Cars are a huge part of American culture. People see their cars as a way to express themselves. Unfortunately, expressing yourself through a car could cost you a pretty penny, leaving you with a pretty scary car payment.
It seems that Americans accept car loans as a simple fact of life. I’ve noticed that people generally trade in their current car for a sparkling new one as soon as they pay off the loan. Sadly, that new car almost always comes with a new car loan. And yet, with a little bit of planning and self-control, you don’t have to take out another car loan for the rest of your life. Here’s how to break free of the car-loan cycle:
Keep your current car
The first step toward escaping car loans for the rest of your life is to keep your current car. Personally, my car is six years old – and my wife’s is nine. Both have under 100,000 miles on them, and we plan to keep them for a while longer. Keeping your current car may be a challenge for some, but it’s well worth it. Yes, your car is now older. It doesn’t have all of the fanciest features. But that’s okay.
Some people purposefully buy five-year-old cars to save money, and those people turn out just fine. You will, too.Click To Tweet
Of course, you should never keep driving a dangerous car, but for many people, the objection is driving something that they’re tired of, not something that isn’t safe.
Save your old car payment
Once the car loan is paid off, avoid the temptation to trade in your car for a newer version. Instead, take the money you used to devote to your car payments and stash that cash in a separate bank or investment account that is difficult to access. Each month, send another “car payment” to that bank account and watch the balance grow.
If you’re lucky enough to keep your car for twice as long as your original loan, you’ll save enough money to buy a brand-new car without taking out another one.
That doesn’t account for inflation, of course. But while you may need to save for a couple of extra months due to inflation, you’ll still be able to buy another new car if you want.
By doing this, you’ll save a significant amount of money. For instance, if you took out a six-year, $20,000 car loan at 5.9 percent interest, you’d pay $3,797 in interest over the life of the loan. You could put that $3,797 in the bank instead!
But what if…
But what if my car breaks down or I get in an accident? You’re actually in a pretty good position if that happens. You’ll have money in savings that can pay for the car repair – and even pay for a rental car or ride-hailing service, if you need one.
You might be tempted to go buy a new car to avoid the headache of repairs, but in most cases, the car repair will cost you just a fraction of the money you’ve saved – and it won’t come anywhere near the cost of a car payment or two. My wife’s nine-year-old car has had only one “major” car repair, which occurred when the muffler weld broke. The total cost was $62 to fix the muffler, which is much less than the three to five years of car payments that would come with a new car.
But what if someone makes fun of my old car? Shake it off. We’ve never had anyone make fun of our cars, even though they’re both older now. Yes, they have some dents and scratches, but a little bit of maintenance can keep your car looking great. In fact, you could pay someone to detail your car for cheap compared to the cost of a new car. My wife recently had her car detailed, which cost us $150, and her car almost looked like new afterward. That $150 was well worth it if it means avoiding purchasing a new car.
A final thought
Car payments are for suckers. Don’t fall into the trap of buying a new car every three to five years. Keep your cars longer, save the difference, and buy your next car in cash. If you continue to keep your cars for longer, you’ll even be able to build up some savings for other goals, like retirement or a fantastic vacation.