Over the last month or two, my wife and I have seriously discussed going from a two car to a one car household. She’s a seasonal worker, and during her work season she can take the car to work, which would leave me at home without an automobile. During the off season (which is ongoing), she’d be at home, allowing us both to have automobile access during the day.

If we lived in a suburban or city neighborhood, this would be an easier choice for us. The car would be gone immediately - and good riddance, because it eats money.

The average American automobile has persistent costs, even if you scarcely drive it. Car insurance, maintaining the license on that vehicle, and basic maintenance to ensure that it’s roadworthy can add up to hundreds of dollars a year without even driving it a mile, and the second you do take it out on the road, with $4 a gallon gas, oil changes every 5,000 miles or so, other maintenance, and risk of damage, it’s a serious cash gobbler.

Living in a neighborhood where I could walk or bike to every service I need - within three or four miles - would make this decision a no- brainer. We live in a pretty small town, though, one small enough to not even have a proper grocery store - and that makes the decision very difficult.

What Do I Actually Need?

If you’re trying to make a decision about reducing your automobile count, consider what you actually need during the day. I know this is an issue that many home office folks and stay at home parents struggle with, as do single people in urban situations who are considering going from one car to no cars. A vehicle is expensive and getting rid of it would be a huge savings, but the loss of freedom can prove painful.

Make a list of all of the things you actually need an automobile for during the day. In order to really evaluate whether going to a one car situation is really an option for us, I tried to make a list of the resources I actually need during the day.

A library Library use is essential for me. I typically use about one day every two weeks for a library run, where I spend several hours at the library and usually come home with ten books or so. However, I usually go to a library in another town, as our town’s library is very small and has extremely limited choices on personal finance issues.

A grocery store I often go grocery shopping on Mondays by myself without the family around. That would become impossible without a car.

A post office The post office is in bicycle range. I have never gone there on foot, but the trip is realistic on a bike and with a basket on the front of my bike, I could make the trip when I need to (to ship packages).

A hardware store There’s also a hardware store within bicycle range. I often do small home repairs and other such tasks during the day when the family isn’t around.

Some Solutions

WalkScore One spectacular tool in helping to figure out a solution to these issues is to see the resources actually around you and how far away they are, and that’s when the stellar site WalkScore.com steps in.

WalkScore allows you to put in your home address, then lists the services near your location in a bunch of different categories (grocery stores, restaurants, bars, coffee shops, movie theaters, schools, parks, libraries, bookstores, gyms, drug stores, hardware stores, and clothing stores). It also assigns a “score” which provides a rough numerical estimate of how good your house location is in terms of the resources available within reasonable walking distance.

My score is 29/100, which is about what I’d expect given that I live in a small town. There are some basic services within walking distance, but many of the services I need are in larger towns 10-15 miles away.

People in suburban and urban areas have much better scores. For example, I entered John’s address and he got a 60/100, with only movie theaters being more than a mile and a half from his location. Rachel, who lives in an even bigger urban area, got a score of 55/100, with, again, a movie theater being her most distant destination.

WalkScore is a very useful site for determining what services are nearby. The score itself isn’t all that useful other than as a thumbnail comparison, but the identification of nearby services for any address is very useful, indeed. It helped me to identify solutions for my problem areas.

Library solution without a car We could make this into a weekend family stop about once a month, where I go do the research I need to do while my wife and children participate in story time and other library activities, or drop me off there and go to the park or grocery shopping.

Grocery store solution without a car We could simply move the weekly grocery trip to Sunday afternoon and take the kids along each week. Grocery shopping with my wife, my two year old son, and my nine month old daughter is substantially slower and usually a bit more expensive than going by myself, but it’s not a life-shattering difference.

Post office and hardware store solutions without a car In both cases, a bicycle can handle the situation for about seven or eight months out of the year. During the winter months, however, much of the time the weather won’t permit me to go on a lengthy bike ride, so I’ll have to wait until evenings to hit the hardware store and Saturday to hit the post office. Both are mildly inconvenient but doable.

Our Final Decision (Which May Be Different Than Yours)

We’ve decided, for now, to remain a two-car household. Why? Emergencies. If I’m at home during the day working and my wife is in another city working, what happens if there’s an emergency with me or with one of our children? There’s no mechanism for me to attend to their needs. I could take care of it on bicycle, but not in the middle of an Iowa winter. Also, given our location, it’s very difficult for my wife to have a backup car to take to work if our only car were to have problems in the morning.

Thus, our eventual car plan is to get a “main” car that’s very reliable, pretty new, and intended to run for a long time, and then an “emergency” car that I can use in a pinch if I need to, but won’t be used much at all.

What did I really learn from all of this? For us, two cars are pretty important and a move to a single car isn’t realistic, but there are many situations where reducing your family’s car count by one can be a big savings. Don’t overlook it, even if it seems inconvenient at first. Spend some time figuring out what you actually need the car for and whether that use can’t be supplemented cheaply by other tactics, such as walking or riding a bicycle or renting a car on rare occasions. For us, for example, if we lived in a warmer area and perhaps closer to my wife’s place of work, we’d likely go down to one car, and that would save us substantial money each month.

Automobiles are some of the worst investments you’ll make in your life. They immediately start losing value the second you drive them off the lot. They require constant additional cost to stay on the road (in the form of gas, oil, insurance, and repairs). They’re prone to breaking regularly. They’re a potential physical danger. Best of all, when you finally decide to sell it, you get only a pittance of what you paid for it in return.

A very poor investment, indeed, but it’s one almost everyone makes several times throughout their adult years. I’m on the verge of buying my third automobile and this time around, I’m going to do what I can to ensure that it’s a good investment for the long haul.

Here are eleven steps we can all take to ensure that our next automobile purchase is the best investment available.

Buy a late model used.
I’ve seen countless different models that show different potential car buying possibilities and clever arguments on behalf of each of them. Lease a car. Buy new, but negotiate and hit a good sale. Buy the most reliable car with a bunch of miles already on it.

In the end, though, most unbiased analyses seem to point towards late model used cars as the way to get the most car bang for the buck. From an excellent unbiased comparison of used versus new from Cars.com: “If you’re on a tight budget, then buying a used car gets you the most vehicle for the least amount of money.” Since that’s what I’m looking for - the most vehicle for the least amount of money - then it’s late model used for me.

That article does give a lot of reasons for buying new: reduced maintenance, warranty coverage, roadside assistance, and peace of mind. However, these factors are mostly important only if you don’t do adequate research beforehand, and that leads us into some of the other points…

Do your research before you ever approach a car dealership.
The best way to get a poor deal on a car is to not adequately research things before you go to the dealership. If you’re walking out to the dealership without having evaluated some hard data and figured out based on that hard data what you’re looking for, you’re going to wind up with a poor selection.

Before you even head to the dealership to make your purchase, do some research. Hit the library and dig through their car buying guides for the last few years, seeking as much information as you can about different models in the type of car you’re considering. Spend a few hours on it - it’s time that will pay off over the long haul if you know exactly what to get when you head out to the dealership.

Most importantly, you don’t have to know much about cars to do this research. Most of the research tools you’ll use are extremely self-explanatory. For example, Consumer Reports breaks everything down in easy-to-compare numerical scores so that you can quickly tell which is the better option in the areas you’re looking at - and by how much.

What should you be looking for to maximize your investment?

Buy a model that’s known for reliability.
The first big factor to look for is reliability. The first place I look is the reliability reports in Consumer Reports for the last three years. I focus in on brands that have a high reliability factor - Hondas and Toyotas tend to do well in these, while Volkswagens do poorly.

Not only do I look at reports for individual models and years, I also focus on more general reports about reliability from that company. For example, if I were looking at a Ford Taurus from a particular year, I’d also look at all sedans produced by Ford, since they often have most of their parts in common. This will give a broader view as to the reliability of the model you’re studying.

Why is reliability so important? A reliable car will minimize your repair costs over the long haul and also give your car a longer drivable lifespan - you’ll keep it on the road for longer overall and, even better, keep it out of the repair shop. Both will put cash back in your pocket.

Buy a model that’s known for fuel efficiency.
While looking at reliability, I also keep a big eye out for fuel efficiency, the other big area I look at when evaluating a car. For this number, I use fueleconomy.gov to get standardized numbers across all model years. I don’t pay much attention to small differences (up to 2 miles per gallon), but differences larger than that start to add up to significant differences in the amount of fuel your car will drink per year, and if the difference is significant (five miles per gallon or more), you quickly start talking about hundreds of dollars per year (assuming normal driving levels).

Why is gas mileage so important? It’s every easy to demonstrate the power of gas mileage. If one model gets 18 miles per gallon and another car gets 28 miles per gallon, over a normal year of driving (10,000 miles), that’s 198.4 gallons of gas. At $4 per gallon, that’s $792 saved - and that’s a big difference.

Be sensible about the extras your car actually needs.
Most of the nifty gadgets in a car are really not all that necessary? An in-car DVD player? Just get an inexpensive portable one. OnStar? Just use your cell phone and call for necessary services. All wheel drive? If you don’t live on a farm or in an area with severe winters, it’s not necessary.

Focus in on the core features you need and don’t worry about the other fluff. You need a reliable car to get you where you’re going and good fuel efficiency to save you money. The rest? Not really important. Remember, this is about getting the best investment out of your car that you can, and these extra features are simply inessential. Focus on the essentials.

Do due diligence before you buy.
Take the car for a test drive, then take it to a trusted mechanic who will look for problems for you. Also, mark the car’s VIN and do a CarFAX history report so you can know if there are any major hidden problems you might want to know about. Taking these two steps can go a long way to keeping you away from a lemon and helping you to ensure that the car you’re buying is a solid purchase.

This won’t protect you from everything, of course, but it will identify major issues that may be hidden from you at first glance.

Keep it clean.
Once you actually own the car, keep it clean consistently. A dirty car, both inside and out, is a sure way to increase the wear and tear your car will face. Clean out your car regularly, particularly in the spring after the winter weather has passed - the salts and cinders that are used to keep the roads passable are very hard on your car. A spring cleaning can go a very long way toward mitigating that problem.

Follow the maintenance schedule as described in the manual.
Don’t pay any attention to the schedules offered to you by repair shops or your car dealership. Look at your car’s manual and follow that maintenance schedule as closely as you possibly can. Repair shops and car dealerships pad their maintenance schedules with more frequent stops than necessary - these will go above and beyond what’s needed to keep your car running. Instead, trust the manufacturer and save yourself a pretty penny.

One of the biggest things you’ll notice is that your manual points you towards less frequent oil changes. Most repair shops push for oil changes every 3,000 miles, but with modern engines and modern automotive engineering, they’re simply not needed. Many manuals suggest an oil change every 5,000 miles - others recommend changes every 7,500 miles. Check your manual, follow the instructions of the actual manufacturer, and save yourself some cash.

Keep an accurate record of the maintenance you perform.
While performing this maintenance, keep a detailed record of the maintenance. Record every maintenance in a log book - the type of maintenance, where it happened, the mileage on your car when it happened, and the date. When you go to trade in or sell your car, this can provide great documentation about the maintenance your car has received.

I keep my log book in the glove compartment and just take a few seconds after each maintenance task to add a note. This way, when I go to sell the car, I can provide that log to demonstrate that I’ve done proper maintenance. Depending on how you choose to sell the car, this can add some resale value.

Learn how to perform the basic maintenance yourself.
Most maintenance tasks can easily be done in your garage. Just follow the instructions in your manual and try changing your own oil. You can usually save $20 or $30 doing an oil change yourself - it doesn’t take many oil changes for that to add up to some real cash. You can do all sorts of maintenance work yourself: airing up your car tires, changing transmission fluid, changing your air filter, changing your oil filter, and so on.

Learn how to do these yourself and you’ll have the confidence to do such work on any car you own. You’ll save money for the rest of your life with this knowledge.

Drive the speed limit.
Driving the speed limit not only cuts down on the cost of speeding tickets, but it also reduces the wear and tear on your car. A minute more on a trip here or there can keep speeding tickets out of your hair and also extend the life of your car, so it’s well worth it to eliminate the speeding habit. I’ve found that setting the cruise control while outside of towns is a great way to keep my lead foot under control.

Start saving for your next car now, not later.
The final tip is one of the best. Start saving now for your next car instead of taking out a big loan. Let’s say you’re going to buy your next car in five years and plan on plunking down $8,000 on it. Just put $28 a week into an ING Direct savings account earning 3% a year and you’ll have that $8,000 in hand after five years. On the other hand, take out a five year car loan for that car at 9% and you’ll be spending $166.04 a month on that loan - $38.30 a week. Starting saving right now saves you $10 a week on an $8,000 car. If you’re buying a more expensive car, it’s even more savings - each week, every week.

Following all of these tactics will go a long way towards reducing the pain of your automobile “investment,” making a very painful loss much less painful. All of these tactics taken together can reduce your expenses significantly over the long run, putting you in a car that runs better, runs longer, and has smaller monthly payments.

Recently, Hyundai has begun airing car ads for their “Dollars and Sense” campaign, in which they’re offering a “cash back” promotion on new purchased Hyundais. To get across the idea that buying a brand new Hyundai is a financially sound decision, the commercials feature various personal finance and investment writers offering suggestions on how to use that “cash back” in a financially sound way. Here’s my favorite of the series, featuring an almost-creepy appearance by Larry Winget, the author of You’re Broke Because You Want To Be (which I reviewed and reasonably liked a while back):

Other ads in the series feature Ray Lucia (author of Buckets of Money) and Adam Smith (author of The Money Game).

Let’s look at the ads a bit more carefully.

Is this a good deal?
First of all, never, ever make your car buying decisions based on an ad for a new car. If you’re going to invest your money in buying a car, focus on late model used ones and use Consumer Reports and other car journals to research and find the most reliable and fuel-efficient car for your needs - and do the same if you must buy new for some reason. A late model used car with high reliability numbers and good gas mileage is the single best deal out there for car buyers.

Car commercials, for the most part, try to sell you on things that largely don’t matter - small sales up front (like 5% off), exterior appearance, and so on. Don’t base your automotive purchases on them - instead, go do some real research.

Is their advice any good?
Winget, Smith, and Lucia do provide good advice in the commercials. It does make sense to put your money in a highly diversified index fund or to pay off high-interest credit card debt - both are indeed good moves.

The problem with the commercial isn’t the use of the money - it’s the source of the money. They’re talking about using money that’s coming to you in the form of a rebate on an item that’s overpriced to begin with. You’ll lose more in depreciation of the value of the car the minute you drive it off the lot than you’ll gain back in the rebate from the sale.

In other words, their advice is great if we’re talking about $3,000 free and clear, but that cash is tied up in the value of the car you just bought - and you’ll lose more than that the second you drive it off the lot. A better option is to buy a cheaper car and then use the $3,000 you actually did save to pay off credit card debts and such.

Are these writers “selling out”?
The advice actually coming out of their mouths is good advice - the problem is in the context of all of it. By appearing in the ad, they do appear to be implicitly approving of the purchase (which isn’t a good financial choice for most people).

Given my condemnation of the ads, you’d likely expect me to say that these writers are “selling out,” or betraying the trust that their readers have placed in them. For the most part, I don’t feel that way, because if one of those writers had said no to the advertisement, Hyundai would have simply found another writer. By saying yes, they at least get their paycheck and a bit more attention to their books and public persona.

So, obviously, in the context of a car commercial, these guys are more interested in selling themselves to you than in providing an overall positive financial image. But by doing this ad, Larry Winget might just have been able to get a few more people to read You’re Broke Because You Want To Be, which does contain some excellent “tough love” style advice. If that book helps one of those new readers turn their life around, that’s overall a good thing, is it not?

Would I appear in such an ad if the opportunity presented itself? Honestly, I think it would depend on the car. For instance, if I were asked to appear in an ad for a car I would ordinarily recommend - one with good gas mileage, high safety ratings, and high reliability, I’d probably be fine with it because the people interested in such a car likely have some financial sense anyway. Alternately, I wouldn’t appear in an ad for a Hummer - but then the average Hummer buyer isn’t exactly going to be swayed by a guy writing a site called The Simple Dollar.

As a final note, since this post mentions Hyundai, I have to include one of my favorite comedy clips of all time - Stephen Colbert’s “I’m Singin’ in Korean” music video.

Julia wrote in a few days ago with the following questions.

My question is about cars, inspired in part by your post this morning. We have a gas guzzling 2004 Ford Expedition in very good condition. There is about $3,000 left on the note, leaving us with about $10,000 in equity, should we sell it for Bluebook value. We could have it paid off in about 4-5 months. Our note payment is $408, rounded.

For fuel we spend no less than $300/month, often closer to $400 and beyond. We live in southern California, so we do drive quite a bit. Luckily, my husband has a company car, and for the most part we use that on the weekends. About $100/month is taken from his paycheck by the company to account for personal miles. It’s a predetermined amount by the company and does not reflect our use of the vehicle.

We are a family of four (two boys, aged 3 and 1 year) and can’t decide whether to sell the truck (now or when it’s paid off) and get something more fuel efficient or, keep the the truck free and clear. I don’t suspect a Prius will be able to accommodate our young family (strollers, etc.) but we would like a hybrid if it makes sense financially. My concern is that by selling the truck for a more fuel efficient vehicle the money we save in gas would simply go towards a new car payment, registration, and insurance.

Guess what, folks? It’s time to run the numbers!

A 2004 Ford Expedition gets 13-15 mpg in cities and 17-19 mpg on the highway. I’ll estimate that yours gets right in the middle - 16 mpg overall. If you live in an area with gas at $3.50 a gallon and are spending $400 a month on gas, that means you’re putting about 1,800 miles a month on your vehicle - $400 divided by $3.50 gets you 114.3 gallons of gas a month, and at 16 miles per gallon, that’s just about 1,800 miles.

So let’s go with that. Let’s say you replaced your Expedition with a 2008 Ford Escape Hybrid, which gets 30 mpg on the highway and 34 in the city, so for you we’ll average it at 32. I chose the Escape Hybrid because it’s comparable to the original in size and storage which you probably still need, but much more fuel efficient. If you drive 1,800 miles a month, that means you’ll only burn about 56 gallons of gas with this model versus the 114 gallons you were burning with your old one. That’s a savings of about $200 a month - you’ll basically halve your monthly gas bill.

Now, is that $200 a month worth it over the long haul? Over the course of five years of ownership, that $200 a month difference adds up to $12,000. The Ford Escape Hybrid has a base invoice price of $24,734. So, if you get $10K in trade-in on your current vehicle, you’ll likely be paying somewhere in the range of $15K for the new vehicle. Your break even point from the gas savings is then at about the six year mark. Of course, there are advantages in having a new vehicle - it’s going to be more reliable at first, for starters, and you’ll likely save on the maintenance over the next six years versus the older vehicle simply because you’ll be starting your maintenance schedule fresh and new.

If I were in your shoes, I’d probably be willing to make that switch. You’ll be returning to car payments for a while, but your monthly gas bill will be halved. After the new vehicle is paid off, though, you’ll be doing very well. There are compelling arguments both ways, though.

What about just adding another new car to the mix? Another compelling option is to simply add a highly fuel efficient car to the mix and using that as often as possible. Let’s say, for example, that you could get a 2004 Honda Insight, which gets an incredible 60 miles per gallon city and 66 miles per gallon highway, and you’re able to use it for 70% of your driving. That means that 30% of your driving would be at 16 miles per gallon in your expedition and 70% would be in your Honda Insight at 63 miles per gallon, giving you an overall effective gas mileage of 49 miles per gallon. Over 1,800 miles in a month, adding the Insight and driving it 70% of the time would save you 75.8 gallons of gas each month, and at a cost of $3.50 for a gallon of gas, that’s a savings of $265.17 per month on gas.

I played around on Kelley’s Blue Book and found that you can likely find one of these Honda Insights for about $16,000. If you walk into a lot with no down payment and get a 36 month loan at current rates, you’ll leave with a payment of $525.38 for the next 36 months, meaning that each month for the next three years will cost you $260.20 each month. After that, though, you’re in very good shape. Plus, you now have the redundancy of another vehicle that will likely be able to seat your whole family, so if one breaks down, you’re not hoping for a loaner or renting a car.

Note that I’m not figuring insurance or licenses into either case. I don’t know what this family would be paying for insurance or for licenses, but in especially the case with the extra car, this is an additional cost. Julia and her family should figure in these costs before making a choice for themselves.

What’s my conclusion? Fuel efficiency is becoming very, very important, especially with a high-mileage driving situation. It makes sense to look for a more fuel efficient car.

I think this family, given that they’re putting 1,800 miles a month on their car, should strongly consider making a change. Even if gas prices stick to their current levels, it ends up being a good deal for them over five or six years. If gas prices continue to go up, they’ll be in tremendously good shape in the future, especially if they couple it with some changes in habits.

My advice for them is to go for it. Once they get past the three or four year mark (depending on their payments), they’ll be in much better shape in terms of fuel efficiency. If they choose to drive the car for many years past that, then fuel efficiency will have saved them a lot of money.

Jimmie wrote in with a good question over the weekend:

I’m going to buy a new car in several months and I’m trying to figure out how much down payment I should have. I’ve heard tons of different answers from different people. What’s your take?

My initial take was to give this an off-the-cuff response - “bigger is better when it comes to down payments” - but then I realized I’d be falling into the same trap of all of the others that gave Jimmie advice. It’s all about the assumptions.

So, let’s walk through a good number of these assumptions and, along the way, figure out a good method for figuring out how much a person should be saving for their car down payment.

Step 1: Get Your Credit Report
The absolute first step you should take when considering a loan is to get your credit report. You can get your credit report for free from the federal government - no strings attached - at AnnualCreditReport.com. I recommend avoiding freecreditreport.com because it requires “enrollment in Triple Advantage,” a credit monitoring service you probably don’t need. Using AnnualCreditReport.com, you can request a report from all three of the agencies - if you’ve never checked your report before, it’s worth it to get all three.

Once you’ve got your credit report(s), read through them and make sure you understand what they’re saying. A credit report is a list of all of the debts you currently owe, as well as all of the credit lines available to you (like credit cards with a zero balance). It also lists any debts that you haven’t paid over the last seven years, including late payments and so on.

Go through this report carefully. Take the time to identify anything on the report that’s false and make an effort to get it corrected by not only contacting the credit reporting agency, but also the company that claims the debt. Get these issues straightened out before you move on.

Why is this so important? Whenever you take out a loan, sign up for a credit card, or get insurance, the company that you’re dealing with takes a peek at this report, which is often summarized for them in the form of a credit score. A credit score is basically just a number that summarizes all of the information in your report - if your report is good, your credit score is high, but if your report is filled with red marks, your score is likely in the trash.

As a rule of thumb, if you have a long credit report (more than two different kinds of debt) and very few negative marks (like late payments), your credit is very good and you’re likely to get a low interest rate on your loan. If your credit report is short, or if you have a handful of dings (more than three, but none of them too severe), you’ll likely get a pretty high rate. If your credit report is trash - with lots of bills turned over to collection agencies and so on - you’ll either get a very bad interest rate on your loan or no loan at all.

There is no exact formula for how your report will affect your credit. Not only is the formula for calculating a credit score not public, but the methods a lender will use to translate that score into a loan aren’t public, either. The best you can do is know your credit report, make sure it’s as clean as possible, and know whether you can expect a good rate or a bad rate.

Here’s a basic explanation of how credit scores are calculated as well as some tips for improving your credit score.

Step 2: Define Exactly What You’re Buying
The next step is to know what you’re going to buy. Here are some questions to think about.

Are you buying used or new? Buying a new car maximizes the period that you’ll be able to own the car, but during the first few years of ownership, the value of a new car drops like a rock. Buying a used car reduces that period, but also doesn’t cost you in the form of those first few years of rapid depreciation.

The rule of thumb that I’ve always used is that all cars fall 20% in value each year, and a brand new car falls an additional 20% as soon as you drive it off the lot. This is a very rough rule of thumb, but it’s served me very well for getting a thumbnail estimate of the value of a car while looking at cars on the lot using the calculator on my cell phone.

What model are you buying? It’s also a good idea to know the model you’re looking for before you go shopping, or at least have two to three models in mind. This way, you can do the research in advance.

How do I “do the research”? First of all, know what you want for a car. Are you buying a sedan? A compact efficiency car? A SUV? A minivan? Then, hit the library and look through back issues of Consumer Reports and other car magazines to find out what the reviews of models in that general area are and what models are recommended. For example, if you’ve decided on buying a late model used minivan, you’d want to look at the reviews of minivans from three years back, as well as information on the reliability of those models. I generally trust Consumer Reports, but you may want to dig into more sources than that.

Once you know what you’re buying, figure out the value of that car. Use Kelley’s Blue Book to look up the value of the model and year you’re looking at so you have a good idea of what you’re saving for.

Step 3: Figure Out How Much Down Payment You Need
Now that you have all of this information, you’re ready to figure out how much down payment you really need. Follow this decision tree.

Is your credit bad? If it’s bad, you need the biggest down payment possible because you won’t get a good loan no matter what. If it’s good, keep going.

Are you buying new? If you’re buying new, you’ll need at least a 20% down payment on that car, and here’s why. Let’s say you go onto the lot with no down payment, pick out a brand new car, and drive it off the lot. The second you drive off the lot, your car depreciates about 20%. Now, you drive it around for a month and suddenly you lose your job - and you realize you need to sell this expensive new car. The best you’ll probably be able to get for the car is about 80% of the asking price, but if you’ve made no down payment, even selling the car right now will leave you with 20% of your loan unpaid and nothing to show for it. This is called being “upside down” in a car loan, and it’s something to avoid if you can.

On an older car, this effect still exists, but it’s much smaller. You’re in good shape if you can have at least a 10% down payment on that car, because a used car can usually be resold without a major depreciation loss.

What’s the actual best loan offer you can get? Before you go, stop by your local credit union and see what sort of rate they would be willing to give you on the car purchase. Show them your research, tell them what you’re looking for, and tell them you can pay 20% down. If that rate is high - more than, say, 7% - then you should keep saving for a bigger down payment.

The reason is that if the interest rate on the car loan is higher than the interest you’d earn managing the money yourself in savings accounts or investments, it’s not a good deal. According to my observations, the magic number is about 7% - if it’s above that, you’re better off socking away your money for a while longer.

Also, remember that what you have saved for a down payment isn’t necessarily what you have to pay. If you have 40% saved up and can get an astoundingly low interest rate with only paying 20%, you don’t have to cough up that extra 20% - keep it for your emergency fund or for saving for the next car you’ll have to buy.

Here’s what you should do, summed up in one sentence: Have at least a 20% down payment (unless you’re buying an old car, then 10% is the bare minimum), but if the interest rate is over 7%, save for a bigger down payment and wait until you absolutely need the car.

Personally, I believe strongly in avoiding debt and paying cash for everything, but that philosophy doesn’t often reflect the day-to-day reality of most people’s personal finances. So I offer this one little piece of advice: start saving now. Set up an online savings account and have it automatically pull in $20 a week or so from your checking account, and then don’t look at it until you need a new car. Lo and behold, your down payment will be sitting there waiting for you - and the bigger, the better.

Yesterday, I spent seven hours on the road in Iowa. When we left, the weather forecast looked rather clear and we figured the trip would be relatively easy (well, as easy as a four hour car trip with a toddler and an infant will ever be). About an hour into it, we ran into a blizzard - whiteouts and such. At one point, we came upon a semi on its side blocking the road, turned around in the middle of a period of about twenty feed of visibility, and backtracked for a dozen miles or so. Even better, about halfway through the trip, my son got carsick, causing us to stop and clean things out at the nearest gas station.

Several little frugal preparations (no, I’m not going to suggest you go buy a shovel and rock salt, though both can be useful - esp. the rock salt) made this trip much easier, and they are things that anyone driving in potential winter conditions can do to make sure their trip goes as smoothly and safely as possible. If you’re about to go driving through bad conditions, make sure you do the following before you leave.

Charge up all available cell phones before you leave. Even the one you keep in the glove box just so you can dial 911 in a pinch. Get them all charged up, so that you reduce the potential variables that would keep you from being able to call ahead about emergencies and call family and friends to let them know what’s happened with you. The technology is available - use it.

Keep an extra set of clothes or two available to you inside the interior of the vehicle. If you’re in a situation where you have to get out of the automobile for some reason, more layers of clothes are better. Make it as easy as you can for yourself to access these extra clothes.

Take along some extra blankets. If you’re stranded for a while, blankets will allow you to stay warm for much longer than would otherwise be allowed. We spotted several vehicles off the side of the road with windows shattered - in that situation, blankets would be your lifeline.

Pack some high-carb snacks. Granola bars, beef jerky, and the like are brimming with energy that your body can easily process and turn into heat. Keep some along with you for the trip, just in case.

Put something heavy in the trunk of your car if you have rear wheel or all wheel drive. Extra weight adds a bit to the traction that your tires can get with the road. You’ll slightly reduce your gas mileage in exchange for less slipping - a trade that I’d make any day of the week.

Grab your home first aid kit - just in case. Although it can be useful to have a first aid kit for your car, let’s be realistic - most people don’t have one. Instead, grab the one you have at your home and stick it under a seat. If you slide off the road and bust out a window, you’ll likely be very glad you had that first aid kit.

Check two basic things on your car. If you do nothing else, check your hazard lights and check your tires. Turn on your hazard lights and make sure they’re all clearly visible (you can check your headlights and tail lights at the same time). Also, check the tire pressure in each tire and make sure you’re filled to the amount recommended in your car’s manual (not the amount listed on the tire). A properly inflated tire can help with getting through slick spots, plus it improves your gas mileage.

If you’re ferrying children, have at least a day’s worth of their basic supplies along. Formula, diapers, a change of clothes or two - the last thing you want is to be trapped in a stuck car with a howling child in a makeshift diaper and a lack of formula.

All of these tips will save you valuable time and/or money during winter driving. Some will help you avoid an accident and the rest will be invaluable should you find yourself in a bad place. If you’re going on a winter trip later today, good luck and be prepared.

With my previous car purchases, I did very little planning ahead. My first car was discovered in a semi-functioning state in the yard of an old friend of my parents - we put in some work and got it going. My second automobile was a pickup truck - I just got the type that my uncle recommended, buying the first one of that kind that I test drove, and bought it with no down payment. While the first one was a pretty good deal, it was mostly a matter of someone getting rid of a junk car and helping out the son of an old friend. With the pickup, however, it was a pretty expensive deal - not planning ahead cost me quite a bit of money.

My wife came into our marriage in much the same situation - her first car was from a family friend and her second one was actually purchased from her father’s business, and she’s still driving it.

Our next purchase, however, won’t be nearly so cavalier. Here’s why:

First, saving ahead means less debt when we actually do make the purchase. As soon as I really put together the full picture of how much an auto loan costs - and as soon as my current vehicle was paid off - I started saving for our next vehicle purchase.

Second, researching the purchases carefully means we wind up with a more reliable vehicle that really matches our needs. No more asking my uncle what he likes then running to the dealership. Instead, I intend to get a lot of information on my autombile purchases.

Third, our actual needs are much more clear than they were when we made those purchases. Our current vehicles were purchased when we weren’t even married and our needs were completely different. Now, we’re a family of four living in a rural area, which really specifies what kind of purchases we’ll be making.

Here are our two planned vehicle purchases in the coming five years.

Minivan

When? 2008-2009
Why? We have a family of four right now and we’re talking of making it at least a family of five. Soon, a minivan will be our only good option for transporting the crowd along with the requisite items needed.
What models? We’re looking at a late model used Toyota Sienna, based on Consumer Reports and Car and Driver. We’re a big fan of the all-wheel drive option and it scores well on safety. However, we will probably look at new since both models depreciate much more slowly than the average automobile.
What vehicle will it replace? My wife’s sedan is starting to have some issues, so it will be the one replaced. We’d like it to last until summer 2009, but summer 2008 is an ominous possibility.
What’s the plan? We’re currently making a “car payment” to a savings account equivalent to what our combined car payments were before we paid off our vehicles. This money will be used to pay for a good portion of this vehicle, along with whatever value my wife’s trade-in has.

Truck

When? 2010-2011
Why? A four wheel drive pickup is incredibly useful in Midwestern winters, plus the pickup enables us to transport things quite easily. I’ve used my current Ford pickup for quite a lot of hauling over the last few years and it hasn’t slowed down, either.
Other possibilities? We have discussed getting a smaller car for me instead if I continue to commute. Another possibility is not getting a car at all if I wind up writing at home.
What models? The model year that I’ll likely purchase hasn’t come out yet, but I’m keeping a soft eye on them.
What vehicle will it replace? My current pickup.
What’s the plan? The day the van is purchased, that car savings account becomes savings for my truck.

So, what’s the message here? Three take-home tips:

If you’re free of car payments, start saving for your next one now. The interest will work in your favor instead of against you.

Know what your needs are. The biggest ones are the number of passengers you’ll regularly have (or expect to have in a few years), where you’ll be driving it and how much, and the aesthetics you demand.

Get multiple opinions. When you start to get close to the purchase, hit the library for an hour or two and research your choice. Look for the Consumer Reports car buying guide for starters, then move onto other sources (Car and Driver, for example).

As the months pass, it looks more and more likely that we’ll need to buy a new vehicle sometime between now and next summer. My wife’s Mercury Sable, that with almost 150,000 miles on it, is starting to show lots of little issues wrong with it - most notably, a recent severe issue with the transmission.

Before we even begin to look at this topic, my wife and I agree that we’re looking at a late model used vehicle. We don’t want to pay a huge premium for the “prestige” of owning a new vehicle, but we also want one with a long lifespan, so we’re looking for something fresh off a lease.

What are our needs? That’s the first big question for anyone considering a car purchase. For starters, we currently have a toddler and a newborn and we’ve both made offhand references in the last few days that basically implies more children to come. Thus, this new vehicle will need space for a family - we need a vehicle with adequate room for a five person family - and occasionally with more, as we live on a block with a lot of children near my son’s age that I’m sure he’ll begin to pal around with.

The second consideration is that we will likely rack up significant miles on this vehicle - it will be used in high-mileage situations. That means we are highly interested in fuel efficiency and reliability above all.

As far as my wife and I can tell, these two factors put us squarely in the minivan camp. Our recent reading of Consumer Reports points us towards either the Honda Odyssey or the Toyota Sienna for long term reliability. We’ve found late model used instances of both (2005 model year) in the $18K to $20K range (not including any trade-in value).

So what’s the plan? We’re going to accelerate our savings for a vehicle so we can make a large down payment on this van when the time comes. We’ve basically been saving what amounts to a car payment on this type of car each month - we’re going to kick it up to saving double payments until we make the move to buy it.

Until then, we’ll study both models in detail, test drive a few, and know exactly what we want - then wait until the time is right to make the move (probably early next summer or when the old car has issues).