I was recently privileged to purchase my latest new-to-me car, a 2008 Ford Taurus SEL. My 1997 Ford Ranger is still doing fine, but is not very family-friendly and the gas mileage on my 80 mile commute (round trip) was definitely a concern. This is the third vehicle I’ve bought for us using $100 bills and several of you have asked me how to pay cash for your vehicles and/or how to break the cycle of car payments. I dedicate an entire chapter in my book to that topic, but I thought I’d give you the gist of it through a post today.
The Normal Approach
The average selling price of a new car is over $31,000, with an average monthly payment of over $400 (closer to the $450 mark). That being said, the Myers do not buy new cars. When I look at how much value is lost in the first 2-3 years of ownership on a new car, I just can’t bring myself to go there. The “normal” approach is to buy new, finance for 60-72 months and trade it in as soon as it’s paid for (or sooner). This will never work. It only perpetuates a cycle of indebtedness to the finance company.
Breaking the Cycle
As I see it, you have two options for breaking the car payment cycle and ultimately being able to pay cash for your vehicles – let’s discuss both.
Option 1: Keep Driving It
If you are used to making $400 monthly car payments, why don’t you just keep driving your paid-for car for a little longer? If you can put $400 of “car payments” into savings for just three years, you’ve got $14,400 (plus interest) to go buy a new ride. A quick glance at a local car dealer’s website told me $14,400 would buy a nice two-three year old car with no trouble. If you keep up this savings cycle and replacing your car every three years, you’ll always drive cars that are five or fewer years old and never have to pay a dime to a finance company for your car again. You can make this even easier on your budget or upgrade to a nicer vehicle by driving the cars longer.
Option 2: Be Embarrassed For a Few Years
Option 1 assumes you have a decent car right now that can last a while longer. Some of you are not that fortunate. You’re in a car that desperately needs replacement or you don’t even have a car right now but need something to get you back and forth. If you don’t have any cash in hand, let me offer some simple guidance – borrow LESS. If you can’t pay cash for a car, take out a loan. BUT (notice it is a big BUT…hahaha) be willing to buy cheap and stick it out. About the cheapest I can find a reasonably reliable car I’d be willing to drive for a long period of time is $4,500 or so. If you’re desperate and need point A to B only, $1,000 cars can be found that I would trust to last a year or two if cared for.
Before you go shopping for the next car you’ll be financing, make two commitments: 1) I will finance this car for no more than 1 year, and 2) I will drive it for a minimum of five years or until the wheels fall off. If you do that, you’ll realize that at the end of 1 year with $400 car payments, that bad boy is yours. Drive it for four more years, and you’ve got almost $20,000 in the bank to go buy a car you won’t be ashamed to be seen in.
Yeah, but…
Some of you are pumped about these ideas and ready to get started. Some of you are saying, “yeah, but…” Let’s deal with some of those objections before we wrap this up:
- $400 per month is too much (or not enough) for my situation. Okay, the math is pretty simple – choose numbers that fit your budget and redo the math. It isn’t about the numbers, it is about the change in behavior.
- What about a lease? Umm…no. Please read my thoughts on leases.
- But I want a new car! I want my children to sleep through the night from birth and I want my yard to mow itself. I want our government to quit wasting all my tax dollars and screaming they need more. Quit whining.
- I’ll have to spend money on repairs. Cars are machines. They will break. My brother works as parts manager for a dealership and I’m constantly amazed at how often NEW cars have to have major repairs done. While you should expect an older car to need some maintenance, buying a new car so you’ll have “no repairs” is false security…and expensive.
- I can’t find a car for $4,500 (or $14,400…etc.). I’ve visited this topic. Have a look at a couple of articles I’ve written on knowing when to buy and getting a good deal.
- Gas is expensive. My current car just costs too much in gas. Gas mileage should factor into your purchase decision, but don’t buy something just because of it.
- What about tax incentives? Hopefully you know the government offers those usually because we wouldn’t buy the product otherwise. If you’re gonna buy something anyway, take the tax break. But just like with MPG, don’t buy something just because the government gives you a tax credit for it. That’s not very smart.
Well, I guess that about sums it up. If you want greater details, I would encourage you to spend a few bucks on my book, From Debtor to Better: The Details of Debt and How to Get Out! Your turn – have any good car stories of success or stupidity?!
Learned lessons 20 years or so ago with new cars, leases, etc. Now we have no car payment but vehicles that are 12yrs + so your advice is timely as we may be needing to make a purchase soon. I might add that you can get the most for your used car dollars by researching consumer satisfaction online of those same vehicles that were purchased new. Buy the most reliable model and year and you just might be driving that ride longer than you think. For example, we have fewer issues with our 01 than our friends have with their 04 of the same model. It takes time to find out what the best deal is but is worth it in the long run.
Yes, this is fabulous! We paid for one of our cars with cash and while we planned on saving our payments to buy our next vehicle with cash too, a few things prevented that from happening (lung surgery for a newborn followed by a surprise pregnancy–suddenly, we didn’t have a car that would hold all of our carseats!). So we at least opted for buying a really great quality used car. And that’s about the only thing I have to add to this discussion. Be smart about the cars your purchase, whether they are new or used (though used is definitely best). Our cars have always required very few repairs because we researched them ahead of time using Consumer Reports. Typically, we only need basic maintenance and repairs done, which my husband always takes care of.
I think it was our fabulous Taurus… way back in ’97…that was our last car with a monthly payment. I sure don’t miss those car payments. Now to just get rid of the mortgage for current and previous (now rental) home.
…working towards that debt-free scream…
We just bought a new-to-us van and paid cash. The dealer would not take cold-hard cash, though. We had to go to the bank and get cashier’s checks. We found that dealers much prefer you take out financing with them. We thought we would get a better deal paying cash (our age is showing) but that was not the case. Still, paying for your ride is the way to go; forget the financing!
We have two cars that are now paid off. Mine is 11 years old and the AC no longer works. At the beginning of the year it broke down on our anniversary trip to NYC and the repairs totaled about 3700 with my local mechanic. And that was HALF what the dealer wanted to charge. It was one of those things where one thing breaks and while they are fixing that they realize that the next part down the line also needs replacing and so on until I had a new turbo, oil pump and motor. At least I had the cash to fix it. I didn’t have the cash for another car. So here we are a year later and the differential is on the fritz and the transmission is iffy. I’ve already had a new transmission put in back when the car was STILL UNDER WARRANTY! So this is where I draw the line. I will keep driving it but if the tranny goes, I may just push it off a cliff…
“I want my children to sleep through the night from birth and I want my yard to mow itself. I want our government to quit wasting all my tax dollars and screaming they need more. Quit whining.” HAH! that’s probably the funniest thing I’ve heard all day! thanks for the laugh…. we want those things, too!! 🙂
My stupidity moment was buying a brand new car that had a balloon payment. The payment was $365 a month and at the end of 6 years the balloon payment of over $6,000 was due in one lump sum!! We learned such a big lesson from that and are currently debt free on both our vehicles (Ended up getting rid of that one because it was too small for our growing family). They are not new or anything but not having a payment is so worth it! Don’t want to go there again. Thanks for the article. Great info.
We bought our 2005 Toyota Corolla in 2009 for $10,500 taxes in. We paid in cash. However, the bank only had $20 bills, so that is what we had to give the car dealer. His thumbs were really sore by the end of counting!!! He said he was afraid that when he brought it to the bank, they would think he’s a drug dealer. LOL!!!
That sounds like FUN!
I enjoy reading your blog very much! I have a question. I use your castile laundry soap recipe but never printed it out. Now the blog post has changed. Can you please re-post the recipe? I think I have it memorized, but I want to be sure. Thanks!
I will send it if you email me. I had to take it down because the comments were getting a little bit out of hand. 🙂
Awesome tips. My husband and I have NEVER financed a car praise the Lord. I drove my last car until the air conditioning needed a $1200 repair and we had the opportunity to buy a used “fixer upper” from my husbands car dealership that had air (very important for 2 kids 2 and under in the back seat) for the price I was able to sell my car for. We were able to go essentially sideways into a 98 Camry that’s still going strong. We drove my husbands car until we had 3 kids and decided to upgrade to a 10 year old Sienna mini-van, but that was after about 3 months of driving with 3 car seats crammed into the back of the Camry. Yesterday my van wouldn’t start but praise God some mechanics from my husband’s dealership were able to talk him through an easy repair. Inconvenient yes, but I consider it to be good stewardship to drive the cars until they’re run into the ground. I truly believe God will provide when wee NEED better cars, but for now I’m content in the awesome ones he’s given us.
Do you have any suggestions about where the best kind of places are to get a used car? We are trying to save up for one (it’s slow going with hardly any money to put away each month and our current only car is constantly needing repairs! A loan, even a small one, isn’t an option for us) Auctions, car -dealerships, private sales? Just not sure where to look when we are able to save up enough. My husband is very mechanical so I’m not worried about being sold something that isn’t what someone says it is, he would be able to check it out before purchase. But I’d love some ideas about where the best place to buy is!
I think, depending on the area in which you live, you should look on Craigslist and similar “classifieds” first so you can buy from an individual. Best deals to be had there for the most part. Auctions aren’t a bad option IF you are able to review the vehicle before bidding. Recognize, though, that oftentimes auction cars got there because a dealer rejected them as “good enough” to put on their lot. I would use a dealer last when money is the primary object because the dealer has to make a profit. That isn’t wrong or bad, but you will always pay more. My car came from a dealership, so there ARE deals to be found, but if I’d bought it from the individual who got rid of it to that dealer, I’d have saved a few hundred bucks (or more).
Yeah, we’re living the nightmare of car buying stupidity! We bought our van even though we were wayyyy upside down and have been paying more than we can afford for 6 years. Because of that we’ve lived with my in-laws for, well, way too long! 😉
Praise God, though, because we’ve stayed faithful to Him with giving, and He’s never let us go without what we need. We should be able to pay off our van in just a few more months!!!!!
Great post! Y’all are my heroes! 🙂
Keep it up! You can do it!!!