The Long Term Cost of Your Car Purchase (aka Possibly My Biggest Financial Mistake Ever)

Way back when, my family needed a bigger vehicle. We didn’t even want a bigger vehicle, but you can’t fit four car seats in a station wagon. I dutifully did my research and went car shopping. A lusted after a fun little SUV, but was practical enough to realize that I didn’t want to spend my life leaning over a seat to buckle people into car seats in the third row. A minivan was the right tool for the job.

And for some reason, that baffles me now, I needed a new minivan. Maybe it was because old minivans weren’t much less expensive, or because my pregnant brain thought that I deserved a new car, or maybe I just didn’t want the hassle of trying to buy a used car while juggling three toddlers alone. I don’t remember.

And so, I did all the smart things: Read all the reviews, picked the right vehicle and the right trim level for our needs, and comparison shopped between multiple dealerships. I found the best loan deal, and bought my new car. It genuinely was a great thing for our family – we could reconfigure the seats in different ways for different purposes, and there was plenty of room for all of us and all of our stuff. We worked that van hard until we donated it before moving overseas.

And yet, it was still a huge financial mistake. Buying that car new cost us a lot of money in the long-term. Was it worth it? Who can say? But I do wish I had thought this decision through a lot longer.

The Sticker Price

I paid just shy of $30,000 for the minivan. It was the most I had ever paid for a car, and still is the most I’ve paid for a car. Minivans that were a few years used were running around $20,000 at the time. They were a little newer, but otherwise substantially the same vehicle. I would have been perfectly happy with the $20,000 van. So I flat out wasted $10,000 right there.

Financing

I don’t remember the specifics of the financing, but the interest rate was around 3%. Because that seemed crazy low (given the time), I didn’t put any money down AND I picked a six-year loan term – 72 months! That meant our payment was around $455 a month. We did end up paying it off early, but not terribly early. Let’s say we paid it off in five years. In those five years, we paid around $2,700 in interest. Sigh. So the total cost of this purchase was $32,700.

The Short-Term Impact

Let’s imagine that instead of buying the new van, I bought the used van at $20,000. And let’s imagine that I still financed it, but I put $5,000 down. That’s not unreasonable considering that I was selling a previous car. (Whatever did we do with *that* money?) Even if I financed $15,000, with the same payment amount, I would have paid it off in 35 months, saving myself $2,000 in interest. So the total savings by purchasing used and making a 25% down payment would have been $12,000. Geesh.

The Long-Term Impact

At the time I made this purchase, I was 33. Let’s take $12,000 and invest it in the market at a conservative growth rate of 6% per year. In 37 years, when I am 70years old, that $12,000 would be worth $103,000. Thank you, compound interest.

While $103,000 won’t change my life entirely, it’s a lot of money to lose for one car purchase that I didn’t even keep for 8 years. And imagine that I add that $103,000 to other dumb financial moves I have made over my lifetime. There have been quite a few. I don’t even want to think about it too much, because it makes me kind of ill. I could buy an entire fleet of minivans for the total amount I’ve wasted on cars over the years.

We all make financial mistakes, and they help us learn. But sometimes it is OK to learn from other people’s financial mistakes. If you are contemplating your next car purchase, learn from my mistakes. You can make a significant impact on your long-term financial goals by simply making slightly different decisions along the way.