Car Loans Gone Crazy

America is a car-crazy culture. Consider these statistics from a recent Minyanville article. In 1970 there were 529 cars per 1,000 people in the U.S. Today there are 765 cars per 1,000 people. The number of cars per person in the U.S. is 40 percent higher than in Europe, 500 percent higher than in China, and 6,200 percent higher than in India. The average price of a new car now tops $30,000 and the average auto loan now exceeds five years. In 1997 banks financed an average of 89 percent of a vehicle’s value. Today, they finance an average of 101 percent. That’s because 40 percent of new car buyers still owe money on the vehicle they’re trading in, often rolling that amount into their new loan.

When I wrote “Money, Purpose, Joy,” I spent a lot of time figuring out how much people can afford to spend on food, clothing, and everything else. The Money, Purpose, Joy workbook contains detailed recommended spending plans for four different sized households across nine income categories. The conclusion that jumped off the spreadsheet was that if we are to live the generous lives we were designed to live, save adequately, and live with margin and peace of mind, it’s crucial that we follow two guidelines. First, keep the combination of our mortgage, property taxes, and homeowner’s insurance to 25 percent of our monthly gross income or less. And second, carry no other debt – including vehicle debt. Hanging on to vehicles long enough to pay them off and then save enough to buy our next vehicle with cash is one of the most essential keys to wise money management.


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