My neighbor bought a new car a few days ago. Saturday morning we were exchanging hellos across the street and I remarked that his new car was really nice. This led to a bull-flown rundown of the gory details involving its purchase.
The car is a four-door Toyota sedan. It has every feature available on the model. That is not the usual Merle Wayne Sneed hyperbole, it literally has every feature available. Including, and I am not making this up, air-conditioned seats.
The kicker is that the car had a MSRP of $47,000. He of course, paid less, due to savvy shopping. He also tells me that he and the missus have planned for the worst case scenario, say job loss, by taking out a seven-year loan, with payments in the $550 per month range.
According to Edmunds, a car research site, the typical car is worth about 25% of its original value at the end of 7 years. In this case $11,750. Assuming my friend paid just $40K, he is losing about $340 to depreciation.
But it is even worse than that. At $550 per month for 84 months, his actual cost for the car is $46,200 (assuming he made no down payment). That pumps up his loss from depreciation to $34,450 or about $410 per month.
The whole business seems crazy to me, but then we never buy cars based upon good financial planning, do we?
Things in this blog represented to be fact, may or may not actually be true. The writer is frequently wrong, sometimes just full of it, but always judgmental and cranky