Those who hang on to their paid-off vehicles reap benefits beyond just freedom from monthly car loan payments. Older cars, like Frugal Dad’s 20-year-old van, might not turn heads but make up for their lack of pizzazz in other ways. Insurance premiums are significantly lower on older cars. Some states have reduced registration fees and much lower personal-property taxes for older models as well.
Note from Frugal Dad: I’ve been doing some work on the old van, and when I get it running again and cleaned up, I plan to share some pics. It occurred to me that I’ve talked about her for years, but never shown her off. Stay tuned!
Many consumers try to justify the purchase of a new car by saying that maintenance costs on an older vehicle negate the financial benefits. According to a 2010 Kiplinger article, barring a catastrophic mechanical problem, it is nearly always cheaper to maintain and operate an older, paid-off car rather than carry a car loan.
Bankrate.com, an aggregator of financial rate information, also advises consumers to hang on to their cars until the bitter end. Everyone knows that a new car’s value plunges as soon as it is driven off the lot. Depreciation is rapid for the first few years but levels out after eight or nine years. If you have a well-maintained, paid-off car in this age range, pat yourself on the back: your car is now holding its value well.
Drivers may be starting to wake up to the benefits of buying and holding. According to the automotive market research firm R.L. Polk, Americans are keeping their new cars for an average of 63.9 months, a figure that has been trending upward since 2008. Figures on used cars are also climbing, with 46.1 months as the average period of ownership.
For many people, having a new, luxurious, or otherwise impressive vehicle is very important. They may feel that their car reflects their social status, denotes professional success, or projects style and sophistication. No longer merely a contrivance to ferry passengers from point A to point B, in our culture, the car has morphed into a statement of self. Many people are so caught up in appearances that they neglect to save for their retirement or their children’s education in order to drive expensive cars.
I suppose I fall more into the buy-and-hold category than the shop-to-impress category: I’ve had the same used Honda CR-V for the last 12 years. I’ve logged about 146 months and have racked up nearly 179,000 miles, many of which have been accumulated on the punishing roads of Costa Rica. Although one of my friends recently pronounced my car “old and shabby,” I am unperturbed. I don’t expect to match my father’s record, but somehow, I think he would approve just the same.