money management

3 Lies About Car Payments

Rachel Cruze

Rachel Cruze

Car payments are so prevalent in society today that people think they’re a normal part of life. But if you took the average car payment of $545 and invested it into a Roth IRA instead, 30 years later you’d be sitting on a cool $1.4 million. Look, I like my car, too—but not that much!

For me, that’s motivation enough to save up and pay cash for a car instead of financing one. But I get plenty of objections to this way of thinking. Here are some of the excuses I hear. And the truth about them:

  1. “But the 0% interest rate is a great deal!”

No, it’s not. That new car starts losing value the instant you drive it off the lot.

From the first month of ownership, you’d owe more on your car than it’s worth. Four years later, you’d still have a year or two of payments left, but your car would’ve lost most of its value.

And let’s not forget that 0% is not the same as cash, and not everyone who falls for the 0% marketing pitch actually qualifies for the deal. But by then, you’re already in love with the car of your dreams and are willing to sign anything to drive it home. And of course, some of those “deals” aren’t quite as attractive once you read the fine print.

Making money off car loans is their business. You’re not outsmarting anyone!

  1. “I just had a baby, so I need a ‘safe’ car. . . like a new Tahoe.”

This is one I hear all the time from people I know who have kids—especially new parents. Do babies take up more room? Yes. Do you want your baby to be safe in the car? Yes! But those things don’t equal a new SUV. Safe does not equal new.

There are plenty of safe, pre-owned cars out there. And you shouldn’t let your desire to keep up with the Joneses drive your money habits and decisions. The Joneses are broke. Keeping up with broke people who are just trying to look rich is a really bad plan.

  1. “How am I supposed to buy a car without a car loan?”

Save up and pay cash for your cars. Yep, I mean it!

All it takes is making the decision to pay yourself instead of the bank. If you have a car loan, go crazy and pay it off quickly. Or, sell it to get the process rolling to pay yourself instead of the bank.

The first car you buy with cash might not be your dream car, but that’s okay. Just because it’s not your dream car doesn’t mean it has to be a junker. Pick out a car with a body style that doesn’t change often. I can’t tell you how many luxury-brand cars I see on the road, and yet have no idea what year they were made.

The moral of the story is simple. Own your cars. Don’t let them own you!

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