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2 great reasons to buy a second hand car

2 great reasons to buy a second hand car

Reason 1 – avoid the police and sheriff

I seem to come across cars regularly that are in the situation such as the image above. Cars that have been clamped by the Sheriff’s Department because of unpaid fines or outstanding warrants. I couldn’t resist this one as it was a luxury car and it had my mind wondering about the circumstances of this particular clamping. When the Victoria Police started using new numberplate recognition technology to track vehicles it was rare that you would see a luxury car on the side of the road. Now they are becoming a more common site and it made me wonder why? Are people driving their new cars fast regularly and having so many speeding fines that they stop paying them? Or are people buying cars they cannot afford in the first place and having them repossessed for falling behind in loan repayments? I will never know in the case of the car above but to have a car worth ($100-150,000) clamped means there is some serious trouble for the owner. The other interesting thing about this case is the car was not there for only one day. It was in a prominent position and I kept passing it day after day. Three or four days had passed and the car was still there so there was obviously some serious negotiations going on to try and retrieve the car!

Solution to this predicament – buy a second hand car!

If this person is struggling to pay vast repayments back on a luxury car maybe they would be better off financially to have a second hand car for a few years. I went through this situation myself about ten years ago and on reflection wish I’d made a different decision. My wife took long service leave and we decided to take the children around Australia for 4 months. We bought a new 4WD to tow a camper trailer that we had at the time but really it wasn’t a good decision. The car cost $40,000 and when we returned it was worn out and eventually I traded it in for $14,000. It was only two or three years old. A better decision would have been to buy a larger second hand 4WD that was stronger and we would have lost much less value in the vehicle on return from the journey. It was a bad decision but one that has changed my attitude to car purchases for life. Since then we have only ever purchased second hand cars and are much better off financially because of it.

Reason 2 – Make some extra cash as well

Here’s some calculations

Let’s say you were looking at spending $30,000 on a car and were going to borrow all that money for the purchase. I’ll include a calculator below so you can do your own figures. I’m suggesting that you purchase a car for around $10,000 and put the rest of the money in a low cost managed share fund. I talked about this in a recent post 3 step plan to financial freedom. Most managed funds should presently return about 9% per annum on a long term basis so if you put these figures with the remaining $20,000 in the Investment Growth Calculator below you’ll see a result of $30,772.48.

Here are instructions for how to use calculators 

Investment Growth Calculator

Initial amount – 20,000

Annual Contribution – 0

Annual Interest Rate – 9

Number of years – 5

 

Loan Calculator

Loan Amount – 30,000

Length of Loan (in months) – 60

Interest rate – 6.5

 

 

I have included a simple Loan Calculator here so you can see projections for loan costs. You must realise though that I have used 6.5% for the calculations which is average home loan rates at present. If you had no alternative but to use a personal loan or a loan provided by the car yard the interest rate would be considerably higher.

What sort of car can I get for $10,000?

I just had a quick look at an online car sales site and came up with this Subaru Liberty Station wagon for well under $10,000. It may not be a new Mercedes Benz 4WD but you will own this car and also have some extra investment money if you follow this example.

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Obviously, if you continue on this course and buy only second hand cars in future and reinvest the money you would have paid out on a new vehicle, you will eventually have more money put aside than you are paying for each car. As long as the cars are well maintained and cared for by you I’m sure you will have no trouble with them.

One thing I can guarantee is you won’t be visited by a wheel clamping policeman or sheriff soon either!

If you want more information about second hand cars please see Barefoot investor as he has a great article too.

 

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