Is It Time For a New Car?

It’s official: My car has become a real beater. The check engine light in my beloved Accord has been on for over a year. The engine revs too high when it idles and rattles rather loudly when I give it gas. Last month, the lining of the roof started to sag in the heat and humidity of the NC summer, and just yesterday, it failed an NCDMV inspection!

Maybe it’s time to look for something new (or new to me). To be honest, I really don’t like the car buying process. It can be complex, it often involves salespeople and it comes with lots of questions. What kind of car should I get? Should I buy or lease? If I choose to buy, should I get a new car or a used one? LX or EX? Should I pay cash or finance? I try to shop around and make a really smart decision (it usually involves a spreadsheet) but after I buy, I never really feel like I got a great deal. And quite frankly, I’d rather spend my money on other things.

These days, the process is even crazier than normal. Pandemic era supply chain issues and pent up demand have turned the car market on its head. Some of the used vehicles I might consider are selling for more than a new version of the same car. Historically low interest rates seem to make financing more attractive but high stock market valuations might say otherwise. It’s almost enough to make me want to ditch the Accord and become a one car family.

So what should I do? Stick with my Accord or get something new?

On one hand, I could keep my Honda and avoid the whole car buying process for a few more years. After all, driving an older car is nothing new to me. My first car was a used 1979 Pontiac Gran Prix that looked similar to this one. It was a gift from a distant family member and it had a list of issues twice as long as that of my Accord but it got me to high school and back safely for two or three years.

In college, I upgraded to a Volkswagen Fox. Honestly, did you even know that there was such a car? Here’s an article listing the Fox as one of the 40 worst cars EVER made!

I can even remember the 1970 Chevy Chevette we had when I was a kid. It looked something like this one and it ended up catching on fire and burning to a crisp while it was parked in our driveway. Probably a leaky fuel line.

Yes, I have a long history of older cars. In fact, I’ve been driving for 33 years and I’ve never had a car payment! In addition, I typically only drive about 10 or 20 miles a week in my car so I won’t spend much time putting up with/enjoying whatever I end up driving. I probably should just stick with my Accord, right?

On the other hand, driving an older car isn’t always easy. I’m embarrassed to admit this but there are times when I feel confident in my 14-year-old car and even imagine that people are admiring me for my practical mindset and wise stewardship of the financial gifts I’ve been given. However, there are also times when I feel self-conscious pulling up for a coffee with a client with my engine rattling and roof lining sagging. Then I imagine people wondering if my financial practice is struggling or if I’ve made poor financial decisions. And what about safety issues? Today’s cars have a lot more safety features than older ones. Plus, at some point, my Honda might leave me stranded somewhere off Glenwood Avenue in 90 degree heat. Maybe it’s time to get something new?

Lately, we’ve been getting a lot of car buying questions. Usually it’s something like, “should I pay cash for a car or finance it?” or “should I finance my car purchase and invest the extra money in the stock market?” Like many of the answers to other personal finance questions, the answer often begin with “it depends.” In this day and age, when savings accounts are paying anywhere from 0 to .6% interest, it probably doesn’t make a lot of sense to finance a car purchase at 2 or 3% while leaving a big chunk of cash (beyond your normal cash cushion) in your savings account earning next to nothing. And, yes, you could finance your purchase and invest the cash you would have spent in your brokerage account, but you won’t know whether that specific decision was optimal for another five years or so. If your investments do well, it will have been a good decision. If the stock market tanks during that time, well…

Taking all that into consideration, I’ve come to the conclusion that it’s not so much our individual car buying choices that impact our overall wealth, it’s the cumulative effect of our long-term car buying habits that move the needle. I could chose to buy a brand new car tomorrow. Done. That single decision won’t dramatically alter the trajectory of my family’s overall financial picture. However, if I choose to buy a brand new car every 4 years during my lifetime, that will come at an expense. It’s possible that you’re fortunate enough to not directly experience that opportunity cost but the reality is that choosing to buy a new car every 15 years instead of every 4 would free up more money for other purposes like giving, saving or experiences with family and friends. As one of my good friends likes to say “there’s only a dollar in a dollar.”

And it’s impossible to know whether financing a new car purchase while investing a lump sum in the stock market will turn out to be a good decision on a case-by-case basis. But it’s likely that financing car purchases at low interest rates (when available) and leaving more money invested to compound at a (hopefully) higher return over a lifetime will probably lead to more wealth down the road.

At the end of the day, it doesn’t matter what kind of car you drive or how you pay for it. You could choose to lease a brand new car every 3 years, just make sure that doing so doesn’t limit your ability to focus on the other things you value. You could also choose to finance the purchase of a new car and drive it until the wheels fall off. If that’s the route you choose, make sure you’re intentional with the money you save as it can be easy to fritter it away.  Either way, it’s important that your long-term car buying habits align well with the rest of your financial picture and big picture priorities. These days, with low interest rates and long-term financing it’s easy to let the new car often philosophy become the default.

Back to my situation. Here at Beacon, we’re fortunate to have a very good mechanic right next door. He knows a ton about cars and only suggests a repair when it’s necessary. As I was writing this Brief, Casey let me know that he could fix the issue with my engine, which will reduce the unwanted noise and allow my Accord to pass inspection. He also pointed me to a YouTube video that describes a way to fix the drooping roof liner. It’ll all cost ~$700 but it might allow me to drive the car for another few years. That’s that, I’m keeping the Accord. If you see me driving down the road in my silver 2008 Honda Accord please honk and wave. And rest assured, the Hall family finances are sound and Beacon is doing fine, I’m just not a car guy.

 

Geoff Hall, CFP®
[email protected]

My wife, Crystal, and I have been married for eight years and have two kids, Cooper (7) and Rhodes (5.) When I’m not spending time with them you might find me downtown serving at our church, pushing my limits during a mountain bike ride or having coffee with a friend in the Five Points area. I've been practicing wealth management for 25 years and I'm thankful for the privilege of shepherding my family of clients through the ups and down of the markets and of life for that matter.