During 2005 my old car decided to slowly die on me, developing numerous problems until it wasn't worth me paying for the parts to fix it, I then made the decision to get myself a spanking (nearly new) car. After much searching around (having fun) test driving various makes and models I decided on an 05 Honda Civic CTDI even though I fell in love with the type-R but couldn't justify the amount of fuel I would need to keep putting in, and the ridiculous insurance premium! A few days later I finally signed the paperwork and could go and get my (nearly) new car , the total cost came to £11,000. I paid off £8,000 straight away and took the extra £3,000 on Honda finance. For the past 2 year i have been paying off £101.06 precisely each month to clear the £3,000 debt on an £11,000 car the problem is, is that now it is only worth around £8,000.
So now the situation is, is that after this time next year I would have paid approx £11,636. for an item which will probably be worth £7,000 this time next year! This is the new car conundrum and will nearly always happen as generally new items (especially cars) loose a large percentage of their value quite quickly after the first couple of years as they are superseded by newer models and accumulate "wear and tear". As i say, hindsight is a wonderful thing and even though i am very happy with my lovely motor after giving myself some serious financial education over the past 2 year i probably would have done things a little different!
Theoretically Speaking
I could have spent half of my money on an older car which would still loose its value but it would be slower in decreasing value than a newer car. I then could have invested the other half in a high interest savings account, premium bonds, or shares or all of the above. This would have netted me a nice little profit in the same amount of time it will take me to pay off the remaining balance on my car. So instead of having spent £11,636 over 3 years and having only £7,000 to show for it (thats a £4,636 loss! makes me cringe) I could have a £2,000 car which I'd have spent £4,000 on with approx £4,700 in savings leaving me with £6,700 to show from my initial £8,000 (still a loss but only £1,300 over 3 year).
I thought I'd write this post as a littlefood for thought for anyone thinking about buying a brand new car not to put you off just to help with the decision making process! I expect I'll be holding on to my car for a good few years which over time will slowly decrease the loss percentage as the depreciation slows dow. In the mean time I'll still be putting a little as side each day for my Lotus!
A great place to start your financial wisdom is THIS BOOK!!!
Written by Andy Coates
Copyright: Andy Coates Dot Com
July 2007
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