This is a topic that a lot of people simply don't want to hear. Telling people to buy a car using cash is blasphemy in many circles. The car payment has become more a part of the American way than baseball and apple pie. So, don't beat me up about this one, but feel free to leave comments and we can surely discuss.
By January 2019, the average new car payment, in America, was $551 for 69 months, and for a used car it was $391 for 65 months, according to Experian data. And by March 2019, Americans owed more than $1.16 trillion in auto loans.
I strongly suggest you check out this link for many more interesting statistics: https://www.lendingtree.com/auto/debt-statistics/
The average price of a new car in May 2019 was $37,185.
The average price of a used car in the first quart of 2019 was $20,247.
The average new car loan was $32,187 in the first quarter of 2019, and the average used car loan amount was $20,137.
The sheer amount of loans, payments, and debt surrounding cars and vehicles, is massive, and it really doesn't have to be. I've been there in the past, and I understand the thought process behind wanting to "have a safe vehicle", and "I want to drive something nice", etc. I've made all of the mistakes with car payments and vehicle loans, so I totally understand it. However, when I started looking at all of the money I was spending on car payments, something inside of me clicked about 9 years ago. I haven't had a car payment since. So what I want to do is give you 6 quick things to think about that made me jump off the car loan bandwagon.
1. Not having a car payments allows you to free up your money for other investments.
A $500 per month investment into an index fund getting a modest 9.5% interest in growth over 30 years = approximately $1,000,000.
Over the course of 45 years it is about $4,000,000. That's a real statistic. It's not something I made up. Now are you sure you want to keep driving nice cars all your life, or would you rather have $4M? If the math is only half wrong, then you still have $2M! It's your choice, but the math doesn't lie.
2. No interest payments - Money Rule #1 - Don't borrow money and make payments on a depreciating asset. Paying interest on a depreciating asset is one of the worse financial moves you can ever make. When you pay $10,000 cash for a car, you pay $10,000. When you get a loan for $10,000 at 9% interest for 60 months, you pay about $12,500 for the same car. That's 25% more without taking into consideration the rate of inflation over the course of those 60 months! Interest is a destroyer of your wealth, so avoid it like the plague. Interest is especially terrible on an "asset" (and I use that term loosely in this context), that is going down in value!
Imagine if someone told you that you would pay on your home for 30 years and when you finished paying on it, it would be worth a tiny fraction of what you bought it for. You'd probably think twice about purchasing it. That's exactly what you do when you get a car payment!
3. Cheaper Insurance - no mandatory full coverage. You want to always have as much insurance as you can afford. But when you own your car outright, in most states, keeping full coverage is your choice. You aren't forced to have full coverage if you choose not to. The difference in price can be huge on a monthly basis. If you are looking to save money monthly, the difference in being forced to maintain full coverage insurance by the lien holder of the loan, can be enormous when compared to simply keeping a liability policy on your paid for vehicle.
4. You will never be "upside down"! When you purchase the vehicle out right, you will never experience the feeling of owing more on the car, then the car is actually worth. For some of us, this can be a "hallelujah moment". We've all been there. That demoralizing feeling you get in the pit of your stomach when you realize that you owe $20,000 on your car, but it's only worth $8,000! It's real. Yep, I know the feeling. When you buy a car cash, it won't happen! It can't happen!
5. You forget about your wants and are forced to focus on your needs. This allows you to focus on other important financial goals. This develops your financial discipline muscle. Purchasing cars cash forces you to get what you can afford, and avoid what you can't afford. You see cars for what they are - a means to get from point A to point B, not as a status symbol, a showpiece, or a modicum of your "success" or stature.
6. A loan is always a risk - You don't pay, you lose the car. You come up against hard times and can't afford to pay that $500 payment, you lose the car. You get sick and can't work, you risk losing your car. If the transmission goes out and you have to continue making monthly payments, you risk losing the car. Notice here that in #6, I've yet to call it "your" car. That's because you don't own it until you pay it off, and if you don't pay it off, or miss a payment or two, then it will never become "your" car.
New cars, and cars that you purchase with a loan, breakdown and stall just like cars that you buy cash. And new cars, and cars that have loans on them, also get flat tires, have bad fuel pumps, have defective radiators and other parts that need replacing. The point here, is with a little bit of know-how and information you can gather in about 2 hours of internet research, you will soon see that there is very little difference in the quality of the used car you want to purchase with a loan, and the used car you could probably purchase with cash.
When you buy cars cash, you won't always get the car you want, but it makes it a lot easier to avoid getting a car you don't need!
Cars are meant to provide transportation, not self-esteem!
Leave a comment and lets discuss...