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Now we can compare two decisions. If you had bought new 2005 you would have a paid off 2005 in 2011 and you would have paid interest ($3,623.40 to be exact) on top of purchase price. Using our example you could have had a 2006 one year later in 2012 completely paid off and your money made interest for you while in your savings account.
These numbers are all conservative and you could do much better by continuing to save and delay your used car purchases longer than one year. This would be best thing to do so that you do not keep losing value on selling cars.
For example, if you kept saving and bought a used car every two years you could have bought a 2008 Honda Accord in 2012 completely paid for. When you stretch out your used car purchases while continuing to save, you can purchase much newer vehicles. With this method you can always purchase newer used cars and never pay interest to anyone.
The key to making this work is disciplined savings. If you have decided that you can make a new car payment, you can put money in a savings account earmarked for used cars.
Also remember that since you do not have a car payment, if you have a financial problem like a job layoff etc., you will not have to worry about losing your vehicle. Driving paid for used cars is a wise financial practice. It is said that it is millionaires that purchase and drive used cars. It is those in deep debt that drive new and leased vehicles.
The prices for these vehicles all came from Kelley Blue Book. The purchase prices are just under KBB retail value and selling prices are just over private party value. The values that I used were conservative and you could do much better, especially if you hold onto your vehicles longer while continuing to save.
John Cook is the author of Finance For Families.com, a website designed to assist families in making smart financial decisions. The burden of seemingly insurmountable debt is destroying too many families. You can read more at http://www.financeforfamilies.com.