My cousin-in-law who works as a registered nurse in Saudi Arabia texted me the other day. She’s excited to tell me that she’ll be moving to Texas soon as her visa and working papers are now being finalized.
The chat messages then quickly turned to which model of cars she should be buying. She’s planning on buying a brand new Honda CRV as the interest rate on newer cars is usually lower. This is not surprising because lenders are usually owned by the automakers themselves (think of Honda or Toyota Financial Services) — they want you to buy new cars.
I can understand her excitement to be able to drive once she comes here. Women are not allowed to drive in Saudi Arabia. They’re not prohibited to buy cars, but they would have to hire a male driver or relative to take them from point A to B.
This has caused me to reflect upon what I have driven in the past and how much they have cost me in total (i.e. TCO or Total Cost of Ownership), including the car’s financing, maintenance, and costs of operation. The interest rate is just one small aspect of the purchase– that is if you really have to finance a car.
Without further ado.
1981 Volkswagen Scirocco
I inherited this car from my parents who bought it from my brother-in-law who was the one who originally imported it from Germany. I drove this car in the 90’s while attending college and many years after.
The car was the ultimate “chick magnet”– I have lots of memories with this car. One of such memories, unfortunately, is accidentally burning my right hand with hot pressurized coolant after I dumbly opened the cap of an overheated radiator (ouch!!!). PTSD is probably the reason why I’m wearing goggles. To this day, I’m so grateful that I didn’t burn my “relatively” beautiful face.
Having the privilege to drive a car to college in the Philippines is one thing; driving an exotic one (very few Sciroccos exist in the country) is another. The problem that I had was buying the replacement parts. I had to buy them from a European car parts specialist at a premium. Of course, this was before shopping on the web became an option.
The car was relatively fuel-efficient as filling it up with 20 pesos worth of gasoline (around 1 US dollar in 1990) was more than enough to drive me to school 10 kilometers away and back in heavy traffic. At least that’s how I remember it as back then I didn’t always have the money to fill up the whole tank in one shot.
It’s the same car that we were using when my eldest son was born. Having a 2-door car was a big hassle when you have a baby– my son always ended up on his mother’s arms in the front seat. Shocking by western standards, but this was a time before wearing seat belts started being required in the country, let alone child seats!
The thing started dying when a reckless 17-year-old rammed into it after ignoring a stop sign. Fortunately, we all survived the accident or I would not have lived to start this blog.
|Purchase price||N/A (inherited)|
|Rough total cost of ownership||N/A (parents paid for most maintenance)|
|Cause of death||Car crash (no replacement parts)|
|Takeaway #1||Parts availability is important.|
|Takeaway #2||Don't buy a 2-door car if you have kids.|
|Takeaway #3||Don't remove radiator cap while car is hot.|
1983 Plymouth Reliant
This is the first car that I owned after migrating to the states in 1997. On paper, I bought it for a mere $1 (for tax purposes). But it’s actually a “gift” from my brother-in-law who was very happy to finally get rid of his junk.
The car didn’t have a working air conditioner or a heater, but that didn’t stop me from driving this beater for well over a year. I had to drive this with either the windows slightly down in the summer or completely up in the winter, during which I had to bundle up really well while driving as temperatures can go well below 0 degrees Celsius.
Not only did the thing look old– it sounded old too. Many times I noticed my kindhearted coworkers wait for me to leave the parking lot after hearing the engine struggle just in case I needed help. For the same reason, I got pulled over more than once by cops asking for vehicle inspection papers, which I didn’t have– I had to pay a fine.
The funny thing is that the fine was much less than the amount that I would have spent getting the thing in shape to pass the inspection. So I continued to operate the vehicle illegally for more than a year. Fortunately, I didn’t get into an accident, or I would have faced a much heavier fine or worse thrown in prison.
The bright side is that I didn’t have any car payments– I was able to save up for a down payment on my next car.
|Rough total cost of ownership||< $2,000 (I didn't own this car long enough)|
|Cause of death||It was already a zombie when I was driving it.|
|Takeaway #1||Driving clunker cars (fully paid!) can help you pay cash for a newer car.|
|Takeaway #2||Never drive illegally, you can get arrested.|
|Takeaway #3||Have your old cars inspected. Cops are on a lookout for older cars.|
1996 Mercury Sable
It was a two-year-old used car that I bought for around $16,500. The original MSRP was around $20,000. What I did know back then is that American cars tend to depreciate more than their Japanese counterparts– I’m getting more car for the price.
What I didn’t pay much attention to was the cost of financing. So I took out a $14,500 auto loan at 12% interest payable in 60 months– my down payment was $2,000. Fortunately, this was before I ruined my credit. Otherwise, the interest rate would have easily been over 20%.
But all I cared about was that I can afford the monthly payments, which was around $350 a month.
Big mistake. For the first time in my life, I had debt– I haven’t gotten my green card yet (I was on a temporary H1B working visa), let alone my citizenship, but I was on my way to becoming a “normal” American, which is one who is saddled with consumer debt.
Had I continued to drive the clunker to save money by buying a more reliable $6,000 car (with cash!) and invested the $350 monthly on an S&P 500 Index fund, I would have saved $24,000 by the end of the 5-year-term as the S&P averaged over 11% over the same period. I would have saved enough money for a down payment for a house!
The bigger mistake is that I didn’t take good care of the car as much as I should have. I could have kept it much longer than the seven years that I owned it. I didn’t follow the regular maintenance schedule– 3,000-mile oil changes became 8,000 miles. And that didn’t help to lower the operation cost of this vehicle. At 20 miles per gallon, it wasn’t fuel-efficient by today’s standards. Fortunately, gasoline prices were very affordable back when I was driving this vehicle.
It’s a wonder that I was able to drive this car coast-to-coast twice. This was the car that I drove for more than 50,000 miles in one year. This beast can run fast, really fast. There was this one time in rural Kansas that I got pulled over by two different cops within the span of 30 minutes. I ended up showing the second cop a freshly issued speeding ticket from the first. He ended up reducing the fine to a much lesser seatbelt violation as a compromise even though I was wearing a seatbelt.
I wanted to keep the Sable as it was a decent car. But it suddenly died in the middle of the highway while I was driving to work, one winter day in 2005. Fortunately, I was able to maneuver it to safety.
|Years driven||1998 - 2005|
|Rough total cost of ownership||$45,000 or $6,500 per year (including financing)|
|Cause of death||Neglect|
|Takeaway #1||Avoid financing a car. Pay cash as much as possible.|
|Takeaway #2||Buy used cars to lower financing costs, especially if your credit is not yet established.|
|Takeaway #3||Neglect your car and your car will neglect you.|
|Takeaway #4||Don't drive fast in rural Kansas.|
2006 Honda Civic LX
When the mechanic told me that the Sable’s engine needed to be replaced, I decided that it was time to buy a fuel-efficient car. We’ve been saving for this emergency for the longest time anyway. But I have to admit, I was excited to finally buy my first brand new car that I can pay in full.
I went to the dealership hoping to get a good deal so I can pay cash, but I chickened out the last minute and opted to get a loan instead. I ended up having consumer debt again. But this time, I had a bigger down payment, shorter-term, and lower interest rate as my credit had been fully repaired.
Being much wiser, I also paid the 2-year loan ahead of schedule, paying it off completely within 6 months saving me hundreds of dollars in interest payments.
The worst feeling that you’ll ever experience with a brand new car is your first accident like when I accidentally hit a curb with my Civic’s bumper creating a big dent the size of a football. Good thing I found a quick and easy solution on YouTube that requires the use of an ordinary hair dryer.
The car was more reliable than the Sable. But it didn’t come without problems. The cheap plastic material in the interior breaks easily and I had to replace a bad sun visor. I also had the power-windows fixed and air-conditioner replaced by the dealer.
This is the car that I drove for over 130,000 miles in the span of 6 years.
|Years driven||2006 - 2012|
|Rough total cost of ownership||$35,000 or $5,800 per year (including financing)|
|Cause of death||N/A-- my son inherited it.|
|Takeaway #1||If you have to take out a loan, pay it off sooner.|
|Takeaway #2||Smaller cars have lower operating costs.|
|Takeaway #3||You can use a hair dryer to fix a bumper dent.|
2012 Toyota Prius C
My eldest son needed a car for college, and my old Civic was the ideal car for him. It was also the perfect opportunity to replace it with an even more efficient car– the Prius C, which I wanted as I have a very long commute (80 miles roundtrip).
The Prius is one of the ugliest cars that you can buy. But what matters to me is the fuel-efficiency. The Prius C, in particular, was ranked as the most fuel-efficient hybrid vehicle on the planet when it was first released. It was rated 46 mpg in the highway and 53 mpg in the city. I was able to recoup the premium that I paid for buying a hybrid in the form of lower operating costs in just two years.
I wanted to buy a used regular Prius, but it was a bit pricier. I was also deeply concerned about the risks of buying a used hybrid battery, so I bought it new. I later realized, after driving the thing for 120,000 miles, that the battery is very reliable as it still works as well as it had when it was new.
Unlike my other cars, I paid for this car in cash, which I’m sure the dealership didn’t appreciate much– they make most of their money from the financing deal either by acting as the middleman or being the lender themselves.
You can argue that I could have made more money by investing the money in the stock market, but I don’t regret this decision. Besides not paying a dime on interests, paying cash allowed me to have full control over the insurance coverage and increase my monthly cash flow.
Not only that, owing the bank money sucks– you don’t really own it until it is paid in full.
No car payments mean I have more money to put into other more important things like my kids’ college education and retirement. Not only that, owing the bank money sucks– you don’t really own the thing until it is paid in full.
The thing almost got totaled in 2013 when I got sandwiched between two cars sustaining $13,000 in damages. I also got maliciously sued in the process. Fortunately, I was adequately insured. I didn’t have to pay anything besides the $500 deductible.
Given the mileage and the accident history, I probably won’t be able to resell this car for any substantial amount. But that’s okay because I’m planning to drive this until the wheels fall off anyway.
|Purchase price.||$20,885 (paid cash)|
|Rough total cost of ownership||$30,000 or $5,000 per year|
|Takeaway #1||Cash is king. Save up and pay cash for a new car.|
|Takeaway #2||Hybrids are worth it only if you have a very long commute.|
|Takeaway #3||Pick fuel-efficiency over good looks.|
All in all, the Toyota Prius C is the most reliable car that I’ve ever owned. The dealer didn’t recommend a single repair before or after the accident, not even once. So there’s probably a lot of truth that Toyotas are the most reliable cars that you can buy. Of course, I have driven other cars, but they don’t count as they were either rented or owned by my wife.
Hope this post raise awareness of the overall cost of owning a car and not just the purchase price.