“Hey Dad, should I buy my dream car now?”
Can you pay cash for it, kids?:
You’ve been dreaming about this car for months, huh? You’ve done your research. You know the exact make and model of the car you want to buy. You’ve identified the equipment, wheel size, color combination; everything that you want on this car. You’ve even got a picture of the car on your new iPhone 15 Pro Max home screen. You scan the internet daily for this car. Then one day the “perfect match” hits your inbox. It’s the moment you’ve been waiting for.
You go to the dealership to buy the car. The dealer quotes you a monthly payment that absolutely stuns you. You say, “that’s too much, I can’t afford that”. At that very moment, you don’t know it yet, but you just bought a car. The dealer now realizes that you are a “Payment Buyer”. What that means to them is all they have to do is get close enough to your desired payment and you’re going home with that car…“TODAY!” How, you ask? :
They will reinforce your emotional attachment to the vehicle - You really love this car right? Time for a test drive
They will reduce the price of the vehicle - instead of paying 150% of MSRP you’re paying 125% , and you think you got a deal
They will tell you that your credit report has insufficient history - the bank is requiring more money down to finance the deal
They will tell you that your credit is marginal - your interest rate gets bumped up another percentage or two
They stretch out the length of the loan term lowering the payment - instead of 36 months, you’re now at 84 months (7 years)
They keep you in the dealership for hours to wear you down - back and forth reviewing the deal with a manager, “we’re close”
They come within $50 of your desired payment - You’re tired but you really want this car. “Sign here. Congratulations!”
This deal was a “homerun” for the dealership. What you don’t know is that most of the extra money you put down didn’t impact your payment at all. It just added to the profit of the deal and bought you a bunch of unwanted, overpriced dealership installed options that the dealership earns commission on from its vendors:
Paint Sealant
Rust Protection
Interior Fabric Guard
Window Tint
Wheel Protection Coverage
Extended Service Plan
Lifetime Oil Change Program
…just to name a few.
You’re behind the wheel of your dream car now. You’re not thinking about your monthly payment at this point, or the cost of insurance, or the cost of maintenance, or the cost of personal upgrades, or the cost of fuel. You’re caught up in the euphoria, smiling from ear to ear, as you pull up to the “spot”. All eyes are on your new ride.
Due to a manufacturers’ special incentive, your 1st payment isn’t due for another 60 days. And for a short period of time, you forget that you even have a car payment. Soon reality sinks in. Your rent in that gated apartment complex is 40% of your take home pay. Your monthly vehicle expense eclipses 40% of your take home pay. With 20% of your take home pay left, you have to pay for your high-speed internet, cell phone, utilities, food, clothes, and other personal expenses. And you have a dog too? Then you need to add pet food, grooming, shots, toys, boarding, dog walking, poop pick-up and hope like heck that your dog doesn’t ever need emergency medical attention. “Yikes, you’re broke and don’t even know it!” Maybe now isn’t the best time to buy that car.
For those who follow Dave Ramsey, he says that the best car for you is the car you can afford to pay cash for.
If your emergency account of 6-12 months of living expenses is already fully funded, put some money away, monthly, in a High Yield Savings Account for that Dream Car and let compounding work for you. “Be patient”.