Monday, July 4th, 2016
A few years ago, my colleague went through an “aggravating car story" that's worth sharing. At the time, Louis-Philippe (also fondly known as LP) owned a little compact car. It was a modest and well-aged vehicle that worked just fine for him, allowing him to go from point A to point B at a low cost. That is, until the transmission gave up.
The mechanic confirmed that the cost of the repairs would be more than the current value of the car. Within a few hours, LP left the dealership with a brand new leased car, convinced that he had gotten a good deal. At the time, he had no idea that his hasty decision would cost him a lot of money. Here are the lessons he's learned from this adventure.
Don't let pressure prevent you from considering all your options. He was given a choice between paying for expensive repairs or trading in his old car for a new one. The conversation took place during a test drive in a brand new car, which was already in stock "in case he was interested." When the topic of financing came up, LP was assured that the dealership offered very attractive rates and financing could be easily obtained. The salesman said: “Why would you repair something old, when you can replace it with something new at a lower cost?" From this moment, the idea of repairing the transmission seemed a bit ridiculous. The convincing speech then continued with a perspective of the advantages of leasing over buying new outright. Louis-Philippe remembers: “I was attracted to the lower monthly payments of a lease because I didn't have a big budget, and the salesperson knew it."
Read the entire contract, including the small print. At the end of his lease, Louis-Philippe took a closer look at his contract. He read and reread the extensive list of clauses written in tiny print on the contract. He now had to decide if he was going to buy the leased car or give it back and pay more fees for wear and tear. The fees included charges for any visible defects as well as damage from normal use, like scratches and dings.
Crunch the numbers. When he calculated his monthly payments and the residual value of his car (what he would have to pay to buy it at the end of his term), he realized the extent of his mistake. Over the life of the lease, his car had cost him approximately $10,000 more than he would have spent by buying it outright! That came as quite a shock, and his pride took a big hit. Louis-Philippe explains: "I've always been an excellent saver, and I normally manage my money a lot better than that!" He realized that buying the car instead of turning it in was, financially speaking, the best possible option.
Save, save, save. LP swallowed his pride and freed himself by buying his car in cash, as he'd saved enough in the meantime. That way, he could get rid of the lease and the dealership. Saving towards a future purchase, an unexpected repair or an unforeseen event is always a good idea because it helps you keep better control of the situation.
Louis-Philippe is still driving that car. And although it's a modest and well-aged vehicle, it works just fine for him, allowing him to go from point A to point B at low cost.
...and as for the transmission? Well, so far, it's still working like a charm.