By the end of this lesson, you'll have learned:
Buying a reliable used car
Blowing the entire $36,000 on a new car is a bad financial decision. Sadly I watched many of my classmates spend their entire loan on a new car, which sat in the 1/c lot for a year and then sat collecting rust for 410 days during their first tour while they were at sea. Cars are depreciating assets, guaranteed to go to zero at some point. Personally, I prefer to spend my money on appreciating assets, such as real estate or stocks. And not to get too much on a soap-box, but your self-worth isn't defined by material objects such as the type of car you drive, but rather your actions and character.
I’m not saying you shouldn’t buy a car. As an Ensign you’ll want a reliable car to get to/from duty on time. But you don’t need a BMW 3 series or a brand new Tacoma. I’d suggest looking for a three to five year old used car, such as a Toyota Corolla or Honda Civic for $10k-$15k. Want something bigger? Then buy a five or six year old Rav4 or Hyundai Tucson. Buying a vehicle off a lease can be a great opportunity too. Or better yet, ask around your family and see if someone is looking to get rid of one of their cars. Whatever you buy, own that car as long as you can. "Drive it into the ground" the expression goes.
Tips on where to buy a used car
I’ve only bought one car in my life, so I won’t claim to be an expert on purchasing a used car. But, if I were buying one I would avoid the “Harry’s Used Car Lot” type places and instead stick to a CPO (Certified Pre-Owned) vehicle. Other folks seem to really enjoy services such as Carvana or Carmax. Or if you grew up fixing cars and know what to look for, you may feel comfortable sorting through Craigslist yourself. I know one thing though, I would certainly get a vehicle that is still covered by the manufacturer's powertrain warranty.
A word on depreciation
New cars experience their greatest depreciation in the first few years. For example, a new F-150 loses 29% of it’s value (about $14,000) in the first year! Think about that for a second. It’s over a thousand dollars PER MONTH you are losing to depreciation by buying new. Craziness. Don't be that guy or gal that pays that. Let someone else take that depreciation hit for you!
Another consideration is you don’t yet know where in the country you’ll be stationed. It doesn’t make much sense to have a Mustang in snowy New England. If you get stationed in Seattle, you’ll likely want something with 4WD/AWD to go up into the mountains.
I bought a used Toyota 4Runner that was three years old, off a lease. I still drive that same vehicle today and I love it. It’s 19 years old and it is perfect for me -- has 4WD and lots of space for camping trips. It’s been across the country on three PCS moves. I am so thankful I didn’t buy a new car with my cadet loan. I took the remaining balance from my car loan and maxed out my Roth IRA for the year and kept some in savings.
Can’t I just rent a car or take Uber/Lyft instead of buying a car as a cadet?
Absolutely you can! There’s no reason you need a car as a cadet with so many other transportation options and classmates who will have cars. But I know the feeling of wanting to “reward” yourself after surviving three years in Chase Hall. Another option would be to treat yourself to a really nice dinner, weekend getaway, or fancy pair of shoes. This will scratch the itch and satisfy that craving for a reward, but much better to do it with a $200 pair of shoes than a $36,000 car, right?