Owning a car is a fact of life in our society. To be sure, there are those, particularly in large urban areas, who are able to get around by using public transportation, but the lifestyle of today’s average family makes owning at least one car a practical necessity. So, having this need for a car as a "given," what is the most economical way to meet that need?

When making the decision whether to purchase a new car or maintain a present older car, Larry suggests considering the costs of each. Luke 14:28 says, "For which one of you, when he wants to build a tower, does not first sit down and calculate the cost to see if he has enough to complete it?"

The average monthly repairs for the typical American car on the road (which is a car approximately seven years old) is about 5 percent of a family’s budget, which includes tires, batteries, tune-ups, and other things that might break, such as transmissions or other major repairs. If we compare paying 5 percent per month for maintenance on an older car to about 15 percent to buy a new car, it is no contest. ¹

It’s very common for couples to justify buying a new car because it gets better gas mileage than their existing car. In some cases, they would have to drive their new car almost 50 years to reap mileage savings equal to the car’s cost.²

Larry believes that unless an existing car is worn out (200,000 miles or more), it is often less costly for the average family to repair the existing car than to replace it with a new automobile.

One of the best ways to get the most out of an existing car is to establish an auto maintenance fund within the budget. Contributing to this fund every month will increase the ability to cover any major replacements or repairs.³

However, if a family finds that they must buy another vehicle, they need to decide before they start to look whether they should buy a new or used car. If the family drives 40,000 to 50,000 miles a year, it’s probably better to buy a new car–or at least a demonstrator. But also take into consideration that the depreciation on a new car is approximately 25 percent the day it is driven away from the dealer. However, if a family drives considerably less than that, a good quality, reliable, used car is usually better.

The enticement of low-cost financing tempts many young couples into buying a new car. But remember, nothing is ever free. The dealer may offer a low-interest loan on a new car but the vehicle probably will cost more. A family needs to consider not only the question of whether they can afford a new car but also whether buying a new car is the best stewardship of the family’s resources. If car payments are beyond budget, other major categories, like food and clothes, will begin to suffer; and since these are major needs, the family most likely will go into debt to obtain them.⁴

Should a Car Be Financed?

Purchasing a car by financing it has become the norm in today’s society more than the exception. However, Larry believes that the best way to finance a car is not to finance it at all! For most people, it is always the best policy to save the money and pay cash for a car. Auto financing is poor stewardship at the very best, even when below-market factory financing is offered at rates that look too good to be true.⁵ But, assuming that there are those who, for some reason or another, feel they must finance the purchase of their car, there are some basic guidelines which should be followed.

1. Do not finance through the car dealership if at all possible. Arranging a loan through a bank or other financial institution can allow you to negotiate with the dealer on a cash basis.
2. Do not trade in an old car; sell it instead. If a car dealer can sell a trade-in and make a profit, so can the owner of the car.
3. If an old car is not paid off, keep it until it is. If a car with a mortgage on it is traded in, the current car debt is simply refinanced into the new car loan.
4. Alternate collateral for the loan should be used if possible. By using other collateral (stocks, bonds), often a lower interest rate can be negotiated. However, a word of caution: Do not use a home as collateral. Many couples who do this end up creating a 10- to 15-year note for an automobile and the car will be worn out long before the note is paid. So, while the deduction for a home equity loan would lower the cost of a car loan, it is not a good idea to mortgage the home to buy a car. If something happens, instead of just having a car repossessed, the buyer could lose his or her house in a foreclosure.

Conclusion

If financing is necessary at this time to buy a car, begin immediately preparing and saving in order to buy the next car with cash.⁶

The majority of new automobile sales in the U.S. are made because of the buyer’s wants, not needs. In fact, a significant portion of people who are shopping for a vehicle, new or used, simply do not need it. However, cars do wear out, and everyone will eventually find himself or herself in the position of having to get another one.

The average family, during its lifetime, is going to put more money into automobiles–almost 50 percent more–than they will put into their homes. Therefore, when considering the purchase of another car, people need to remember that usually the least expensive car is the one that they are currently driving. However, if another car is necessary, the best option is to buy a good used car, preferably at a price that can be paid in cash.

¹ Larry Burkett, The Complete Guide to Managing Your Money, Inspirational Press, 1996, p. 116-117

² Larry Burkett, Major Purchases: Housing and Cars, Christian Financial Concepts, p. 35

³ Larry Burkett, Major Purchases: Housing and Cars, Christian Financial Concepts, p. 34

⁴ Larry Burkett, Answers to Your Family’s Financial Questions, Living Books, 1998, p. 246-247

⁵ Mark Eskeldson, What Car Dealers Don’t Want You to Know, Technews Publishing, 1995, p. 83