The Real Truth About Borrowing Money To Buy Cars

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In many ways convenience and lack of patience is the enemy of financial prosperity.

Loans could be a statement about your selfishness.  A loan says I don’t have the money, but I want this and I want it now.

Here are some important facts about car loans:

buy a card with cash

A car should get you from A to B. The end.

  • The average American car loan payment is $400 per month.
  • A 48 month used car average interest rate is currently 7.91%.
  • Let’s say you bought an $8,000 car and paid it off over 4 years.  You would pay $195 per month (plus insurance and maintenance).  Also, over that time frame you would have paid $1,360 in interest.

If you read this post about the cost of borrowing money to buy cars you might never borrow money for another car (and that would be a good thing :)).

Here are ten things to help you buy a car with cash:

  1. Decide that you will not buy the car until you have cash. This might be a difficult decision, but making the choice and holding yourself to it will pay off huge dividends in your future.
  2. Work the numbers on the Bank Rate calculator.  You will see how much money you are giving just to pay interest.
  3. Save a portion of your income to buy a car (and do it for the rest of your life).  Let’s say you want a starter car ($3,000) and you can save $150 per month.  In just under two years you will have enough money to buy a car.
  4. Take advantage of public transport and carpooling.  Many colleges have places where people can set up carpooling trips.  While you drive in and around town take the bus.
  5. When you do buy, buy as little car as you need. When you start looking at cars you will be attracted to one that has a lot of fancy features.  The more disciplined you can be, the more likely you will be able to find something in your price range.
  6. Be patient and network. Let people at church and school know you are looking for a vehicle.  Perhaps a senior at church is no longer driving and they are interested in selling their car to you.
  7. Work an extra job and save the money for a car. If you have some extra time on your hands (summer) save all the income from a second job for a car.  You should be able to save enough in a summer to buy an older used car.  Working with a focused goal is always a good idea.
  8. Open a car savings account. Decide that you will only use money for that account to buy the car.  Any time you get a pay check make sure you deposit money into the account.  The closer you get, the more focused you will become.
  9. Decide when you want to get a car. If you are heading off to college in two years and want a new car, you now know how much you need to save in that time frame.  This will help you know how much you need to work in the meantime.
  10. Have a discussion with your parents. Some parents might be willing to help with your vehicle purchase.  They might be willing to pay a portion for every dollar you pay.  They might be willing to pay a portion based on your performance in school.  Let your parents know what you are planning and ask if there is any way they can help.

Photo by aotus.

The following five items are things you can decide now to avoid financial regret when you are older:

  1. Decide you will pay for and save for as much for college cost as possible.
  2. Decide to marry someone who has a clue about money.
  3. Decide to work at least during the summer if not during the school year.
  4. Decide to buy a car with cash.
  5. Decide to rent until you have at least 20% down for your first home.


    • Craig says

      I had a car payment once (about nine years ago). I couldn’t stand the idea of my hard earned income going to some bank so we scrapped together some money and paid off the car loan within six months. We have never looked back since. We do the same thing as you suggested make a car payment to ourselves every month so we are ready the next time we need to buy a car. Thanks for your comment.

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