Car Payments Should Be Avoided Like The Plague


#1

We had some extra bucks this month due to my work bonus and overestimating the amount of money we would owe for our 2016 taxes - so I paid off my car this morning. I had my little girl hit SUBMIT on the keyboard. It was epic. It was epic because I never plan on having another car payment in my life.

Even though it’s a basic vehicle and the interest rate was a mere 2.9%, I still wanted to be free from that debt. It was the last thing standing between us and our assault on the mortgage.

How do you feel about “reasonable” car payments?


Help me to choose a better mortgage as a first timer
#2

Congratulations for getting rid of that debt!

IMO there are no reasonable car payments. Pay cash for a car, and then make imaginary car payments to yourself, which can be invested so that all future cars can be paid for with cash (and have money left over). At one time I used to routinely call my banker and tell him to put a new car or truck purchase on my credit line. After I woke up to this insanity, I realized that I had paid my banker’s salary for many years through my incredible ignorance (our interest expenses ran as high as $100,000/year). As Dave Ramsey might say, “I’ve done stupid with zeroes on the end of it.” Fortunately, it’s never too late to get smart.


#3

Haha…I, too, have done “stupid”. It was a reasonably-priced used car when I purchased it (Mazda 3). I also traded in two beaters, one of which was a V-8 Jeep. The other had over 200k miles on it. It was cheaper to have a <$200/mo payment than to keep the other two cars. I was also a single parent at the time - but I agree - I will NEVER have a car payment again - regardless how “reasonable” it is.


#4

I had a car payment once. Never again. Sure it was a “small” loan of “only” $12k and change. But I hated the interest going to make the company, and not me, richer. And I hated having to pay it every month. I paid it off & since have paid cash for a car, which was an amazing feeling.


#5

I totally hear ya! I am never going back. Before this car I was payment free for about a decade…which is why I couldn’t stand having the loan, albeit small. :slight_smile:


#6

Even dependency costs are unreasonable. I have no car loan and still make payments…

$550/yr insurance (two adults, no accidents/tickets, reasonable insurance, but not comprehensive)
$35/yr excise tax (personal property tax, auto tax, name and amount varies by state)
$30/yr inspection
$30/yr city parking permit (not applicable in all cities)
$30/yr extra for umbrella insurance due to owning a vehicle

= $675/yr, $56.25/mo, or nearly $2/day just to park my car and never drive. Driving costs extra.


#7

We have a 0 percent car loan. The cash to buy the car is currently invested at 3.25% on cds which by my math came out slightly ahead (few bucks) after taxes when subtracting what I paid extra to get 0%. So yes there are a few scenarios where it makes sense to take the loan, barely.


#8

Yeah, I totally get the math side of things and doing what makes the most sense - I admit my decision to never have a car payment is an emotional one :slight_smile:


#9

Agreed. Car payments should be avoided like the plague! This is one of the worst things you could do in the PF world because you’re losing money twice! You’re paying interest (most likely) and you’re paying interest on a depreciating asset! It’s obscene! It would literally take you less time to save up for a car than to pay one off due to the interest that you’d most likely be paying on the loan.


#10

Congratulations!! We just paid off our second car last week, and we’re still riding the emotional wave. It’s going to be hard, I’m sure, but once these cars go to the drive-thru in the sky, we’re paying cash for new ones from here on out. I can’t imagine always having several hundred dollars of my income disappearing every month just because that’s “what you do”!


#11

Congrats! I paid of my last car loan 2 or 3 years ago. Felt great.

Then I relapsed and leased a car (d’oh!). It was a “good” lease through my employer, 284/month, no down payment, 20,000 mile/year limit. I had the option to let go of the lease after 9 months, which I did without even thinking about it. Why did I get back into another car payment? I was lured by the shiny new paint job I guess.

I ended up paying cash for a 2 year old Chevy Volt to replace the lease, and haven’t looked back. The Volt is a great used car if anyone is looking. Super low maintenance cost, and unless you drive huge distances everyday you will rarely buy gas. They depreciate quickly since they are “electric” cars - so you can usually get a heck of a deal, especially when gas prices are low.


#12

I wrote an article comparing the costs of trading in a car for a new one compared to just hanging on to a reliable paid off car.


#13

One of the humorous aspects of driving an older car is the lack of concern one develops for minor dings or scrapes. If someone hits your car, it’s going to be their problem much more than yours! LOL. We once had an older car that suffered some hail damage. We invested the insurance company’s payment for repairs, and never had the body work done because the car’s only value to us was its drivability. Of course, you can only take this attitude when you don’t care what other people think. These days we drive newer model cars than in the past, but we still keep one old car available for use for those times when a newer car needs service or a family member wants to borrow a car. We use the old car like some people use a spare tire.


#14

The only reasonable car payment is the one you make to yourself for the 7 years you drive the car you own today. Then, you pay cash for the next car, and start the process over again.


#15

Hell yeah to that!


#16

@zendancer - we are fans of “fake car payments” so cash is ready for new vehicles of the future…


#17

@MadMoneyMonster Sweeet! Great job - love it!


#18

I like that idea!


#19

Congratulations on paying it off! I would definitely go with no more car payments in the future. If you need a car, there are plenty of good quality, low cost used cars out there. I see brand new cards as the ultimate luxury, only to be enjoyed if you have the spare cash to get one.


#20

Most definitely! I haven’t had car payments…ever. Don’t want to have an extra monthly payment every month if I can avoid it! :slight_smile: