Car math

Imagine with me for a few minutes. I know it seems like a lot, but what I'm about to tell you will blow your mind.

Let's say that, hypothetically, you are looking for a lightly used luxury car. You visit the local dealer and select a nice 2006 Jaguar, attractively priced at $24,000. You buy this vehicle, even though Jags are unreliable and notoriously expensive to maintain. You also purchase an extended warranty so that you can budget for the inevitable repairs. This sets you back $2600 (compare to the $1300 for an '05 Nissan Altima sedan).

Now let's say that you don't have any money to put down on the vehicle; you are planning to finance the entire amount. Again, not an especially good idea. With tax, title and tag fees, you total will come to something like $28,000, meaning that you are effectively paying $4000 over sticker price. Should you pull out the drive and get broadsided by a deer going 55mph, insurance would cover the value (twenty-four grand) of the car, leaving you with a debt of four grand on a car you can no longer drive.

The financing contract has arrived and, look!, you got an interest rate of 13% (low is 4.85%, with the middle-of-the-road being 8.2%) over 72 months! Congratulations! Two-thousand dollars of your hard-earned cash will be spent every year paying off interest on the car payment (already an impressive $560 a month)! By the time you pay your car off in full, you will have given the bank twelve-thousand extra dollars. You altruist, you.

What does the final picture look like? To get the car you so desperately "need", you have decided that you will pay, in the end, close to $41,000 for an originally-$24,000 vehicle. Oh, and you can't get hit by anything in the next six years. That would be bad. 

Now imagine this really happened. Today.