Did I Pay Too Much For My Car?
When I left the dealership, I couldn’t help but ask myself: Did I pay too much for my car? I didn’t want to admit it, but upon further review, there was an obvious answer to that nagging question. I paid too much for my car. And here’s another thing: you probably did, too.
And you know what? It’s OK.
Why am I OK with this? Because buying a car is hard! It is a needlessly stressful experience, or at least it was for me. And I learned that there is no right answer or perfect car. There are only incrementally more expensive wrong answers.
My Foray Into The Car-Buying World
Let’s rewind about a year ago, to what was my first experience on the market for a new vehicle. For the entirety of my adult life, I had a lovable beater, may it rest in peace. I had purchased the car at a slight discount from my parents while I was in college. No worrying about a car payment, no worrying about incurring minor dents, no worry about break-ins. Only an occasional worry about whether or not it would start.
After a relatively hiccup-free decade, this old beater of mine went off to car heaven after a sudden but not entirely unexpected engine failure, placing me in unfamiliar territory.
Not only did I need a new vehicle, but I needed one immediately.
Public transit in my neck of the woods is a good option, depending on where you’re trying to go. Which is to say, for me, public transit was not a very good option. Without my familiar set of wheels, I hitched rides with coworkers, tried my luck at a few of those available public transit options, and biked, bussed and borrowed my way to work. None of these were viable long-term solutions.
Doing My Homework
So I began to research the dreaded topic I had never much considered before: buying a car.
I read a few helpful Consumer Reports articles. Consulted with my practical old pal Clark Howard. Let Mr. Money Mustache berate me on the foolishness of spending too much on a vehicle. Read up on Financial Samurai’s 1/10th rule for buying a car (spending no more than 1/10th of your income). Consumed whatever advice I could find.
And then I ignored most of it.
In the end, I bought a slightly used Honda from a car dealership, and I plunked down 20 grand for what I know to be a depreciating asset. It wasn’t the most practical purchase from a personal finance standpoint, but it wasn’t a completely absentminded one either.
Making The Decision
Let me explain.
I wanted something practical, yes, and a Honda certainly qualifies as that. But I also wanted something a little nicer, knowing I planned on owning the car for the next 15 years. That timeline puts me into my late 40s! So I sprung for a nicer (aka more expensive) model.
I wanted something reliable, and a Honda certainly qualifies as that. Aside from being generally reliable cars, the maintenance costs on your standard Hondas and Toyotas—when they inevitably do need to be maintenance—are very manageable in comparison to your BMWs or a Mercedes. Luxury vehicles aren’t just more expensive at their purchase price, but they’re more expensive with every trip to the garage as well.
Lastly, I wanted something slightly used, because I just can’t stomach paying for that “off the lot” depreciation. Buying a vehicle that’s been leased for three years is a good way to get a nice car in near mint condition at 2/3 of the original price, which was the case with my vehicle.
Buying a Car
So I called ahead to a local dealership that carried a Honda within the three-year period of the particular model I had decided on. And I prepared myself to purchase my first car from a non-blood relative.
In my extensive car-buying research, I had read that I should email dealers requesting a firm price commitment before I arrived to make my purchase. Turns out, they don’t love giving out concrete numbers. It may be that they simply don’t know the exact figures (factoring in tax & license), but more likely they just know that they’ll be able to pull the wool over your eyes when you’re on their turf.
I had a soft commit with a salesperson on my plan to pay $20k out the door for this particular Honda, but she conveniently was gone for the day when I arrived at the dealership (via a $50 Uber that I preferred not to have to call for a ride home).
Still, I was determined to pay no more than $20,000 out the door. The listed price online was just under $19,000, with tax and license bumping the “out the door price” to about $21,500.
The Stress of Haggling
In no other American industry is there such wiggle room on the sticker price than in the car-buying world. But knowing that such wiggle room exists, I was dead set on taking advantage of it. But make no mistake, this was a miserable experience.
Car dealerships are a nightmare for the average rube like me. The salespeople “negotiate” with customers all day and are experts at upselling bogus extended warranties and locking buyers into unfavorable loans. Ultimately, I just had to wait them out.
Finally, after about an hour and a half of awkwardness and repetitive banter, the dealer relented to my asking price, and I was on my way, still having paid way too much for a vehicle. Jokes on me.
Did I Pay Too Much For My Car?
Could I have purchased a brand new car with less frills for that same price? I could have. But I didn’t. Could I have purchased a used car at a much lesser price? Yep, could have done that too. But I didn’t do that either. Instead, I broke the 1/10th rule and failed to heed Mr. Money Mustache’s cautions.
But again, I’m at peace with it.
Had I purchased a new vehicle, for the record, it’d be hard to pass on Toyota’s 0% APR for 60 months. It’s a car loan without the car loan. But the biggest detriment to loans isn’t actually in the interest rate. It’s in the ability to get you to spend more than you can afford. Would I pay $30,000 for a new car? No, I wouldn’t. Would I pay $500/month for a new car? Now that sounds a little more palatable.
I simply didn’t want to make monthly payments on a piece of property with a declining value. By going in with a plan on paying in cash, I forced myself into an absolute spending limit.
Car Payment Avoidance
In the personal finance world, there’s not spend shame greater than a car buying spend shame. And quite frankly, the holier than thou act is justified, generally speaking. People spend way too much money on cars. That much is true. But hey, cars are freaking expensive! It’s hard not to spend too much. And it’s even harder when you take out a loan.
Did I spend too much on my car? Absolutely. But I had the luxury of paying for it in full. I put as much as was allowed on a credit card—$3,000—to collect some rewards points, and I wrote a check for the rest. It may have been the first time I had written a check in about five years. Point is, I didn’t borrow money to pay for the thing (paid of the credit card immediately).
By all of the personal finance blogger metrics, it’s true: I paid too much for my car. What’s important in all of this is that I know I paid too much for my car. You have to know the rules before you can break them. It’s all about intentionality. I had my reasons, arbitrary or not, for paying a little more for this feature or a little less for that one. Know what you want and why you want it, provided you can afford to do so without taking out a loan, and that’s as close as you’re going to come to making the right car-buying decision.
And chances are, you’re still going to pay too much for your car. Join the club!
Love this post. As someone who likes newer cars (never brand new, always gently used), I hate being shamed for not purchasing something 10+ years old.
I’m a big fan of Carvana to avoid the dealership hassle. The buying experience is about as painless as it can be, and no negotiating or being hassled by salesmen.
The advice comes from a good place, as cars are one of the bigger purchases people make–and a lot of people buy waaaay more car than they can afford. But if you can swing it, it’s OK to splurge a little even if that money would be worth X amount of dollars 30 years from now if invested in a simple index fund.
Agreed, 100%.