One of the biggest items in most budgets is transportation. Owning a car is expensive, first in initial costs, and later in upkeep. So one common money-saving tip is to buy a cheaper car. Instead of an expensive new car, you could buy a cheap used car that barely drives. By giving up luxury, you could save thousands. Or could you? Is it actually a smart budget choice to drive a beater car?
The most expensive thing you will do with a new car is drive it off the lot. It loses a huge chunk of its value just because it’s not new anymore. So if you’re at all budget conscious, don’t buy a brand new car. The average price of a new car is $48,000, but you could end up paying six figures for a luxury model.
The average price of a used car was $34,429 in 2022. That alone would be a savings of almost $14,000. But driving a beater is a step below just driving a quality used car. Experts say you may be able to go as low as $2,500 for a drivable beater. A car like this will likely have over a hundred thousand miles on it, cosmetic problems, and annoying defects like no air conditioning or side doors that don’t open. But you’d be saving $45,500 over the average new car.
Consider also the interest on that new car if you have to get a loan. Over five years, you could end up paying $5,000 or even $10,000 more than the sale price. With a beater, you would pay cash, and thus never pay any interest. This car would also be cheaper to insure, and you’d probably bypass everything but liability insurance (since it won’t cost you that much to replace it). Even your taxes and registration fees might be less.
With the tens of thousands you save driving a beater car, you could pay off debt, get ahead of your budget issues, or start investing. By earning interest or saving interest on debt you’ve paid off, you could end up improving your situation even more than the initial savings.
Downsizing Your Car
If you currently own an expensive car, you can also consider downsizing your vehicle. People often do this when they lose their job or fall on tough times. By selling your current car, you may be able to pay off any money you owe on it. Then you can buy a beater with cash and drive that car debt-free.
The savings in this situation aren’t as great as when you’re considering a new car. The car you currently drive is already used by now—that new-car premium is gone, and you can’t recover it. Even if you bought it used, it’s accumulated miles and years. It likely won’t be worth what you paid for it anymore. The question then is whether it is worth what you owe on it.
You can take it to your local dealer and ask what they will give you for it. If selling it won’t pay off your loan, you have negative equity—the same as being underwater on your mortgage. A car you currently own that works well has a value you can’t easily recapture. If you can’t keep up with the car payments, you may be able to refinance instead of downsizing. If you need to downsize anyway, you will have to come up with the money to pay off the rest of your loan.
You might be able to get a higher value if you’re willing to trade it in and buy another car from the same dealer. While a larger dealer may not have an absolute beater to buy, it might have a cheaper vehicle that you can buy without a loan or with a much smaller loan. You’ll have to run the numbers and see how much you would actually save.
The Risk of a Beater Car
However, driving a clunker isn’t always as attractive as it seems. What if you trade in your reliable car, pay off your loan, and buy an older car . . . only to have that old car eat up all your savings on repairs?
Let’s face it: if a car were good enough to drive reliably with few repairs, people wouldn’t sell it for $2,500. Reliable transportation is worth more than that to most people. A beater car at that price almost certainly will need work done. The question is, how much? Since you may find a car like this on Craigslist or from a private buyer, you might not be able to know the car’s full history. In that case, you’ll want a thorough inspection. If you’re not a car expert, bring one with you to look at the vehicle.
You’re already saving money by not buying a new car. So don’t feel bad if you can’t find a reliable vehicle for a thousand dollars. By going up to $3,000 or even $5,000, you might be able to find a car in much better shape. Compromise on aesthetics, but make sure the car you buy has been well maintained under the hood.
Beater cars tend to be less reliable. That makes them a fine car for a teenager or as a second car for the family. But if your job requires absolutely reliable transportation, you might not want a clunker as your only vehicle.
If you do buy a beater, take good care of it to get as many miles out of it as possible. Give it all its recommended maintenance and don’t wait too long to fix problems. If you can do any of the repairs yourself, you could save yourself thousands over the life of the car.
Think Carefully Before You Choose
The potential savings in buying a beater car are immense. However, you may pay for these savings in repair costs or inconvenient breakdowns. Finding a car you can afford that still drives reliably isn’t easy.For all your financial decisions, it’s helpful to have an expert to advise you. To meet an experienced financial advisor, contact us today.