Are car payments worth it? Find out what my husband had to say on this topic.
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! We have been talking a lot about our vehicle and if we should get rid of it or continue to drive it. We had to ask ourselves are car payments worth it?
That lead to the idea of him sharing 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.
It 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?
With some reluctance and excitement, I traded my Toy for a brand new GMC extended cab. It cost around $17,000. I went to the bank and borrowed the money. Yes, I remember my 60-month payment being about $315/month. 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”. Here are some questions you should ask yourself before you buy:
Can I repair it for less than the cost of a new vehicle?
If you can, always 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, of course).
Is this vehicle a want or a need?
Sure, we’d all love to get a new vehicle, but do you really need one? Is there really any reason you must get rid of the one you are currently driving.
Can I cover the cost with cash?
It is always better to pay cash for a car or truck than it is to take out a loan. It may mean you have to buy one that is a bit older and costs less money. However, not having a loan payment is usually the better option.
Remember, that most vehicles today can be driven hundreds of thousands of miles before needing repairs.
Don’t be lulled into thinking you need a new vehicle after your current one turns over 100,000 miles. I drove my 1999 model with more than 200,000 miles on it for years (just traded it off around 15 months ago – and paid cash for a new one). Sure, it was full of rust, but it was paid for and we saved a lot of money on our personal property taxes due to it’s age.
Have I thought about this purchase?
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.
Lalita W. says
This article is so true! Wish I had know this much sooner in my life! I’ve finally convinced my daughter of this. Once we swallow our pride and not worry about what our friends think, we’ll have much more money in our pocket for the REALLY important things.
I know most people think the economy is bad, but whatever happened to saving money? I find that much of the problem is couples don’t set goals and pool their money into a savings or money market account. After they pay the bills, they get to spend the rest. How do you ever accumulate anything, except by “charging it?”
Learn delayed gratitfication!
An older but wiser person!
sandy says
Great post but unfortunately, you get what you pay for when you buy used. We buy new and take on the monthly car payment because the vehicles we purchase come with a 100,000+ mile warranty. Plus buying new means I won’t have to worry (at least for a few years) about my vehicle breaking down and ending up stuck on the freeway or in the middle of nowhere with my kiddos in tow (especially during our Summers here in AZ). Not to mention that I don’t have a decent savings in case I have to make repairs to that used vehicle – trannies and motors are huge expenses 🙁 In an ideal world I’d purchase a new vehicle with cash. But since that won’t be happening any time soon, I’ll continue with the monthly car payment and have my peace of mind. BTW we have a 2006 Nissan Titan that we purchased new and have maintained well since purchase. It has almost 200,000 miles on it and has not broken down once (knock on wood). However, I know people who have purchased used Titans that have broken down shortly after. When you purchase used, you’re inheriting the previous owners maintenance habits, car issues and history.
jill says
I only buy used and have never encountered “other people’s problems. ” I 100% agree with you!
Tara says
This comes at just the right time to share with my husband. His brother just purchased two used cars, but now has car payments to show for it. Both of our vehicles are paid for. His concern is that he is in sales and needs some show. What are your thoughts of a 2001 Ford F150 extended cab if someone took you out on a sales call in it? Personally i would rather go on a sales call with someone who is not all show than someone with a snazzy vehicle that they probably can’t afford. We are saving for his next vehicle, but my statement will be, “be true to yourself.”
Sarah Z says
I haven’t had a car payment in 12 years, and I wouldn’t be running to get one! I drove my 99 Malibu for 8 years, and just sold it a few months ago with 235,000 miles on it. I “upgraded” to a used car that I could afford by paying cash from my tax return. If I wanted to pretend I have a car payment, I will just put a couple hundred dollars in the bank every month, and I will “upgrade” again in a few years! You can say all you want about the reasons to have car payments, and they might work for you. For me, I love having paid for cars in my driveway! They may not be shiny and new, but I buy smart and do my research so I get the best car I can afford.
Jim C. says
Tracie you really messed up by allowing your husband to write this article, he didn’t do his homework! While he related his personal experience with buying new and used vehicles the facts have changed dramatically since our economy took the big dive. This post is really a disservice to your readers.
First problem with the post is that things in the new car market since 1996 have changed. First thing is that many of the manufactures of new cars have taken on the role of “bank” when purchasing one of their cars. My new Pontiac that I purchased in 2002 was purchased with a 60 month loan at 0% interest, So I had someone (GM) hold all the purchase money and never paid a dime more than the purchase price. Since the economy is starting to come back and auto sales is up, a new car loan might be as muck as .8% now. Still a real deal against a bank loan. Bank loans are running around 2.99% on a new car, even at that rate on a 60 month loan the paid interest would be less than $1400, not near the $3500 mentioned in the posting.
Next is the buy used not new statement without the necessary cautions to people about problems with used cars. One of the big problems that is going on now is many of the used cars are being purchased, by dealers, are from insurance companies. Those cars are from claims for storm damaged vehicles such as Hurricane Sandy which is why there so many on the market. They don’t even need to have a major incident, if they were in a hail storm and repaired by some back woods dealer don’t be surprised after a couple of years that the dings don’t return with the rust. Anyone purchasing a used vehicle needs to research any used car purchase prior to purchase. Various online auto reports are available (CarFax) to provide the history of the vehicle. Another point that needs to be made to anyone purchasing a used vehicle is to take it to a certified mechanic and pay them to go over it with a fine toothed comb to make sure your not taking on someone else’s lemon.
Also mentioned in the posting is the repairs of new vs. used. Most new vehicles come with some type of warranty, some up to 100,000 miles. You can also purchase extended warranties that can extend the length of the service contract or fill the gaps that some of the new car warranties don’t cover. Read the warranty from the deal and if you have questions have the sales person explain what is and what is not covered. Many warranties cover the “power train” which is mostly the motor and transmission, not things like the air conditioning pump or some of the computer modules that run the car. I’ve purchased these with all of my cars from dealers and been happy I did as one time I needed to use it and it saved me from a $550 repair bill. Most used cars are a “as is” sale, and mechanical failures is not the only problem that can happen. An example is tires, are they a 40,000 mile tire with 20,000 mile on them? That means in less than 20,00 miles you’ll need new tires and they can cost you up to $1000.
Lastly is the mention that if you have “mechanical skills and tools” you can fix it. I grew up in my grandfather and uncle’s Ford dealership and learned what it took to repair vehicles. My grandfather could diagnose a problem with a car just by listening to it. Most of the tools in the shop were standard tools available at most hardware stores. Now everything is computerized under the hood, I haven’t made a repair to any of my cars for the last 20 years, I open the hood and have no clue even where to start. Most problems that occur with new vehicles comes with a warning from the “check engine” light. Be prepared to purchase a code reader that plugs into the car and then tells you what is wrong, they run over $2000. I had the light pop on my SUV last year, I was concerned and purchased one of the cheaper code readers. It told me to go to a website and look up a the code number on the display. That lead me to the problem, “rear body panel”, huh? I took it to the dealership where they told me that the side indicator light was burned out.
Bottom line, do your homework whether your buying a new or used vehicle.
Debbie says
I ditto this comment. With interest rates on cars being so low, if you can finance at a good rate and then take that money you would’ve paid cash for the car and invest in at a higher rate than the loan, you’ll end up on the plus side. Something my husband took a lot of time to convince me was a better deal. But I see it now.
Kelly says
Thanks for this article. I forwarded it to my husband who says we can “only improve our credit by buying (and financing) a new car.”