Several years ago when online budgeting tools, such as Mint.com, were introduced, I looked on with a sense of happy shock as budgeting suddenly became something very close to cool. Prior to that, the mere mention of the word “budget” was a conversation killer.
With their user-friendly interfaces and access-anywhere apps, online budget tools quickly attracted millions of loyal users.
In similar fashion, I’ve long championed a no-car-payment life, sometimes to the groans of workshop attendees. Keeping cars for 10-15 years, as car makers introduce many more appealing styles, can be a tough sell.
But just as Mint did the unthinkable with budgeting, some very unlikely sources of car buying wisdom have emerged: hip hop singers and pro athletes.
The no-car-payment life gains popularity
First there was Lecrae, with his song, Identity, in which he proclaims, “I’m not the car I drive.”
Far too many people do have a car note.
A note is the norm
According to Experian, more than 86% of all new vehicles purchased are financed, with the average loan topping $30,000.
More than 55% of used vehicles purchased are financed as well, with the average loan ranging from a little over $16,000 to nearly $21,000, depending on the type of dealer where the car was purchased.
If you borrow $30,000 at a typical new-car loan rate of 4.8%, your payment will be nearly $565 per month.
Please don’t shoot the messenger, but that math simply doesn’t work. Not if you’re going to live generously, have enough money to save for emergencies, be able to invest for future goals, and enjoy living with financial margin.
I spent a lot of time coming up with my recommended cash flow guidelines, and a car payment just doesn’t fit.
I’m not preaching from on high here. I’ve had car payments, but no longer. And I’ve leased a car, but never again.
A better ride
How do you break free from the cycle of financing cars?
It begins with a commitment. You just decide, preferably today, to never finance a car again.
If you’re driving a financed car right now, commit to a long-term relationship with your car (at least 10 years, but preferably 15) and as short as possible a relationship with your lender.
Keep your car maintained. I once ruined the engine of a perfectly good car by scrimping on the upkeep. So, make sure you budget for maintenance and repairs.
Buy used – usually. We own a 2010 Honda Accord that we bought in 2012 with 13,000 miles on it. We also have a 2004 Toyota Sienna that we bought new toward the end of 2003.
We were looking at used Siennas, but ended up buying a new one that was being used as a dealer demo, which brought the price down. Since it didn’t cost much more than the used one, came with a full warranty, had a fold-into-the-floor third-row seat as opposed to a pain-in-the-neck removable third-row seat in the used one—and since we were committed to keeping it for a long time—we went for the new van. Today, 13 years later, it’s still going strong. We’re planning to keep it at least another couple of years.
When you buy, factor in all of the costs. Edmunds.com offers a helpful True cost to own tool that can help you compare the ongoing costs of various vehicles.
Hopefully, with the benefits of driving a paid-in-full car making their way into popular culture, more people will make that choice.
As Dee-1 sings,
“I ain’t got no car note. / That’s the way to be. / If you don’t know by now, one day you’ll see.”
If you’re still making car payments, let that “one day” start today by committing to never financing a car again.
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