penchant for road trips. If he did exceed the allowed mileage, he would be on the hook for a hefty sum at the end of the lease.
- We didn’t even trot out the usual arguments against leasing: that you pay for years but don’t end up owning your car; and that it encourages people to drive a car that they can’t really afford.
The upshot was, he needed to buy a new or lightly used car quickly, in order to maintain and grow his business. But from a financial standpoint, he wasn’t in the best place:
- He had some money saved, but not enough to buy a car outright. His parents, for various reasons, were not going to be providing that money to him.
- He was self-employed, and didn’t have a tax return (yet) showing enough income to support getting a loan.
- He didn’t have a good credit score –not because he had defaulted on payments, but because he hadn’t had a credit card. He had been using cash, or Paypal if he needed to make purchases remotely. He had really no credit history at all.
When he tried to get an auto loan on his own, he couldn’t get one. I don’t mean he couldn’t get a loan with a good rate, I mean he couldn’t get one at all!
In the end, he had to rely on family connections. He worked with a dealership his mom had recently bought a car from. He was able to get an inexpensive, fuel-efficient, new car (lightly used cars were almost the same price) with a loan with a decent, if not amazingly low, interest rate.
Since he purchased the car, he had a few dings from parking on the street, but no major break downs. Unfortunately, a deer ran into his car on a highway trip about 1 year after his purchase, and he had to get a new car. By this point, he was able to get a new car on his own, without any assistance at all.
I haven’t asked him what lessons, if any, he drew from this experience. Here are a few I might draw from the affair:
- Proper maintenance will keep your cars running longer. However, if you have a very old car, it may no longer be up to the driving you have to do.
- It is useful to have a credit history. While it’s true that people can get into a lot of trouble with credit cards, it may be worthwhile to have one, even with a low limit, that you use sparingly and pay off monthly.
- Giving a helping hand to your kids doesn’t have to mean giving money. Making an introduction to someone who was willing to offer a decent car loan was instrumental; once my step-son had a history of on-time payments, he had no trouble getting financing for another car when it was needed.
Next week In 2 weeks: I buy my very first brand-new car.