Did you know that it is possible to get ahead without a car payment? Shocking information, I know.
My first car was a Ford Escort that my parents bought me for $2600 during my 3rd year of university so that I could get to my early morning nursing practicums at the hospital. Prior to that I was riding the city of Calgary bus like a boss. Getting my homework done on the 30-50 minute commute. Miraculously, I never ended up stranded on the side of the road waiting for AMA with my clunker of a car. I did however let my gas tank go to empty because I was waiting to see when the gas light warning signal would come on. Turns out my clunker didn’t even have a low gas tank warning signal in it. Shhh! don’t tell my parents! Luckily I ran out of gas, literally just outside my front door. I would call that operator error. It wasn’t my vehicle’s fault that I was a bit daft.
Since that first Ford escort, my husband and I have never made monthly payments on any vehicles. However, there have been two times that we foolishly borrowed money with a line of credit to purchase two different vehicles on two separate occasions. This was prior to meeting Dave Ramsey https://www.daveramsey.com/blog/the-truth-about-car-payments. We quickly paid off both of these vehicles within 6 months of purchasing them to pay off our line of credit. The first time we used a line of credit to purchase a vehicle was because we wanted a truck and because it was a “good deal!”
Nothing is ever a good deal, if you don’t actually have the cash in hand. Why, you ask? Because you end up paying some form of interest on borrowing the money and then you end up paying more for the vehicle than you planned because of interest payments, thereby nullifying the “good deal.” By the way,
Obtaining interest payments is a REWARD for investing money. Paying interest on anything is a PUNISHMENT for borrowing money,
Back to my story of why we needed a 1992, two tone blue truck when we lived in the city.
We didn’t need it! We just wanted it.
Then another time, we purchased a vehicle for $1500 that was a good deal and we had the cash in hand, unfortunately this vehicle revealed that it had a fatal flaw in it and it died a year after we purchased it. So, then we borrowed money from a line of credit again to purchase a replacement vehicle. Now, fool me once, shame on you, fool me twice, shame on me. Never again!
I think that was the last time that we ever borrowed money to purchase a vehicle. Now for those of you that know me, you might say, well sure you’re different you’re weird. And you wouldn’t be wrong. And some of you might say, well your husband is a mechanic and fixes things. What about those of us who aren’t mechanics?
Well you know what, sometimes mechanics get sick of fixing things ALL the time. So, not once but twice have we purchased vehicles with cash. Both of these vehicles were over $10,000 and we saved up the money to purchase them. We were not in a hurry and we just waited for a good deal to come along. We even purchased our present minivan from a dealership. We’d never dealt with a dealership before, but since my husband and I are not big bargainers. We literally walked in and said, "this is what we are willing to spend and nothing more" and stuck to our guns and that’s the price that we walked away with. The car salesman tried to go up $2000, then $1000, then $100 and then finally settled on our original price. Now I’m not saying that the dealership didn’t still make a profit on us because what kind of business doesn’t always make a profit? One that wants to stay in business.
The point of my stories is that it is NOT a law in life that you HAVE TO have a vehicle payments. Have you ever looked at how much interest you end up paying in vehicle payments?
-The average vehicle payment is $570/month for 60 months, LOST towards interest and payments.
-imagine having an additional $570/ each month in your bank account to SAVE or INVEST
The narrative that we tell ourselves is that we need a good reliable vehicle but unfortunately we justify it with the more expensive option instead of what we really need. If we actually looked at our true intentions, we would realize that we are buying it to look good, not because of the reliability factor.
You can purchase a reliable vehicle for $5000-$10,000 (cash) but for some reason we spend at least 4X that amount. When we buy a more expensive vehicle there are additional costs, not just the payment and interest costs:
-You pay additional collision insurance for a new vehicle which can be an additional couple hundred dollars per year
-the vehicle value depreciates by 9% when you drive it off the lot and an additional 10% in that first year for a total of 19% depreciation in one year! https://www.howtosavemoney.ca/leasing-vs-buying-a-car-canada. According to ConsumerReports.org, on average a vehicle loses about 40-65% of its value over the first five years. Also,
"Did you know that after student loans, car loans are the leading cause of debt in America?"
and that the
"#1 wealth killer in America is car loans!"
Unfortunately, after the financial crisis of 2008, many vehicle manufacturers started offering terms of up to eight years.
because the industry quickly realized seven or eight years was too long to see customers again. The solution, according to was to get car owners to trade in their vehicles before the loan term was up — with the outstanding loan balance folded into the new loan.
To lure customers back in, the industry often resorts to aggressive marketing campaigns. Often, this involves a mailed invitation to come check out the new models.
“It’s like wine and cheese — something like a fancy museum opening atmosphere," “But (they’ll) tell you, ‘Listen, for the same payment, we could get you into a new car. Why would you want to keep this old one? You get the Bluetooth, you’ll get the backup camera’.”
For many the offer is “pretty irresistible.”
But how much more are you paying for that fancy new car versus purchasing a 3 year old vehicle that has already depreciated to 58% of the original cost. Here is the cost of the vehicle payments including an estimated 6% interest rate over 8 years. Keep in mind, that these are average costs and there are many variables that are not accounted for in this comparison. It was very difficult to get a straight across the board comparison because of all the variables.
In summary: you will pay almost twice the price for purchasing a brand new vehicle and after 8 years this vehicle will have depreciated down to 40-60% of the original value.
You need to ask yourself, what is the purpose of my vehicle? Is it a tool to get me back and forth from home to work or is it a status symbol?
So... if you are having trouble separating yourself from that fancy vehicle or you would like to start dreaming about what to do with that extra $657/month, please book an appointment with me and we can dream and plan together! Maybe you’d like to go to Mexico instead or invest in your retirement or start saving up for a down payment on a house instead. Or just start saving up to purchase that new vehicle instead of financing it!
What could you do with an extra $500/month x 8 years while you're young and able to start investing early?
Now Go and Be Intentional!