Calculate the Monthly Cost of a Car When Buying Right Away to Better Weigh Your Options
The best part about paying cash for a used car is that you don’t have a monthly payment for the car. However, you can still calculate how much it will cost if you spread out over the time you own the car so you know which options are best for you next time.
As personal finance site Root of Good explains, we think of monthly car payments in terms of how much the loans are worth, which could inflate our estimate of the value of cars. If you have to pay for a car for four years, your payment for a car will be hundreds of dollars. However, if you pay for your car with cash and store it for years, the monthly cost of your car will actually be much lower. In the case of the writer, this amount was about $ 50 per month:
Here’s the math behind my $ 50 car payment. Buy a neatly used low to medium mileage six to eight year old car for around $ 8,000-10,000. Drive the car almost into the ground and then sell it nine or ten years later, when it is 15-16, for $ 3,000. Net depreciation (the value of the new (former) car minus the proceeds from the sale of the old car) over these nine to ten years is between $ 5,000 and $ 7,000, or about $ 50 per month ($ 6,000 divided by 120 months = $ 50 per month).
The advantage of thinking this way is that it’s easier to think about how to buy your next car. If you started saving $ 50 every month now, you could afford to buy a used car with cash the next time you need it. Or at least you will have a sizable down payment.
Most of us think of our monthly car payments as loans offered by banks and dealerships. This way of thinking made us think that cars are much more expensive than they should be. However, by buying a used one and spreading the cost over the life of your car, you can make buying a car less costly for your budget. You just need to plan a little ahead of time.