Man Shopping for Cars

Breaking the Cycle of Financing Vehicles

Our home may be our castle, but for many people, their car is an extension of themselves.  According to a study cited by Juliet Schor in her book, The Overspent American, nearly half of all car owners see their car as a reflection of who they are.

The belief that we are what we drive, coupled with the auto industry’s heavy use of planned obsolescence—the yearly rollout of new models with “must-have” new features—often leaves us on the vehicle financing treadmill.

We tend to build short-term relationships with our vehicles and long-term relationships with our vehicles’ loan officers.

A Better Way to Buy Cars

A better approach to buying cars is to build long-term relationships with our vehicles and send our vehicles’ loan officers packing. In fact, as you’ll see in my Recommended Spending Guidelines, not having a vehicle payment is an essential part of building a financial life that works.

I recommend keeping a car for at least ten years, preferably longer. The financial freedom that brings is far more beneficial than the short-lived thrill of driving a car with temperature-controlled cup holders. Here are some guidelines for how to break the cycle of financing cars.

1. Buy, don’t lease. Although you may pay less each month for a leased car than you do for a car you buy and finance, you won’t own anything at the end of the lease. You’ll just have to start making payments on another vehicle. In order to have the margin to be generous, save and invest, it helps a lot to have no monthly car payment.

2. If you’re currently making payments on a vehicle loan, keep making those payments even after your vehicle is paid off. Just send them to a savings account instead of your lender. If you can afford the payment today, you can afford it once the loan is paid off.

Then keep that vehicle for at least another five years, and when your vehicle is ready to be replaced you should have plenty of money to buy your next one with cash.

3. When it comes time to get another vehicle, it’s usually best to go for a well-maintained used car (but not always). Even vehicles used by dealers for test drives or loaners will be less expensive than a brand-new car. But vehicles that are one to two years old are where the real deals can be found; they often cost 30 to 40 percent less than the original price.

Still, I’ve loosened up on this one a little bit in recent years.  If you’re paying cash, planning to keep your vehicle for 10 years or more, and you don’t opt for all the high margin extras, buying new may make sense.

4. When deciding which car to buy, choose one known for reliability. Consumer Reports lists its picks for the best used vehicles that cost less than $20,000 for free on its site.

5. Consider all of the costs. Some cars are more expensive than others to insure and maintain. When the exhaust system goes out on a dual-exhaust car, for example, it’s going to cost a lot more than it would on a car with a single-exhaust system. has a helpful True Cost to Own calculator that enables you to compare vehicles going back to 2006 based on the costs of fuel, insurance, maintenance, replacement parts, and depreciation. Call your insurance agent to get quotes on a few cars you’re considering as a point of comparison to what the Edmunds web site tells you. You can run a separate fuel economy comparison at

There are certainly no moral prohibitions against heated seats or headlight wipers. However, moving through life without the ball and chain of a vehicle payment shackled to your leg will go a long way toward helping you live with financial freedom.  Your car may not be able to parallel park itself, but you’ll get over that.

If you haven’t done so already, please sign up for a free subscription to this blog.  Two or three times a week, you’ll receive ideas and encouragement for using money well.

9 Responses to Breaking the Cycle of Financing Vehicles

  1. Matt Bell August 4, 2011 at 10:34 PM #

    Tina – I like your commitment to never having another vehicle payment again. The ideal would be to set up a savings account as a vehicle replacement fund and stock that with as much as you can each month. I know that’s easier said than done, but it’s a lot easier to chip away at a big expense than to try and come up with the money all at once. Once “expense” item for the snowplowing business should be a monthly deposit into that account.

  2. Tina August 4, 2011 at 9:08 PM #

    I love this post. We have been payment free on both of our vehicles for about 7 years now. Great feeling. We would like to be able to purchase a different truck for our snowplowing business but I do not want another vehicle payment, ever! My husband says we can take out a loan, but I tell him I’m not going back that way. The issue is that my husbands job is seasonal and there really isn’t enough to put away for a vehicle payment for when we need it plus put away for the expenses when he is off work. How would you suggest we make this work? Our truck is a 1996 and we keep making repairs to it but not sure how long it will last.
    Thank you

  3. Cindy April 26, 2011 at 6:17 PM #

    We have always driven our cars until they were towed to the junk yard. We usually buy new or recent used, keep up with the maintenance and drive the car at least 10 yrs or more. One car was bought by someone who collected that model but the others went to being our second car and then sold for junk. We have not had a car payment for some years-one 2001 Chrysler mini-van for hauling/moving our kids(youngest is 20), other a used Kia Rio that gets good mileage. We did have 2 cars totaled in accidents unfortunately. Cars are so expensive now, our first new car we bought with cash for 2,999 in 1975.

  4. Matt Bell April 25, 2011 at 11:48 AM #

    Dogmop – The $20,000 figure was for a used car, and while I can see your point that there are a lot of older BMWs and Mercedes on the road, check out the huge cost of even basic maintenance on those brands. I’ve had a really good experience with Hondas and Toyotas (even with their recent problems), but I meet people all the time who have run all kinds of brands up to even 200,000 miles. Just keeping up with the basic maintenance goes a long way.

  5. dogmop April 25, 2011 at 6:59 AM #

    I think buying a car for less than 20,000, a brand new car, is not realistic. Especially if you live in snow country and you need all wheel drive, that option alone can add an extra 4 to 5,000 dollars. Also, if you’re going to keep a car for ten years or more, a more expensive car will last longer, like look how many older BMWs or Mercedes do you see around? So I think it’s a little unrealistic, just my .02 cents.

  6. Matt Bell April 9, 2011 at 9:05 PM #

    Julie – I agree, point 2 is definitely the key.

    Martha – Glad to hear that the article showed up at a good time.

    And Gary – Great to hear the personal testimony. It’s a good milestone to mark – the day or year when we finally break the cycle of financing cars.

  7. Gary April 9, 2011 at 5:41 PM #


    I was reflecting back on when I was able to break the car financing cycle. This was in 1999 when I suddenly came into some extra dollars via an insurance policy. To be honest – I am not a “buy & hold” car guy. I love new or I should say different cars to drive. Anyway, I was able to buy a new “used” car with my “paid for” trade-in and the dollars from the Insurance to buy a car for the first time with no financing! I am proud to say that I have had several other cars since and have continued to pay “cash” and not need any financing. This has been a great feeling for me and I would recommend it to all. My father=in-law many years ago, did exactly what you recommend. He would pay cash for his new car and would start saving the money he would have paid if financing and when he was ready for that next car, he had the cash to pay for it.


  8. Martha April 9, 2011 at 12:13 PM #

    Timely info; was just at my local car dealer . . . Thanks for the and the links. Overall great article, makes good “cents”!

  9. Julie @ The Family CEO April 8, 2011 at 11:47 AM #

    I love this post! We are trying to break the cycle of financing cars and these are such good suggestions. I think #2 is key.

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