How to save money on a car. Part 1

Back to the study assessing the cost of car ownership, we learned that a normal sedan costs us 195,000 php a year.

The biggest chunk of this cost is:

1. Depreciation around 85,000 pesos
2. Cost of financing around 45,000 pesos

It means that if you want to reduce the cost of ownership of your future car,  you must work on one of those.

1. Depreciation:

Since depreciation is a big cost, why not buying a car that has depreciated already. Yes, it means a second hand car.

Let's study 2 cases. Let's compare buying a brand new with buying a second hand car.

I love the Mazda 3. It's a beautiful car well made and that drives really well. I'll use it for this example.

Let's buy a brand new Mazda 3 and sell it 5 years after. Let's also buy a 2010 Mazda 3 and sell it 5 years later.

The prices are based on the selling price found on www.olx.ph.

Here's the comparison:

A brand new Mazda 3 costs 965,000. If you sell it 5 years later, you can expect to sell it at 400,000. 

A 5 years old Mazda 3 costs around 400,000 and if you sell it 5 years later, you can expect to sell it 240,000.

It becomes obvious that the brand new car will depreciate at a much faster rate than the second hand car because it has already depreciated a lot.

The brand new car will lose 565,000 of its purchase price while the second hand one will only lose 160,000.

What a difference!

The difference is roughly 400,000 pesos!

In the span of 5 years, you will lose 400,000 pesos if you buy a brand new car. That's roughly 80,000 a year.





Of course, most people hate buying second hand cars. They think you have to spend a lot to repair them. My question is: do we usually spend 400,000 on our second hand car? I don't think so.

Will the brand new car and the second hand car achieve the purpose of bringing you from point A to point B every day? Yes, both of them will!

Is a brand new car worth the depreciation of 400,000 pesos in the span of 5 years compared to a second hand car? I believe it's not.

This is why I buy second hand cars. Some people think I'm a fool because technically, I can get a loan to buy a brand new car but I still stick with a very very old one. This is the reason why! My friends will lose 400,000 on their car and I'm losing much much less in the same amount of time.

To be continued...