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Earlier I posted a link to a story that indicates that new cars are more affordable than they have been since 1980. This prompted a couple of you to e-mail me your car stories. An anonymous reader wrote to share the following:

I’ve purchased two new cars in the past six years, but the experiences couldn’t have been more different. The first car was a Honda Civic purchased in 2000 just as I was finishing college. As a smarty-pants software developer entering the twilight of the dot-com workforce, I had little concern about the cost or value of the car. I knew that I would be wealthy with my new job, but for the next six months I still had to live on student wages. I felt that I needed a car soon before entering the workforce.

Therefore I leased the car. Also, I paid $2000 down and got myself into a three year commitment for about $250 per month. The sticker price was about $16,000. For those of you keeping score, that is $9,000 in lease payments. Factor in the down payment and I paid $11,000 to drive a car for a few years.

It gets worse.

My then-girlfriend borrowed the car and had a little accident. She was a broke college student and I was a newly minted professional beginning to realize that a $50,000 job doesn’t stretch nearly as far as it sounds when you take on real-life living expenses. She had no money to cover the body damage costs and the deductible on my insurance was so high that it was impractical to repair the dents.

A year later, when the lease was matured, I had three choices:

  1. Buy out the lease for $8,000
  2. Return the car and pay whatever price the dealer dreams up for covering the body damage
  3. Pay out of pocket for someone to fix the body damage

The last two choices were complicated by the fact that I needed transportation one way or the other and $8,000 seemed simpler, so I got a car loan and bought the lease. So far, the $16,000 car had cost me $19,000!

I started to become wiser about money, and realized I had done everything wrong. I paid down the loan rapidly and incurred the minimum interest charges. Once it was paid off, I created a virtual car payment into a high interest bearing account, which leads us to the better story.

My next car purchase in the spring of 2006 was quite different. Through frugal living and sensible investing my wife and I saved up about $40,000 and began looking for a new car. We were partial to Volvo and considered a new model but it would have cost around $35,000. We didn’t like the idea of burning up years of frugality on one purchase so we looked carefully at auto auctions and internet listings for used cars. We had months to watch for a good deal and we found a 2004 Volvo with 8,000 miles selling for $24,000. We negotiated the price down to $21,000 and invested the savings. Today, we have another virtual car payment for when the Honda Civic reaches the end of its life — we expect to pay cash again.

A few key differences between these two car buying experiences:

  • I rushed the first transaction, but was patient for the second.
  • I anticipated being wealthy for the first, I was wealthy for the second (in as much as my habits are concerned)
  • I bought (actually leased, borrowed and then bought) the Honda new, I bought the Volvo used
  • I borrowed for the first, I saved for the second
  • I negotiated for the Volvo, I paid the asking price for the Honda

Naturally, I was in a different stage of life for the second purchase. But many people resign themselves to perpetual car loans when they shouldn’t. It is difficult to make good financial decisions right out of college, but I could have applied some of the good habits in the second transaction to the first. I hope the story offers some perspective and inspiration for others.

If you have a story about personal finance that would help readers of this site, please drop me a line.