Why cars make horrible investments

There’s a lot of benefits to owning a car.  A car makes it easier and more comfortable to get around.

In university, all I could think about was buying a new car after graduation.  Buying a car would give me a sense of accomplishment and a feeling of independence.  I could drive anywhere whenever I want.

It all changed when I began looking into the costs of owning a car.  As I got closer to graduation, I ran the numbers and realized buying a new car was going to set me back by more than $11,000 in the first year.

At the time, I was looking at buying a brand new Honda Civic for $24,000 + HST – nothing too fancy.

Depreciation ($6,000) As soon as I drive the car off the lot, it would be worth 25% less than the purchase price.  The car would immediately be worth $6,000 less and that’s with me not even driving it.  This does not take into account taxes and delivery charges.

Car Insurance ($3,000)

Honda Civics are actually one of the more expensive cars to insure for young adults.  It would be almost $3,000 a year for auto insurance.

Financing Costs I didn’t have enough money to buy the car.  The car would need to be financed for 2.99% interest over 60 months.  With a $5,000 down payment, I’d be paying close to $2,000 in interest over 60 months on a car that wasn’t going to be worth half the purchase price by the time the loan was paid off.  I’d essentially be borrowing money to buy something that lost me money every day.

The monthly payments on the loan would add up to $4,800 per year.

Other Costs ($2,000)

I estimated gas and maintenance costs to be about $2,000 a year.

A car would allow me to buy things quicker and I would likely end up spending more because of it – eating out more, making multiple trips to the grocery store and the shopping mall etc.  I did not factor this into consideration but I estimate this will set me back an extra couple hundred of dollars a year.

Final Thoughts

I was making about $35,000 after tax when I graduated.  The cost of owning the car would be almost one third of whatever I made.  If I was serious about retiring by 40, I knew I had to delay buying a car for as long as possible.

This is why at 26, I still don’t own a car.

This is why we decided to buy a house before a car.  Owning a home just made much more sense to us than buying a car.

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