In my previous post of Value Drops in Cars is Your Gain I focused upon the depreciation of the general purchase price of the car. Do you think depreciation can save you more bucks? There is a ripple effect of the depreciation.
- Sales Tax
- Insurance Costs
- Finance Costs
The first ripple starts with the tax value of the car. If the purchase price is decreased then the sales tax is decreased by the same ratio.
The insurance costs are going to be lower based upon the value of the car similar to the sales tax. The difference may be how expensive a particular model is to repair vs the value. The rule of thumb is 75% of the value is a beyond the economic value to repair. Also when a car is on the lower end of the value scale you may choose to self insure the car repair if there is an accident. This will save you on the premium. (Which you could put towards getting an upgraded car.)
The cost of financing a car is a heavy one. The weight added is depended upon your credit worthiness. The effect on your purchase it could have could be the difference of a little bit newer car or more hours you have to work to pay for the same car.
The second ripple is the one of vehicle choice. When you pick a car you should be aware of the costs involved with repairing it. Some cars are more expensive to repair then others. If the car you pick is a popular model then parts will be relatively plentiful and people who work on maintaining them will be as well. If you pick a car with small production and / or an orphan car those factors will mean more money for you out of pocket. (Think Supply and Demand)
The costs of maintenance may be more depending upon what choice of car you own. Electric cars are a good example of this; the battery packs need to be changed out and the cost of replacing those should be factored into the operating costs.
Controlling these costs by vehicle choice is a wise way to ride the second ripple of depreciation.The last ripple is actually the pre-ripple. The pre-ripple is to save money for your purchase so you can maximize the gain on your purchase. Save some money before the purchase to lower or eliminate finance charges.
Eliminating the financing by paying cash gives you an immediate discount on the purchase (10% of the cost of ownership in the first 5 years savings by not financing). Purchasing in cash also insulates you from being upside down. You also can not have your car repossessed if you own it. You have insured your transportation if you come upon hard times.