We have older cars. Mine is a 1998 Ford Explorer with 160K miles on it. Hubby's is a 2004 Kia Optima (which used to be mine) with probably 120K miles. You might think that we need to get new cars, I think not.
Most people finance their cars for about 5 years (most are 6 years). I work in the car industry and handle deals all day, so this is an educated estimate. They pay on average $550 a month for those 5 years. Can you imagine walking into a car dealership and handing them $33,000 in cash? Nope, either can I. But we have no problem financing a $20,000 car for 5 years and paying that $33K.
Why? Because we want the best. We "deserve" the best. We don't want people to think we are broke. We think we are getting a more reliable vehicle. This isn't necessarily the case. I was a service adviser and I saw a ton of new cars come in for all sorts of reasons. Now that I am in accounting, I see repair orders every day at work. Our used versus new repairs are pretty even. I see new cars come in two weeks after it is sold with problems. Granted, the repairs are covered under warranty, but you are making a car payment. So you are paying for that warranty.
It took me hitting rock bottom that got me out of a car payment. I will never go back to having one. As you know my husband lost his job and was out of work over a year. I had a very difficult time making my car payments during this time. The bank took my beloved van back. After meeting with one of their financial counselors, it was decided it would not be a good idea for me to get the van back. I was devastated. Months later I am so very grateful this happened.
I was forced to gather what money I could and get a used cash car. I ended up with a 1998 Ford Explorer. The radio doesn't work. The control's on the door fall into the door at times. But it starts every time and I don't have a car payment putting me into an early grave every month.
Yes, we do have to pay for upkeep and the occasional repairs. The Kia has needed maintenance for awhile. We finally were able to take it in and get some work done. We need to do another $2500 worth of stuff, but then it will be like driving a new car. And better yet, instead of paying $6600 this year on car payments for it, we will have spent half that. Freeing up the rest of the money to go into sinking fund (see Dave Ramsey), to save up for a "newer" used car. You also have to realize that you do not have those repairs every year. If we had done it over time, it would have meant $1000 a year in maintenance.
More about that sinking fund. If we put $300 a month (for 2 years) into our sinking fund, we can have $7200 to put toward a newer vehicle. That is on top of what ever we get for our trade in. If we can make the car last for three more years, we will have over 10 grand. You can get a pretty nice used vehicle for that amount. One you own outright. You won't have to worry about losing your job and not being able to make car payments. You will have transportation to get you out and about to find another job. You won't have the fear of waking up to having your car gone, taken by the bank.
So please think twice about trading in your recently paid off car for a new one. If you can pay cash for a new car, do it. Though I recommend one that is a year or two old. Depreciation sucks big time. If you do only one thing that Dave Ramsey recommends, I would say do this. It will change your life. It will fee money up to do more things. You can do it.