How To Never Have Another Car Payment

Don’t give in to the idea that a car payment is just a part of life. Take these steps and you can get to a point where you never have to have a car payment again.

A car payment is something that many Americans have come to accept as part of life and part of their monthly budget. Because of this, many car buyers justify buying new or even luxury cars and shelling out hundreds a month.

The funny thing is that the primary buyers of these fancy, new-leather-smelling cars are not the rich; they are just average, American-middle-class Joes.

Mostly, the rich don’t buy new cars; the rich are rich because they save their money, not because they spend it all. Instead of getting into debt, most wealthy car owners find an affordable car and buy it with cash. You can, too, if you’re careful and clever. Here’s how to start:

1. Save up $3,500-$5,000 for a used car.

I know that you’re thinking, “Are you kidding me? A car that cheap won’t even run!” You’ll be surprised at how many reliable cars you can find for this price.

Many people are worried about driving a car that has 100,000 miles or more, but most cars are actually pretty reliable for at least another 60,000-100,000 miles. My family has a beat-up blue van with 200,000 miles on it, and it still runs like a dream. Most concerns about car mileage are handed down from the older generations who were buying cars when they were less reliable.

So get up to $5,000 together. (If you can’t come up with this kind of money, that’s further evidence that you shouldn’t be getting into debt for a car). The car will probably need some minor repairs, so factor this in when you’re buying and look for something closer to $3,500 if possible.

2. Talk to family and friends.

Many people have an old car they want to get rid of. Ask your friends, your parents, and your grandparents. If you are a young driver, a good source is your mom’s friends; many of them will want to upgrade from the van they drove when their kids were young. (Being stuck with a van isn’t the worst thing in the world. At least you’ll be the life of the carpool party.)

You’re less likely to get swindled when buying from people you know. You’ll probably get a better deal. You’ll have some idea of the history of the car. And, hey, if it is a lemon, you know where they live.

3. Have a mechanic look at the car and get a vehicle history report.

A once-over from a mechanic should cost less than $100 and you’ll know if there are any major problems with the car. The vehicle history report will show any accidents that the car has been in.

Any good dealership should have the report on file. If you buy from a private seller, you can view the report on many free websites or sign up for Carfax.com.

4. Go for a common car.

When your car needs a repair (because any car will at some point), you don’t want to be shelling out thousands of dollars for expensive, hard-to-get parts.

As a rule, small cars tend to be the most reliable; SUVs can be more troublesome. So buy something average while you save up for something nicer.

5. Take the car payment for the car you would like to buy, and save it in your “Someday I Will Have a Nice Car” fund.

Let’s assume your dream car costs $30,000.  For a five-year loan at a 3% to 7% interest rate, your monthly payment would be between $539 to $600.

Instead of buying your dream car right now and having the stress of a car payment (even if you have a financial crisis), pay a minimum of $539 to yourself each month instead. In five years, you’ll have $32,340 (not including the interest your cash will acquire) and you can pay cash for a car and drive it off the lot stress-free. (Or you could buy another used car and put that money towards a house, giving you a much better return in the long run.)

A surprisingly low number of Americans believe in paying cash for cars, and most are wealthy. Don’t give in to the idea that a car payment is just a part of life that you can’t avoid. A little planning and sacrifice can leave you car-payment-free for life.

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Reviewed January 2024