Just bought a Civic. Paid cash. Stupid? Maybe. Let's do da math:
Price $20,000 In a 1 yr CD that would earn 5%: $85/month.
Old car; 17mpg. Civic 38 mpg.
$3.25/gallon 1100 miles per month. Old, $210. New, $94.
Difference $116/month.
There's more to owning a car including depreciation but 4 year old Honda Civics are selling used at 90%+ of retail new. I fully expect the price of a Civic to soar and used prices follow new prices up and down.
Update July 11th 2006
6 weeks and 3600 miles. We've been driving more than we thought and we've tried to put the miles on the Civic as well. So, repeating the calcualtion:
Price $20,000 In a 1 yr CD that would earn 5.4%: $92/month. (up from 5%)
Old car; 17mpg. Civic 37 mpg. (down from 38mpg)
$3.25/gallon 2400 miles per month. Old, $459. New, $210. (steady gas prices.)
Difference $248/month.
Looks like a worthwhile deal.
6 comments:
Nobody pays 90% for a 1 year old used car, much less a 4 year old.
In general you are correct. But look at these results: http://tinyurl.com/g4rdt
THese are in great demand and are holding their value. They are an exception. Of course past performance is no gaurantee of... yadda yadda.
What year/make/model were you searching for and how many miles out did you cast your net there pilgrim?
Sez right there. 2002 Civic 30 miles. It's only illustrative. I'm sure if you want to go further and search for the lowest prices and all that. Thing is these seem to be holding value. Add to that the likelyhood of future new vehicle price increases. Used prices track new prices not purchase prices.
What part of your being genrally correct has you knickers in a bunch? the price range for 2002 was $13k for the DX to $17k for the EX. The EX on the search with 66k miles was $16k. The DX with 18k miles $13k.
you fail to mention higher insurance cost and higher registration cost
Very smart move, Robert.
One factor that is never captured in these formulas is the pleasure derived from owning a car (i.e. no payments).
My last car would have been smarter to take a loan but I value the payoff mechanism more so I paid cash.
Owning a car puts everything in a whole different regard with gas prices. If gas costs double from $100 to $200 per month with a paid off car it's not a huge deal. It's a HUGE deal if you are already paying $600/mo payment on an Escalade.
The Civic should hold it's value very nicely. When gas hits $100/barrel is when you will see the SUV driving fools squirming.
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