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Lets look at an example of how this will work. Lets say your dream car is a BMW 328i and it will cost you about $31,000 plus tax. The sticker price is a real shocker for you but for your emotional health, you know this car is the cure. A Toyota Camry makes more sense and you can snag a nice one for $25,000. But, let's face it, who really falls in love with a Camry? It's such a reliable car - even the mechanics hate it.
Your mind tells you that the Camry is the rational economic choice but your heart swoons at the sight of a fully loaded silver BMW. For some personality types, the rational economic solution is to listen to your heart. Maybe you should go ahead and buy the BMW after making a solemn promise that they will cherish it, take good care of it and never succumb to the five year itch. You can't make that promise to a Camry - few people can. If you keep your promise to the BMW, you might be making the right decision.
Just look at the math:
The BMW will cost you $31,000 plus tax or about $33,500. Fully financed over 5 years at 7% would total $39,800. Maybe you get some repairs at the end of life that cost you another $3,000. Call it $43,000 or $4,300 a year to drive your dream car. You probably will unload it for $6,000 when you are done leaving you with a net cost of about $3,700 a year.
Because you never develop an emotional 'thing' with your Camry, you'll trade her in after five years no matter how good she's been to you. In, any case, you'll probably end up buying a similar vehicle. In effect, you'll buy Two Camrys over a ten year period.
The first Camry will cost you $25,000 plus tax twice. So will the second one. The total will be $60,000 over the 10 years financed at 7%. Of course, you got some trade in value both times which for a Camry is quite good -- about $8,000. So we are left with about $42,000 or $4,200 a year to drive a car that you never 'connected' to. That's about $500 more each year than what it would have cost to marry the car you really loved and held onto her for ten years or longer.
The financial benefit is actually lot bigger than you might imagine. Sure your payments are going to be more upfront but you are going to have 5 plus years of zero car payments. Let me tell you, when you have no auto payments, you are going to loathe signing another car loan contract and will likely want to buy your next car in cash.
There is one more reason why I think it makes sense to hold a car for ten plus years. It's environmentally correct. How much energy and resources are used and how much pollution is generated to produce a car? Turns out between 100 million and 200 million BTUs (British Thermal Units) or the equivalent of 900 to 1,800 gallons of gasoline - enough to fill up your tank for several years. So unless your new car has much better fuel economy than the last one, you are going to be far greener hanging on to your old car.
Of course, you don't have to stop at 10 years, any good independent mechanic will let you know at what mileage your car is going to start running into problems. Typically for a good car, its going to be between 120,000 and 150,000 miles depending on your driving and maintainance habits.
And if you can't make it for ten years and get the seven year itch, do yourself a favor, don't buy a new one, Jazz it Up!
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