- Car prices are high to start off 2022.
- Before you buy a car, make sure you don't have more affordable options to explore.
Before you take that leap, make sure it's the right call.
Buying a car is an expensive undertaking even in the best of times. But right now, anyone in the market for a vehicle is bound to end up paying a premium. This applies to new and used cars.
In December, the average price for a new car was $45,283, according to J.D. Power. That's a 13.4% increase from June 2021. Before you rush to buy a car this year, you'll need to ask yourself one important question.
How often do I drive?
For some people, owning a car is a no-brainer. If you need a vehicle to get to work, then you most likely have no choice but to purchase a car (assuming there's no reliable network of public transportation where you live). But if you don't drive a car too often, then buying one may not be the most cost-effective solution to your transportation needs.
Say you live in the suburbs where there are no public trains or buses, but you've also been working remotely since the start of the pandemic and were recently told your company is making that arrangement permanent. If that's the case, and you have a few essential stores, like a supermarket and pharmacy, within walking distance of your home, then it may not make sense to buy a car if all you'll use it for is leisure activities on weekends. Instead, it could pay to just hail a ride share when you want to go out and socialize, or rent a car when you're heading out on a weekend getaway.
Running the numbers
You might assume calling an Uber or renting a car frequently isn't a smart financial move. But when you compare those costs to the cost of vehicle ownership, it might actually make sense.
Imagine you think you'll spend $500 a month on ride shares or rental cars to accommodate your lifestyle. That's clearly a lot of money. But you might spend a lot more than that to own a vehicle yourself.
AAA estimates it costs around $805 a month, on average, to own a vehicle. If you're looking at spending $500 a month instead to get where you need to go, that's actually a bargain for you.
Before you buy a car, run some numbers if you don't drive that often. Say you're looking at $500 a month on ride shares and vehicle rentals, but your monthly vehicle ownership costs break down as follows:
- $450 for your auto loan payment
- $200 for car insurance
- $50 for vehicle maintenance
- $50 for gas (remember, this assumes you don't drive all that much)
That adds up to $750. If you think you can get away with only spending $500 a month on ride shares and rentals, that's worth it. Plus, if you don't own a car, you won't have to take on the risks that come with owning one, like having to make costly repairs.
Of course, there's a downside to not owning a vehicle, and it's being reliant on outside services to get where you need to go. You might have to wait 20 minutes for a ride share vehicle to show up at your door on a Saturday night. And you might try to rent a car for a holiday weekend only to find there are no available vehicles in your area (though planning ahead could help you avoid that issue).
But still, financially speaking, forgoing car ownership could make sense if you really don't do a lot of driving. Make sure to run the numbers before taking the plunge and buying a vehicle.
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