Buying a new or used car and the credit devil…

 I recently blogged about how to handle money, based primarily on what I did not do during most of my lifetime.  I mentioned car buying and allowed how there is a difference of opinion on buying new or used and said I might get back to that in a future blog. Well, here goes:

My wife and I decided a long time ago after shelling out thousands of dollars for constant and inconveniently-timed repairs that we needed to buy new and start afresh, rather than assume someone else’s headache.

The right thing we did was to go with Nissan, although at the time it was still called Datsun. I say that because we have had exceptionally good service with this brand (that does not mean other brands are not as good or better, it just means it worked for us).

But I’m not so sure that we were so smart after all. We paid one heck of a lot of money for the privilege of being the first owners. We may well have paid much more over the long haul than we would have buying a used car in need of repairs. We did buy convenience, though. And there is a lot to be said for a car that actually starts up when you turn the key.

Interestingly, a half dozen years before we put the money down on our first new car  my folks purchased a Datsun 1200 series for about $3,000 (actually it might have been closer to $2,000). That was in 1971.

You’ll have to trust me on my math here, but back then a kind of standard yearly salary was $8,000 (I know – there’s no such thing, but I’m just basing this on my own observation and experiences). So you could buy a brand new, albeit quite small, car for no more than $3,000. That would be about 35 percent of my mythical standard 1971 salary.

Today, a comparable model would be about $20,000 and that mythical yearly salary about $40,000. So the price of a new car has gone up to 50 percent of your salary.

(That’s almost as bad as homes where the old rule was that your payment ought to be no more than 25 percent of your monthly income, but until the bubble burst recently folks were blithely plunking down 50 percent or more of their monthly household incomes.)

So go ahead and tell me my numbers are all wrong (and of course it all depends upon where you live and what you do for a living – but I’m talking common working folk, not doctors and lawyers and such), but I know they’re not that far off.

So at any rate, now that the economic bubble has burst and many folks are trying to figure on how to get back down to reality, I would suggest buying a car new is a terrible waste of money – sure, if you can afford it, go for it, but this blog is not for you anyway.

I’d buy a used car, maybe from a new car dealer (I don’t trust those stand-alone used car lots, although they may be no worse than the dealers.). And I would demand that the seller allow me to have it checked over by an independent mechanic (here’s where it would help to know of a good garage, maybe one run by your uncle, I don’t know. Actually I have one in mind. I have dealt with these people for years. They charge fairly high rates (that is to say they are not cut rate), but that is because they are totally professional and from my experience, totally honest. I doubt even their check over would be foolproof, but there is only so much you can do.

(And there are computer histories available on cars nowadays too, but I’m sure that system is not foolproof either.)

Oh, and I would pay cash. The whole idea is to stay out from under the burden of credit.

On the other hand, if you have dependable employment and you can find an economical and energy efficient car and can realistically budget out your payments (and insurance and upkeep) over a three-year period (or less), then you may well be ahead to purchase a brand new vehicle with its warranty. I am not in the new car or even used car market, but there should be bargains galore out there. But cars have become so inflated in pricing that the dealers are pushing, what? Five- and eight-year or more contracts? Don’t do it! That’s too long.

And if you don’t have the money, don’t buy the car. Bum a ride, use public transit, move closer to work. This is war folks. It is a war of survival. The forces of credit want you to feel helpless without them and they want to suck you in if you have any blood left to suck.

But it occurs to me that car repairs is one of the reasons that may have led us to fall into the credit trap. You see, even if both a husband and wife have jobs, unless they make rather high salaries, a seemingly simple car repair can put them into a financial crisis. So at some point we decided it would be good to have a credit card for that contingency.

Now that would be a sound practice if one paid off the balance on that card as soon as possible and really only kept it for emergencies, but how many people have that much discipline? And once you have a credit card (s), you find that life is full of “emergencies”.

In my own personal case, some 30 or more years ago, I had a job where I not only used my car to get to work, I used it in my work. The newspaper I worked for did pay me mileage.

But I was fortunate in that If I had to I was not so far away from work that I could not have walked. As far as having to have that car for my job, I should have forgone the car when it broke down (and all cars do this), saved up the money to get it fixed, and saved the credit debt. My employer may have complained, but I was in a situation where I feel I could have countered that I was simply doing the prudent thing and if they demanded I had to go somewhere, they could have paid for a rental car. If they were not willing to do that, then I had a job that put too much of a financial burden on me.

Now that’s a long time ago and a some coulda, shoulda, woulda (second guessing), but I have really come to believe that one has to be aggressive to look out for the interests of one’s self and one’s family. Going into consumer debt is never the answer. Even though it may start small, it seldom stays that way.

Now for any young person reading this (not likely),  I am in no way suggesting that they forego any material comfort forever. Quite the contrary, I’m suggesting if you are careful and prudent now and devise a game plan, you will reap the rewards down the line. But you have to be ever vigilant. The forces for credit are constantly after your hard-earned money and they are relentless and ruthless. They particularly like to play off husband against wife or visa versa. They like to play children against their parents. They like to create envy among friends.

Really it is almost biblical. I truly believe that credit is the Devil.

And where I have used the term “credit” in this blog, I have been referring to all borrowing and lending, but probably primarily aiming my remarks at consumer credit where the largest history of abuse has taken place.

Credit in the capital markets is a fact of life and I suppose has to be accepted. Even societies that supposedly forbid lending at interest, such as the Islamic one, come up with other methods that are essentially another form of lending out at interest, they just turn things around a bit and call it something else.

Once a person or a couple actually builds capital (and it does not have to be via a mortgage and in fact in this atmosphere probably shouldn’t be), then credit can be used wisely if it does not put everything on the line and is not simply used for pure consumption, which generally leads to bankruptcy.

The average reader and the economically sophisticated will likely scoff at what I have written here. Certainly I am open to constructive criticism. But I have based my comments on  life-long observation,  some formal economic education, and a lot of lament.

(Copyright 2009)

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