Buying a Car for $5K or Less

Inevitably at some point in your life you have owned a car that was out-valued by a used razor blade. Often whilst we were studying, living on campus and making questionable liquid consumption decisions we drove a car that would only comply with safety standards of Mumbai. Dreams of completing your degree and climbing the upper echelons of society were motivators to distract us from our choice to sneak out of a dorm room that smelt of corn chips and spend the night with someone who looks good in the dark and has a unpronounceable middle name.

We told ourselves that we were better than those who went straight into “unqualified” retail or cooperate work. We made sacrifices now to reap the benefits of that later in life. We put up with the car that randomly activates the wiper motor without being commanded to. We justified those funny noises by saying it added “character” to the car rather than admitting that we were broke, suffering from undiagnosed STI’s and spending what little money we had on booze and cigarettes.
Throughout this time we knew one day we would own a BMW X5 or a Mecedes Benz SLR and we used this to motivate us to see our university days out. The truth is that whilst many make it to this stage in life (albeit they don’t recognise it once they are there) it’s not the first step.

When it comes to your car very few people are trading in their 1999 Honda Civic for a Audi R8, there are various steps most go through in the life of car ownership. The rite of passage for most is our first car was a complete jalopy, it had a name, bumper stickers and missing hub caps from there we upgrade one step at a time over the next decade. It’s in this first decade of car ownership that many consumers make some serious financial errors when it comes to owning and maintaining a motor vehicle.

Often in these early stages of vehicle upgrades a car with the value of a stale packet of twistys is upgraded to something valued at a few thousand dollars. The problem here is you never buy a mechanically reliable car for less that $5K. Anything valued at $5K or less is going to need funds spent on it immediately to get it up to safe and reliable. This is where emotional purchasing often out does rational thinking.

In almost every case we see through our workshop, where someone is talking about upgrading low valued vehicles for another low valued vehicle, the consumer is better off with the vehicle they currently have.

Unpacking this further, in most cases the choice to upgrade is made after a quote has come from a mechanic for repairs that exceed that which we are willing to spend. A blown light bulb is enough to push some owners over the edge. So the choice is made to buy a new car, the excitement of change, something “new” and shiny outlay the logical option placed before you. In most cases you are better off keeping the car you have, fixing it and having a now reliable car.

If your car is worth $1500 and you are given a quote to get $2000 worth of repairs to your car you tell yourself “thats more than the car is worth” and thats correct and accurate so you conclude that doing these repairs does not now make the car worth $3500. However this does not back up the argument for upgrading the vehicle. Based off this logic you are now ready to spend $3500 on a car as an “upgrade”. How good do you think a $3500 car will be? One hundred to one odds your new $3500 car will need a minimum of $500 spent on it on day one. So now you have spent $4000 instead of $2000, you are a pillar of intelligence.

Just to add some weight to your logic, if you kept your $1500 slapper and  spent $2000 to fix it, yes you would have spent more than your car is worth but you would have a $1500 car that is now repaired, you have spent $2000 instead of $4000 and the car is now reliable.
Cars are a depreciating asset and the argument “spending more than a cars worth on repairs is foolish” is not accurate in the least. You can’t apply housing economics to you motor vehicles one depreciates and the other does not.

Before you decide to upgrade, especially if the motivation for this choice is mechanical repairs required on the current vehicle, do the maths and do the maths without emotion involved. Most of the time, you are better off keeping the car you have and fixing it.

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