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.

The latest evidence that this approach isn’t working out too well came in the form of a recent New York Federal Reserve announcement that more than seven million car loans were at least 90 days past due in the fourth quarter of 2018. But even for those who aren’t behind on their payments, having a car loan is a hinderance to a well-functioning financial life, one marked by generosity, adequate savings, and financial margin.

A Better Way to Buy Cars

A better approach to buying cars is to build long-term relationships with our vehicles and avoid vehicle loan officers.

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 would 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 another five to ten years, and when your vehicle is ready to be replaced you’ll 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 you can find low-mileage vehicles at a nice discount.

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.

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 2013 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.

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 by.


4 Responses to Breaking the Cycle of Financing Vehicles

  1. William February 19, 2019 at 5:43 PM #

    Well Matt, what you say would make sense for most people. But when one is a car guy and knows how to “deal” with “car dealers” it can be a lot of fun to buy cars – used or new. Also, when one is a Senior and has physical limitations (and is a car guy) then going for a different car (used or new) every two years is one of the perks that he or she have earned – if they so choose to use it? I will repeat that this makes a lot of sense for many people, but not for all – nor for me. Thanks for allowing this feedback.

    • Matt Bell February 20, 2019 at 12:40 PM #

      Points well taken, William! I realize there’s a danger, and there are inherent limitations, in giving one-size-fits-all advice. And since I’m not really a car guy, I may have less compassion for those who are!

      I do generally believe most people would benefit from keeping their vehicles for a long time, but I’m sure there are exceptions. My only caveats would be that I wouldn’t want to see generosity or saving/investing hindered by buying cars more often. It sounds to me like you’ve found a way that works for you.

  2. Ron Kriens February 19, 2019 at 5:43 PM #

    Some funny lines!!
    “…temperature-controlled cup holders”
    “…parallel park itself”
    Thanks 🙂

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