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 via Federal Reserve data, showing that in the spring ot 2021, an estimated 1 in 12 people with a car loan or lease, or almost 8 million Americans, were more than 90 days late on their car payments.

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 at various price points, starting at under $10,000.

5. Consider all 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. Drew Debrey May 31, 2022 at 8:36 PM #

    Yeah, just bought a 7 year old Lexus with cash….43000 miles, all the safety items like blind spot monitor, etc. was able to give twice more than the cost to missions, church this year. Maybe the next time I will find those heated cup holders! To God be the glory.

    • Matt Bell June 1, 2022 at 1:14 PM #

      Ha! Love it, Drew! And really like the tie-in to generosity. Paying cash for cars frees us up in all kinds of ways, including the freedom to grow in generosity.

  2. Wayne Riendeau May 31, 2022 at 3:55 PM #

    Love this post, Matt. Great material and insights as always from you.

    I remember in 2008, when we decided to start eliminating debt of all kinds, once and for all.

    My last car payment was in May 2008, finishing off a five year payment plan, and even though it was only $200 a month (and at 0% interest), it STILL felt like a ball and chain Was on the back of the car as we were driving down the road.

    Have not had a car payment, or any installment credit payment for that matter, for the last 14 years and counting. the one exception was our home, which we paid off back in 2018.

    What a difference it makes in terms of financial margin, generosity decisions, and of course, savings.

    • Matt Bell June 1, 2022 at 1:12 PM #

      Great stuff, Wayne. You guys have been on a great journey.

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