I am graduating college soon with a job lined up making 100K a year at an area with relatively low cost of living. I am fortunate enough to have no debt whatsoever (thanks mom and dad!). I am currently in the market to buy a car and looking at buying a used 2018-19 Audi A4 with 10K miles, which comes out to be around 27K (I've always wanted to own an Audi since I was a little kid). After doing some research, I am finding out that German luxury cars are endless money pits. As someone who's in my early twenties, is it okay to splurge on a used luxury car? Would I be considerably wealthier in the long run if I opted for a Toyota Camry or Honda Accord? I will be able to put 10K as a down payment.
Of course you'll be considerably wealthier in the long run (and the short run!) if you buy a reliable, low-cost car rather than an expensive, high-maintenance car. That's nothing but simple math.
More importantly, it falls under the heading of "don't piss away your money just because you have a lot of it."
The problem is that if you get in the habit of buying all this cool stuff because You Have A Lot Of Money, then before you know it you're up to your eyeballs in debt, while managing it because of your high income. And saving a minimal amount.
But then you:
- lose your job, or
- hate your job and need to quit, or
- want to get married or
- buy a house or
- have a Pregnancy Event.
Suddenly, you're underwater and in deep trouble.
Bottom line: live noticeably below your means (without being miserly), because money brings choice to do and be things that people without money can't do.
There's no right answer -- car loans are generally "bad" debt because the car is a depreciating asset. So financially, not needing to get a loan is by far your best option.
That said, if you can afford the payments and have a desire for a luxury car, it's ok to treat yourself -- wisely.
Me, I'm a car nut. I totally get it and and have overspent on cars. You have to pick your luxuries carefully.
My final advice: don't get an Audi right away. You are young and have plenty of time to search for the perfect car. Buy something a bit more practical for now and start saving now while the long-term, compound interest is most powerful (because you are so young). I think one of the best values in used cars today are Chevy Volts from 2015-2017. They're fun, peppy, hybrid plug-ins, get great mileage, excellent reliability and maintenance, and since Chevy discontinued the model, they are inexpensive for what you get. You can buy them for $10-11k in fantastic condition. They have a higher-end trim model that's worth the premium, especially used.
Sure, $100,000 per year grants you quite a few luxuries and a $27k car is easily in your realm of affordability.
First and foremost: secure the job
Don't you dare buy an expensive car before having been employed for at least one month.
Out of college I was making about $40k and purchased a brand new $30k car after working for 6 months. 6 months later I moved into an apartment with my girlfriend who was also working and never felt crunched for money; car was paid off in about 3.5 years. 9.5 years later I still drive the same car because I've technically paid $263 per month for it plus repairs and will squeeze every dime of value I can from it. Luckily I've only had to do routine maintenance on it. The repairs have costed about $4500 and $2,000 of which was done by a shop (mainly tires, alignments, and other things that came up during inspection which I didn't want to deal with).
Whether or not an Audi is a good choice will depend on your experience as a mechanic. At $100k salary you could easily jump into a more reliable car if the repair expenses get overwhelming.
"Endless money pit" - sounds like a favorite YouTuber of mine, Scotty Kilmer. Listen to Scotty and stay away from that Audi. If you want to drive one, rent it by the day from Silvercar.
Forget "$10k as a down payment." You can get a reliable, economical car for $8k. E.g., a 2014 Honda Insight.
Stack your cash, go to Bogleheads or Mr. Money Mustache to get inspired to save.
There's a lot of good advice in the answers posted.
My two cents is that when I was your age, I bought used cars. They always involved a fair amount of problems and repairs.
Now, I would only buy a new car. They're built better and many offer warranties of 5 years and 60,000 miles. I bought a Toyota Camry in 2003 and apart from expected wear and tear (new tires, battery replacement, standard maintenance), I have had one repair in 17 years.
The big difference between us is that I now buy cars for cash. You're new to the work force and you have to determine when you can afford a new car (loan) as well as whether you prefer to go the frugal route (used). I vote for new when it's practical financially.
A luxury car purchase isn’t unreasonable for the salary you’ll be making. What you really need to figure out is if the Audi is worth the cost over what you would pay for a reliable used Honda/Toyota commuter car.
I’d recommend test driving the Audi, as well as the at least one of the cheaper options you’re considering. If the A4 is everything you’re imagining it to be and is going to put a smile on your face every time you drive it, go for it. Just remember that you’re paying a premium for a car that is going to be expensive to maintain and require more maintenance than the other options you’re considering.
As others have said, you’ll obviously be better off financially if you buy a cheaper car. However, at your salary you have the money to splurge on one or two aspects of your life, but if you splurge everywhere, you’re going to be broke and living paycheck to paycheck.
Ask yourself if you had to pick one or two items to splurge on from the list below, would a car be one of your top picks?
- Financial Security/Investments
First, I am assuming that you are in the United States.
I think loans to buy depreciating assets for personal use are a bad idea. Hence, I would avoid them. You seem to be doing very well financially. If I really liked an Audi I would look to buy one used and pay cash. I would then save up enough money to buy a new or slightly used Audi. At that point you could buy the car you really want or want until your car had to be replaced. The second would result in a larger retirement nest egg.
Dropping my 2-cents too. Obviously you are “richer in the long run” if you buy a lower-maintenance non-luxury car compared to a relatively high end car luxury car; hence the difference between luxury and non-luxury.
Cars are (generally) never a good investment; so you need to consider if it is worth it to you - no one else can answer that for you.
A friend of mine sees cars as a means of transportation only, so if the car fits his family and needs, he doesn’t care. With that mindset, the choice is obvious - buy the cheapest option.
Personally I like cars, and my first car was a high-spec used BMW 3-Series. Was it financially the best choice for my need? No! Was it expensive? Yes!! Was it worth it? Yes!! Would I choose differently could I go back? Most definitely not. It hurt the day I had to sell it to buy a house; and now I drive a “responsible” family Toyota that I couldn’t care less for (gets the job done, nothing more nothing less).
Best advice I have ever heard about cars. If you do not turn back and take a look at the car every time you park it, you bought the wrong car.
That being said - obviously you need to consider financials, don’t buy something you can’t afford to maintain. Expensive cars are expensive in every way; they are more expensive to repair than cheaper cars, parts are more expensive, they are more expensive to insure etc. - so keep that in mind.
You could consider buying an A4 that is a few years older; purchase price is going to be much cheaper - and they generally age really well compared to cheap cars with regards to the cockpit, infotainment, specs etc. - so it won’t feel like an old car. Some repairs may be expected though.
For a almost new car I wouldn’t be so worried about repairs as long as they have been properly maintained and serviced.