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Deciding on a Car: New or Used, Big or Small?

Regardless of whether you decide to buy or lease a car, you need to consider the value of the car you're getting and what you can realistically afford. Sure, you might be able to borrow $20,000 or $25,000 to buy that Toyota Camry, complete with all the op-tions, but why would you? If you want a new car, look at everything available.

Consider this. If you borrow $25,000 at 8 percent interest for a Camry and pay it back over four years, you'll pay about $610 a month. If you borrow $15,000 at 8 percent interest for the same four years, for a Honda Civic, you'll pay about $366 a month. That's a difference of $244 a month. If you put that $244 into an investment that averages an 8 percent annual interest every month for 35 years, guess how much money you'd have? More than half a million dollars! No kidding—you'd have $560,000.

To get a better idea of how much specific cars cost, check out Intellichoice (www. intellichoice.com), a website loaded with all kinds of car stuff. It lists best over-all values for cars of various sizes, and its categories are divided into price ranges.

You're probably going to buy several cars before you hang up the keys for the last time. Money you save now and invest will buy you more cars and other extras you might want later on.

And who says you need a new car? Yeah, you're taking a chance if you buy a used car out of some guy's front yard, but many reputable car dealerships offer a good selection of used cars—known these days as certified pre-owned vehicles—complete with extended warranties and other perks. These cars can be had for a fraction of what they'd cost new, and if you take good care of yours, it should give you years of service.

If you buy a used car for half of what a new one costs, you can afford to pay a greater percentage of the cost up front and have to borrow less. Your monthly payments will be less, giving you more money for other things. If for some reason you think you must have a new car instead of one that's been used, consider that the minute you drive the new car off the lot, it's lost a percentage of its value. It's already a used car, and you haven't even gotten it home yet!

Car Buying and Social Responsibility

Along with nearly everything else in this country, there are politics built into car buying. Despite calls to decrease our dependence on foreign oil, small businesses are offered incentives that seem nearly too good to pass up to buy gas-guzzling SUVs. Patriotism is somehow connected to buying a big Ford or Dodge pickup, despite constant warnings of declining air quality and global warming.

Regardless of your views on vehicles, foreign oil, politics, and environmental issues, we all could benefit by taking a hard look at what we really need in a car or truck. Sure, if you've got three kids who have lots of friends, a boat to tow, and live in a snowy region of the country, then an SUV probably makes sense. If you're a single person who drives a Hummer because you like the way you feel when you're in it, you might want to examine your motives.

Statistics in May 2004 showed that the average American driver is logging up 12,000 miles a year, up nearly 2,000 miles from two decades ago. And, the vehicles we're driving are bigger and heavier and use more gas. With increasing concerns about global security, ongoing war in the Middle East, and our environment in the balance, perhaps we all should take a look at our cars and driving habits.

Taking a Look at Hybrid Cars

The first hybrid car—a car that uses a combination of gasoline and an electric motor powered by a rechargeable battery for fuel—was released in the United States in 1999. Since then, consumer interest in hybrids has skyrocketed, probably largely in response to rising gas prices.

Hybrid cars contain smaller engines than traditional vehicles and use the battery to get extra power when going up a hill or accelerating quickly. They're lighter and more aerodynamic than traditional cars as well. Although the car's motor gets power from a rechargeable battery, the car owner doesn't have to remove the battery or plug it into anything to charge it.

Show Me the Money

A hybrid car is one that uses more than one source of fuel to power it. A combination of gasoline and a rechargeable battery are used as power sources.

Pocket Change

To find out more about hybrid cars, check out www.hybridcars. com.

Gas mileage varies among hybrids. The Honda Insight is rated at 60 miles to the gallon for city driving and 66 for the highway. The Toyota Prius gets 51 mpg in the city and 60 mpg on the highway, and the Honda Civic hybrid gets 48 mpg for the city and 51 mpg for highway driving. The first SUV hybrid—the Ford Escape—was released in the United States in August 2004. The Escape gets about 36 mpg for city driving and 31 for the highway.

Analysts say we'll see a lot more hybrids on the road, especially if gas prices continue to increase. Environmentalists praise hybrid cars as being socially responsible, and many drivers are enthusiastic about and interested in the vehicles.

Remembering That Safety Counts

Regardless of the type or size of car you buy, remember that some vehicles are safer than others. Sure, any car can be safe or unsafe depending on how it's driven, but some cars hold up better in crashes than others, giving you and your passengers a better chance of surviving. You also can get better insurance rates if you drive a car that's rated as safe.

How can you find out which cars are safer? One source is Consumer Reports. Each year, they publish a list of the 25 safest vehicles, based on how well they're designed to avoid a crash and how they hold up in the event that a crash can't be avoided.

Safety counts, especially once you start hauling kids in your cars. Remember, though, that no vehicle is safe if you're trying to talk on your cell phone, eat your lunch, and listen to your favorite CD while you're driving.

More on: Family Finances

Excerpted from The Complete Idiot's Guide to Personal Finance in your 20s and 30s © 2005 by Susan Shelly and Sarah Young Fisher. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.


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