Car-buying can be tough in a marriage, particularly when one spouse isn’t thrilled to buy a new car. Hope and I have been married for over twenty years and have found the process to be a struggle.
I’m a Tightwad, someone who typically experiences pain from making a big purchase. There's no chance I can agree to borrow money to buy a car. Hope doesn’t have any issues with spending money. She’s responsible but happy to borrow money to buy a car.
The Conversation and Considerations
Buying a car as a couple involves more than just choosing a model and color; it’s a financial decision that requires teamwork and thorough discussion. The process should begin as a conversation on a Money Date.
Is a Different Car Necessary?
Cars are expensive, and their value declines over time. Most financial experts agree that a vehicle is a costly desire for many of us. If you decide based purely on the financial math, a low-cost car or public transportation is the answer. But it’s not always that easy. A different car or a nice new vehicle might not be necessary, but it can be something your spouse really wants.
Saving for a Vehicle
Ideally, your goal is to save for a vehicle and eventually pay cash. If that is the case, we recommend two helpful tools.
Raisin
My wife and I use Raisin for our high yield savings accounts and love it! The Raisin platform connects users in seconds with a variety of FDIC-insured local banks and NCUA-insured credit unions high yield savings accounts to compare.
Learn more about Raisin.
Tiller
Hope and I also use Tiller as our budgeting and financial tracking tool, which will also love! Our accounts are linked and every transaction is illustrated automatically in one spot. We even get an email each morning with the transactions from the previous day and our current account balances.
Learn more about Tiller.
Your Budget
Calculate how much you can afford to spend. Begin by reviewing your combined monthly income and subtracting essential expenses such as housing, utilities, groceries, and savings.
In most instances, borrowing to buy a car should be avoided if you have the money to pay cash. For those who do borrow, do what you can to borrow as little as possible, ideally no more than 20% of your monthly income on your total car expenses (e.g., car payments, insurance, maintenance, and fuel costs) in your budget.
Related: Review our Budgeting and Taxes page to gather ideas to create a spending plan and better understand the basics of taxes.
Buy or Lease?
Borrowing can make purchasing a car more manageable, but it comes with interest payments. Leasing offers lower monthly payments and the chance to drive a new car every few years but can have mileage restrictions and no ownership at the end of the lease.
Consider your lifestyle, driving habits, and financial situation to decide which option aligns best with your needs.
Click here to use the Lease vs Buy Calculator to calculate your costs.
Gas or Electric?
The values are an approximation of today's electricity and gasoline rates. Customize the inputs to see what kind of benefits you might get when you switch from a gasoline-powered car to an electric vehicle (EV).
Click here to use the EV Savings Calculator.
New or Used Vehicle?
Preferences and Priorities
Lastly, take the time to work through each other’s feelings. One partner might prioritize safety features, while the other might be more concerned with style or fuel efficiency. Discuss your individual preferences and come to a consensus on what features are non-negotiable and where you can compromise.
It’s also crucial to discuss any anxieties or concerns regarding the financial impact of this purchase. By openly sharing your thoughts and feelings, you can ensure that you each feel heard and valued, leading to a decision that strengthens your financial partnership and aligns with your shared goals.
The Cost of Car Maintenance
According to Consumer Reports, the annual average cost of car maintenance on an average 5-year-old 2016 model car is $205. A 10-year-old 2011 model is $430.
The AAA can provide you with an estimate of the cost of car maintenance. Included in the estimate are breakdowns for parts, labor and the member discount available at all AAA Approved Auto Repair facilities.
Click here to access the AAA Car Maintenance Calculator.
Comparing the Cost of a Car to Investing
According to the U.S. Bureau of Labor and Statistics, when I was born in 1977, the average price of a new car was around $15,000. Let’s assume my parents invested $15,000 in the S&P Index Fund rather than purchasing a new car and letting it ride. Twenty years later, that initial $15,000 investment would have been $302,902.13.
It’s not uncommon for folks to purchase a new car every four or five years. Imagine the result of investing what the average person spends on new cars over twenty years.
Buying anything other than a junk car makes no financial sense. Not only are your dollars better served building wealth investing broadly in the stock market, but those dollars disappear when used to buy a vehicle.
A vehicle depreciates, that is, declines in value, over time. Brand new cars just purchased and driven off the lot depreciate the most. According to industry experts, the value of a new vehicle drops by 20% as soon as it is driven off the lot, and it continues to decline over time.
A car will lose 80% of value over ten years. Click here to calculate the cost of your car depreciation.
Underwater Auto Loan
Making matters worse, some lengthy car loans lead to the car depreciating faster than the pace at which the vehicle is being paid off. These car loans are underwater.
In other words, if you borrowed to purchase a brand-new car, you won’t be able to get enough from your sale price to pay off the loan.
The Cost of Car Insurance
There is a high cost of insurance for new cars. If you’re making car payments you must purchase full coverage auto insurance. The cost of insurance should be more than an afterthought. According to Nerdwallet, here are the average costs of auto insurance, per vehicle, in 2024:
The total cost of a car doesn’t stop at the purchase price, insurance, or depreciation. You must constantly work to pay for owning it.
True Cost to Own a Car
Use the Edmunds True Cost to Own Calculator to illustrate the true cost of owning a vehicle. Below is an example using a 2024 Honda CR-V, which is being sold for around $30,000.
The ownership costs below do not include the price paid for the car. As you can see, the cost of ownership over 5 years is more than the purchase price. If you fail to factor these costs into your budget, you’re risking a car owning you rather than you owning the car.
The Psychology of Purchasing a Car
Knowing the right thing to do and doing the right thing are two different challenges. I loved the simplicity of Ken Honda's explanation in his book: Money IQ + Money EQ = Financial wisdom. Think of Money IQ as financial literacy and Money EQ as your emotional reaction to financial decisions.
As an example, broccoli is healthy. But who gets excited about broccoli?
Who in their right mind would choose broccoli over pizza?
Well, someone in their rational mind.
But that's not how we make many of our decisions. Our rational brain is often a slave to our irrational brain, so we eat pizza.
Not allowing our irrational brain to drive our financial choices is arguably more challenging than understanding the correct choice.
Odd Even Pricing
Most cars are advertised as a dollar short of the next thousand. For example, $19,999 instead of $20,000.
Even though the numerical differences are identical, folks judge the difference between $19,999 and $30,000 to be larger than that between $30,001 and $20,000.
The same occurs when comparing the mileage of two cars. There are large and discontinuous drops in sale prices at 10,000-mile thresholds in odometer mileage, along with smaller drops at 1,000-mile thresholds.
Pro Tip: The nostalgia of a beautiful day has been shown to lead to paying higher prices. As far as the time of day, mornings are best, so that is when she went. As the day goes on, decision fatigue will set in, meaning a person's ability to make additional decisions becomes worse.
Dealing with a Salesperson: Personal Experience
I arrived at the dealership to look at a car in the lot Hope already had in mind. The salesman took me outside to a more expensive vehicle than I had asked to see. I knew the salesperson was framing the first price I saw as too expensive, making it easier for the lower-priced cars they showed me next to feel even more affordable.
It didn’t stop there. The salesperson wouldn’t tell me the total “out the door price” when we were outside looking at cars. He was working tirelessly to help me fall in love with the vehicle. Every question about the price was pivoted toward some sort of benefit.
Borrowing to Buy a Car: Personal Experience
When he did talk about the estimated price, he referenced the cost of a car as the monthly payment. This is another example of price primacy; allowing the dealership to do this is a slippery slope. Perhaps this is why, according to Experian, the most common length (term) for a new car in the first quarter of 2024 was 67.62 months for new cars and 67.37 months for used cars.
Focusing on the monthly payment makes it seem more affordable now. The longer the loan, the lower the monthly payments, but the more interest you'll pay over time.
Let's compare a 24-month loan to an 84-month loan. Assume a new car price of $43,072 and an average FICO 8 credit score to determine the loan's interest rate. Despite an 84-month loan costing the borrower over $9,000 more in interest over the life of the loan, it is now one of the most popular term length choices.
Our irrational minds want a nice car. Fortunately, Hope and I agreed not to borrow money to buy one.
Anyhow, I selected the car and was almost done, but the dealership was not done with me. I sat down across from the dealer, who had all the paperwork in hand. Each paper had a little taped flag: sign here.
They made it as easy as possible for her to make an emotional decision.
Pro Tip: If you can, wait until the end of the month to buy when dealers are desperate to reach their quotas.
They tried to bundle three separate negotiations into one offer:
The price of the car I wanted to purchase.
The value of our trade-in.
The interest rate of a loan.
This approach clouds our judgment, giving the dealership the advantage.
People who borrow should force them to separate the deal. We were paying cash anyhow.
The dealer also offered significantly less for our current car as a trade-in than we could get on the open market. My job was getting the best deal for our old car. My attitude jived with the research. Consumers do better when they’ve owned the car for a while and then sell it themselves.
This left the negotiation solely to the price of the car. I walked away when I thought I had received the best offer I would get from the dealer. I told the dealer that I needed to talk it over with Hope.
After all, the dealer can’t negotiate with someone who isn’t there.
Despite the dealer claiming that “time was running out,” the dealer knew the pressure was on him.
Walking away to wait a day before you pay is a strategy that can help prevent overpaying or making an impulsive purchase. Although there is evidence that we’re more likely to make impulsive purchases on smaller dollar items, that doesn’t make it less critical to make a thoughtful and planned decision.
We waited a few days to see if the dealer would call back with a better offer, and they did.
Follow Modern Husbands
Start, Strengthen, or Rebuild Marriages. For couples who want to manage money and the home as a team.
Winning ideas from experts to manage money and the home as a team. 2023 Plutus Award Finalist: Best Couples or Family Content
Winning ideas to manage money and the home as a team delivered to your inbox every two weeks. You'll even receive a few free gifts!