How to save money on a car. Part 2.

In the previous post, we learned that buying a second hand car is a financially wise choice since depreciation in the five first years of a brand new car will cost you 565,000 php while it will only cost you 160,000 pesos if you buy a five year old car and keep it for five years.

Depreciation is the biggest cost of ownership. The second one being the cost of financing.

It is estimated the bank charges you 42,000 pesos a year for getting a loan. If you add this up, it's 210,000 for your 5 years loan.

I hope you'll realize now that your 965,000 Mazda 3 will cost you 1,175,000 by taking a loan.

Let's recap for a while:

Your Mazda 3 purchase price = 965,000 pesos
Bank financing = 210,000 pesos
Total: 1,175,000 pesos

After 5 years, you'll only sell your car for 400,000.

1,175,000 - 400,000 = 775,000 pesos!

By taking a loan and by buying a brand new car will cost you 775,000 pesos if you sell it after 5 years!

My advice: don't buy a brand new car and don't take a loan.

Just buy a car that you can afford cash. If you only have 100,000 pesos, buy a car sold for that price. If you don't have enough cash for buying the car you want, just save for it. Don't take a loan!

I usually buy a car that is between 200,000 and 300,000. I pay it cash.

Let's say you sell your 200,000 car after 5 years for 100,000. The depreciation will only be of 100,000 or 20,000 per year. Since you didn't take a loan, there's no bank financing charges. It's still much cheaper to lose 100,000 in 5 years than 775,000 for the same amount of time.

I know that a second hand car will need maintenance and fixing. On my 200,000 car example, I estimate to spend around 100,000 pesos on maintenance.

I'm not saying that you shouldn't buy brand new car. I'm sure there's no other best feeling than driving a brand new one. At least, with these simple mathematic computation, you'll know how much it will cost you and you can compare it to other options like buying second hand.