After several years of my husband listening to me talk about posts, deals, and all things money saving, I offered my husband the opportunity to do a post himself! I tossed out the idea about car payments and he took me up on it. Read up on his thoughts and facts regarding the true costs of auto loan payments. Maybe you’ll re-consider an auto purchase with a loan the next time you are in the market or have the “itch” to by that new ride.
Many of us have gotten that itch to have that first brand new car (or truck as in my case). Yes I’m a truck guy, love my trucks. I’ve had four trucks. Quite frankly I’ve borrowed money to pay for three of these trucks. One I bought for $2,500 cash, and then spent a lot repairing it, got tired of repairs and thought I needed a new one that didn’t need repairs. Oh and that new truck needed to be an extended cab for more seating room.
That was November 1996. On a whim, I saw a new extended cab on sale in the newspaper. So I drove my little Toyota to a GM dealership and asked how much can I get for a trade-in. He told me $1,600. My heart sank. I had spent over $2,500 on that Toyota in repairs alone in one year, plus what I paid for it. And they tell me they’ll give me $1,600 like they are doing me a favor. Seriously? So with some reluctance and excitement, I traded my Toy for a brand new GMC extended cab. It cost something like $16,995 and I went to the bank and borrowed the money. Yes I remember my 60-month payment being about $315/month. It didn’t occur to me at the time, but looking back, I paid about $3,500 in interest over the term of the loan. That’s a lot of dough. And you wonder why banker owners are wealthy?
The vast majority of American’s finance their auto purchases and we love our automobiles. I am not sure whether we American’s love car payments more than our cars? So what if I had driven my Toyota a little longer and saved some money to buy another truck for cash? Maybe I could not have purchased a brand new one, but with cash I could have bought a used extended cab for $9,000. What if I had invested the $3,500 in interest I paid in a growth and income mutual fund over five years at a 9% average return? I would have made $1,623.63 in interest plus got my original $3,500 investment back. Let’s not forget to that almost all cars and trucks go down in value over time, they need repairs, they are not an investment. Automobiles are a money pit! But yet almost all of us need one to function in modern society, there is no getting around that.
Automobile loans are one of the largest impediments to financial freedom in our American culture. We are told by the car industry that “we’ll get you financed – no money down”. Folks here is the deal, a couple of points to remember:
First, repair what you own, as most of the time it’s much cheaper to fix an auto than to take on the costs of a loan. If you have some mechanical skills and tools, fix your car on your own within reason.
Second, if you need a new car or truck, buy what you can afford with cash what meets your needs (not wants). For most people, a used vehicle will suffice. Today’s cars and trucks can be driven literally hundreds of thousands of miles without major mechanical repairs if they are maintained properly. Don’t be lulled into thinking you need a new vehicle after your current one turns over 100,000 miles. My current truck is a 1999 model with 206,000 miles on it and it still runs and drives fine. It’s got rust, but it’s paid for and the personal property taxes are much cheaper due to its age.
And third, when in the market for another vehicle, don’t get impulsive. There are plenty of used vehicles on the market, there is no shortage.
Take your time in shopping. A vehicle is the second largest purchase most people make in their lifetime next to a home purchase.