My wife and I just sold the SUV we owned for 15 years, a White Gold Crystal-colored Lexus RX 300, wrapping up a very hard financial lesson.
We purchased the car in July 2002 for our fourth wedding anniversary. We went all-in on a spanking-new vehicle whose namesake evoked luxury, performance and, yes, a smidgen of status.
Our son, Kevin, was a little over a year old at the time, so part of the justification for the car was to get the latest safety equipment. That was a rationalization — what I really wanted was to keep up with the Joneses, the Smiths and anyone else who drove a lavish car around our neighborhood.
Our RX 300 had all the bells and whistles, like leather seats, automatic climate control, walnut wood trim, an electrochromatic rearview mirror with compass and even a seven-speaker 240-watt premium-sound audio system.
The price for this bit of image enhancement?
After adding some accessories and various dealer fees, and receiving a special package discount, the initial price rang in at $37,180. I was able to negotiate another 10% off, bringing our price to $33,500.
Of course there were other fees, including a $45 document prep fee, $2,599.74 in sales tax, $260 in license fees and a $5 California tire fee. After it was all said and done, we got an out-the-door price of $36,409.74
Suppose we had opted for something a little less extravagant, say a Toyota Corolla CE. How much money could we have saved?
According to MSN Autos, the 2002 Corolla with an automatic transmission had a $12,983 MSRP.
If we stuck with the Corolla’s standard features, we would have ended up with a $13,558 final sticker price after the $575 in dealer fees. Because there would have likely been less profit in the Corolla, my negotiating skills may have only gotten me an additional 5% off, putting our total price at $12,880.
Like the Lexus, there would have been fees involved in buying the Corolla. After calculating in a $45 document prep fee, $1,004.64 in sales tax, $260 in license fees and $5 in California tire fees, we have an out-the-door total of $14,194.64
Buying the Corolla would have saved us $22,215.10. We could have purchased two Corollas for the price of one RX 300 and still saved $8020.46.
Quyen and I have two teenage children: 16-year-old Kevin and 13-year-old Kristie. Think that $22,215.10 savings would’ve helped with their future college expenses? If only...
Let’s go a little further with this “what if” scenario. My wife and I obtained an equity line on our home to pay for the Lexus, but the actual loan numbers are murky because we’ve since refinanced a few times. Because our loan numbers aren’t available, we’ll compare the cost of financing assuming we took out a 60-month car loan at the 2002 commercial bank rate of 7.58%.
We put down a $500 deposit on the Lexus and financed the remaining $35,909.74 through the dealership before we secured the equity line. We’ll use that number for comparing the cost of financing both cars.
According to Nerd Wallet's calculator, we would have paid $7345.46 in interest with a five-year loan for the RX 300. The interest for the Corolla would have been just $2801.16, saving us $4,544.30 in interest alone.
But there’s more. Driving the RX 300 was considerably more expensive than our hypothetical Corolla.
The Environmental Protection Agency rates the 2002 Lexus RX 300 at 18 miles per gallon combined. At the time of this writing, fueling the Lexus would cost the average driver $1,900 a year. The Corolla, on the other hand, has an EPA rating of 27 mpg combined and costs the average driver just $1,300 a year for fuel. The Corolla would have saved $600 annually in gas and $9,000 over 15 years.
I called my insurance company, but it couldn’t give me a quote for insuring a new vehicle in 2002. So I used NerdWallet to compare insurance costs to cover a 2002 Toyota Corolla and a 2002 Lexus RX 300.
Surprisingly, the RX 300 would be less expensive to insure. I used myself as the driver, with an average of 10,000 to 15,000 miles a year. The rate to insure the Lexus was $61 a month, which was $2 per month cheaper than the Corolla. Over the 15 years we owned the Lexus, we would have saved $360.
We sold the RX 300 to Carmax this year for $3,000. Kelley Blue Book says the trade-in value for a 2002 Corolla is $522. The Lexus would have put $2,478 more back into our pockets than the Corolla.
Considering the price difference between the two vehicles, the financing costs, fuel savings, the cost of auto insurance and resale value, buying the Corolla would have saved us $32,921.40 over 15 years.
That would have made a dent in the cost of our children’s college educations, my retirement or even paid for a vacation to Paris. Our family has learned a financial lesson the hard way. After we sold the Lexus, we bought a four-year-old Toyota Prius.
Raymond M. Wong is a grateful husband and father in San Diego. He works as a counselor at San Diego City College and he writes because it’s his purpose. He hopes this article will help others avoid a costly financial mistake.