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One of the best lessons we can pass along to our children is to learn to live below their
means. This allows them to have more money to build wealth and to be prepared for
unexpected expenses.
Last week, we talked about buying new cars. Buying a good used car may be a
much better strategy for young people. Let's compare the finances. A sporty new Pontiac
Firebird could cost from $18,590 to $30,950. If the purchase price is $20,000 and you
make a 10 percent down payment of $2,000, the loan will be $18,000. If the annual
percentage rate (APR) is 8.5 percent for a 3-year loan, the monthly payment is $564.
What if, instead of a new car, you bought one described as a "good bet" by
Consumer Reports (CR)? A 1992 Honda Prelude falls in the $8,000 to $10,000 range.
With the same $2,000 down payment, the loan for a $9,000 car would be $7,000. At 8.5
percent APR for 36 months, the monthly payment is only $219.
Another good strategy is to keep your car longer, say eight years. After your loan
is paid off (three to four years), put the monthly loan payments in a savings account to
pay for your next car.
Is it possible to get a good used car? Yes. You can get a clean, good-looking and
reliable used car, but it may not have a warranty. Regardless of whether you buy it from a
new-car dealer, a used-car dealer or an individual, you should look at Consumer Reports
for reliability data.
In the April issue of Consumer Reports, reliability data is reported for more than
500,000 cars. The information is gleaned from an annual survey of Consumer Reports
readers. CR says "your odds of buying a reliable used car have never been better."
Reliability is reported for 14 trouble spots, including engine, brakes and
transmission, for models from 1992 through 1999. CR lists the models that have
performed well over the years, as well as models whose overall reliability has been much
worse than average.
Because individual vehicles may be better or worse than their general category,
always take a car that you like to a trusted garage or mechanic for a thorough evaluation.
For more information, contact your local
Colorado State University Extension office.
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