I was driving down the road when a commercial came on the radio from a local car dealership. The ad wasn’t your typical advertisement for new or pre-owned cars touting the safety or reliability of the cars, nor was it even an American auto dealer. The dealer had a personal plea to prospective buyers that asked listeners to help jump start the economy and buy a new car. He went on to say that he thought the economy would be fixed if we just went back to doing what we were doing and buy items to help grow our economy. I was amazed that the entire car commercial was about forgetting our financial problems and just buy a high end automobile. His message was clear, we won’t get out of the financial mess until we start buying again.
Several questions came to mind listening to this car commercial.
1. What happens if a customer loses a job? The assumption is that a new car buyer will be employed for the 5-7 years it takes to repay a car loan. I suppose a new car buyer could pay cash for the car, but my assumption is most people need to take out a loan. If the new car buyer loses a job and the car bank takes possession of the new car, how does that help the economy?
2. Is a used car a better investment? Buying a used car that meets your family budget would allow you to pay your other bills on time. Buying a new car might stretch your family budget, increase car insurance, not to mention the increase in our California vehicle license fee.
3. What about your current debt? Even if you purchase a new car with a fixed monthly payment, you might be surprised to find out your credit card companies are changing your rates. Credit card companies are allowed to alter your credit card terms and can increase rates. That new tv you purchased last year for 9.99% interest could increase to 19.99%. Check your terms and conditions of all your credit cards. If you don’t have a copy available, contact your card companies to get the latest terms and conditions. You don’t want to be surprised by your next months bill.
Before making a major purchase like a new car, be sure you have an adequate emergency savings account and that you have a plan for paying down your credit card debt. If you have an adequate savings account, no debt, job security, and your retirements on track, maybe you can consider buying a new car. Or, buy a newer one with low miles.
