Although money is tight for many families, this may be a teachable moment for young people. Debt load today is almost 37 percent more than five years ago. This is a good time to reconsider the old-time value of keeping things longer.
Last spring a story hit the news about a man who put more than 2 million miles on his Volvo and is still driving it. He bought the car new in 1966 and has been driving it for 36 years. What if, I thought, more people would keep and drive their cars for five years or 10 years or even 15 years – how much would they save in interest charges that trading every three years costs them now?
Let’s say you decided to purchase a compact 2002 sedan. You could buy a nice vehicle for $18,000. If you finance the car at zero percent for three years, your monthly payments would be $500 a month. What if you kept your car for two more years and saved the $500 payment for a new vehicle? You would have savings of $12,233 (in addition to the value of your vehicle) as a down payment on your next car.
What if you decided to keep your car for seven more years and saved your $500 payment? Now you would have $45,042 in savings. And if you drove your car for another 12 years, you would have $81,299 in savings. Remember, I’m only estimating that you will get 2 percent on your savings, plus the interest rate will likely be higher.
I know that keeping a car is not cost-free. The man with the 36-year-old Volvo had the engine rebuilt once, re-covered the seats twice and had most of the body rebuilt after several accidents. He changed the oil 660 times. However much these expenses total, they still don’t keep your savings from adding up fast.
Cars today are generally more reliable with a typical vehicle life-span at its highest point in history. So let’s look once more at this situation: You decide to buy a year-old vehicle rather than a new one. You could probably get exactly what you want for $14,000 (see http://www.autobytel.com/ on the Web). At $500 per month (7 percent loan), you’ll have the car paid off in 31 months. If you keep the car for 15 years, you’ll have $84,487 in savings.
Think about it.