I appreciate so much about Dave Ramsey’s baby step method, but what does he think about buying a car?
You may be looking at leasing or buying a vehicle and wondering what Dave Ramsey thinks. If you’re shopping to own a car, or you want to add to your collection of cars. The glamor around owning the latest ride can easily sweep you off your feet.
After all, some latest vehicles have impressive features like massaging seats and heated steering wheels. Who wouldn’t love to sit in a car where the seats give you a massage. But is purchasing a new car the best option? Let’s consider the opinion of Dave Ramsey on this.
Does Dave Ramsey recommend purchasing a used or new car?
Dave Ramsey is quite certain that it’s best to save up and purchase a slightly used car over a new one. He believes that buying a used car and making an upfront payment will put you in a much financially healthy position than buying a new car on loan.
In his blog post title “new car vs used car,” he maintained the position that the choice between a used or new vehicle and how you pay or for it is the same as choosing between being stuck in debt or financial freedom. Here are some of his reasons for preferring fairly used cars over new ones.
Reliability: The popular cliché is “Buy a new car so you won’t have to worry about repairing.” However, that is a myth as some new cars have been known to come up with major problems. Their issues usually range from electrical issues to engine problems, and faulty air conditioners. Dave Ramsey advised that you have it in mind that new is not a guarantee for safety.
Depreciation: Irrespective of your automobile, a unifying factor is that their value reduces with time. This is called depreciation.
New cars suffer depreciation faster than fairly used vehicles. Depending on the model and the make, your car may remain more valuable than other models produced in the same year. But they’ll still suffer depreciation, especially the new vehicles.
How much does Dave Ramsey say you should spend on a Car?
Dave Ramsey believes that the total value of your entire vehicle should not be more than half of your annual take-home pay.
For example, if you earn $100,000 a year, then you shouldn’t be driving a car that’s worth more than $50,000. Why? Because the value of a car depreciates the moment you drive it off a car dealer’s shop. You’re investing a chunk of your income in something that depreciates with time. And you need to have the capacity to absorb the loss without going into debt.
Dave Ramsey believes that cars lose 70% of their value within four years of purchase. It means that a $30,000 car won’t worth more than $11,000 within four years. That a loss of $100 weekly.
Dave advised that his listeners should not consider purchasing a new vehicle till they have a net worth of $1 million.
Does Dave Ramsey recommend ever financing a car?
Dave believes that financing a car is a painful process for most Americans. Especially in an instance where the car won’t be driven on the highway again.
For the majority of Americans, the first on their to-do list is to approach the nearest dealership or a used car lot to finance the latest brand of their preferred car model. But is it a financially smart decision to finance Floyd’s replacement? Let’s go through Dave Ramsey’s opinion on that:
What it means to finance a car
Most Americans think that their only option for financing a car is through car payments. But Dave believes that financing a car is synonymous with signing John Hancock on a contract or lease agreement. He describes it as a fancy IOU that allows you to drive off the car from the dealership with the promise that you’ll make monthly payments.
He claims that what salesmen hide from you is that financing your car is the most expensive option. When you finance a vehicle, you’re paying the principal plus fees, taxes, and interest to your creditor. And since they’re good at their job, they’ll attempt to squeeze every cent from your pocket.
How to get a car without financing
According to Dave Ramsey, if you can’t afford to pay cash for a car, then you can’t afford it. As such, what you need to imbibe is the ability to delay gratification and save for the future. To purchase a car, Dave recommends saving and purchasing a fairly used vehicle by cash. He gave a quite interesting example of saving $700 monthly and purchasing a fairly used car for $8,400. Instead of the headache of making monthly car loan payments that can last for numerous years.
Also, buyers with cash can negotiate a much better price on a car since car dealers will be getting their cash right away.
What are some car buying tips that Dave Ramsey recommends?
Thankfully, Dave does have some car buying tips that can help you get behind the wheel. I’ll summarize them below.
1. Have a car budget
Be realistic with yourself and make a budget of what you can afford to pay for your car. If you don’t have the cash to pay for a certified pre-owned or a used car, then you should save monthly till you’re financially capable of that.
2. Cut down on your choices
After making a budget and saving up for it, start looking for a car that fits that budget. Irrespective of your budget, you can always find a vehicle that’s perfect for you.
3. Do your research before you make payment
Check out the Kelly Blue Book value of your car to ascertain that the price you’re offered is fair for the car make, model and year. You should also check the history report of the vehicle to be certain there are no potential recalls on it.
4. Get a car insurance quote
How much more or less are you going to have to pay if you purchase the vehicle? Many insurance carriers have an easy to use insurance quote app that will allow you to gauge price before purchasing the vehicle.
5. Go on a test drive and get a car inspection
The very least you can do is to take the vehicle on a test drive. Check whether the air conditioner and heater works. See if there are any things wobbling such as the steering wheel. Check under the hood.
6. Go at the right time to purchase
Auto Trader states that the best time to purchase a vehicle is the end of the month. It states that the absolute best time to purchase a vehicle is in late December when the different sales goals converge.
7. When in doubt, negotiate!
Depending on where you purchase your vehicle, you may want to negotiate for at least a little discount. For example, for my family’s van, I recently negotiated from $19,500 to $18,500 because of dents on the side of the vehicle.