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I love all the bells and whistles on new cars and that "new car smell" as much as the next person. But, by choice, I've driven the same car for 18 years. While 18 years is admittedly a bit extreme, owning your car for the long run has incredible financial benefits. Of course, it helps to start out with a safe and dependable car that you enjoy driving. Here are 5 reasons to own your auto for the long haul:
No Car Loan
My loan payment was only $150 each month. Even so, since paying off my auto loan, I've saved $1,800 annually and $23,400 over 13 years. This and other auto savings goes into my "car account." Even with auto repair costs, conservatively invested, my car account has grown to over $30,000.
Low Vehicle Registration Costs .
In my state (California) registration fees are based in part on the car's value. For example, a new $25,000 car purchased in Santa Monica, California costs $2,576.00 in fees upon purchase, including the $2,313 in sales tax and $263 in registration fees. The Vehicle License Fee portion (or "VLF") on the same car will hover around $270 each year for the first few years. Compare this to the $18 per year VLF that I pay for my car. Because the VLF decreases each renewal for the first 11 years (in California), buying another new car after four years, or even five, forfeits major VLF savings and puts you in the position of continually paying the highest VLF.
Low Insurance Costs .
Its true that auto insurance costs depend upon a number of factors, including auto make and model. Even so, you're likely to save a substantial amount of money insuring an older car. First, the "book" value of the car will be less and the insurance cost to cover the vehicle will therefore be less. Second, in many cases, it isn't cost-effective to carry comprehensive coverage on an older vehicle. In my case, not carrying comprehensive coverage saved another $4,000 over about ten years. My car account is there to give me peace of mind in the event my car needs body work or, even in a worst case scenario, needs to be replaced.
Savings for Repairs .
All cars require maintenance and will need repairs at some point. While this is especially true for older cars, it doesn't necessarily follow that you'll save money by buying a new car. First, cars are generally well made these days. Even if you own your car for eight years or more, you have a good chance of avoiding a major repair. Also, auto manufacturers today offer longer and better warranties. My strategy has been to earmark savings in my car account for repairs. Although my car is quite old and has needed some repairs along the way, my "car account" is still growing.
Peace of Mind .
Its true that current interest rates are relatively low. Even so, financing a new car purchase is expensive. For example, according to U.S. Bank's auto loan calculator, on a four-year loan at 5% interest, that same $25,000 car will cost you about $518 each month, including the sales tax. That assumes of course that you have $5000 for a down payment. Oh, and don't forget that part of your payment goes towards the $2,371 in interest that you'll pay. Since I'm not related to Warren Buffett, $518 a month is an amount that certainly gets my attention. Not to mention the $2,000, more or less, that I'd have to hand over to the bank in interest. So, last but not least, hanging onto your car for the long haul will give you something precious. You will have the peace of mind that comes with being free of auto-related debt. And that is
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