I wrote a couple of weeks ago about looking at total purchase price instead of just looking at monthly payments. I was showing how not paying attention to your car payments can lead you to spend much more than you planned to.Here’s how it affected us with our old car loan:
I bought a car for about $10,000 at an interest rate of 13.75%. My car payments were around $230/month. With all the finance charges and fees, if I stuck to the car payment schedule, I would pay a total of $15,962. Fortunately we paid our car loan faster than planned and saved a bit of money in the process.
I thought about it some more after Craig over at Free From Broke shared a wonderful lesson from a car ad on working hard for your goals.
It’s a keeper for me and got me thinking about being able to do that now. Is there a way you can realistically buy a new or slightly used vehicle with cash? Can you avoid a car loan for your next car? I decided to evaluate my viewpoints and analyzed how others have been able to do it.
Buying a Car with Cash – Guide to Fulfilling a Dream
As you know, my husband and I have been trying to avoid car loans for awhile. When his car was declared a total loss by the insurance company, we hunted and found a replacement that we paid for with cash. It was a comparable car to what he had before in age, but the condition was a huge improvement and it motivated us to keep saving up for our cars. We also saved a lot by researching automobile insurance quotes (more on that below!)
Decide on a Timeframe
You should try to base it on the current condition of your car. According to Consumer Reports, well maintained cars last on average 200,000 miles. If you drive between 12,000-15,000 miles a year, then you’re looking at approximately 13-16 years for your car. I know many people aren’t interested in driving an older car and some cars have a reputation of breaking down sooner, so I’ll base my guidelines on lower, but still reasonable numbers.
If you’re looking for general guidelines, here are my recommendations:
- Current Car is between 1-3 years old- Wait 5-6 years for your next car
- Current Car is between 4-6 years old – Wait 3-5 years for your next car
- Current Car is between 7-9 years old – Wait at least 2 years for your next car
If your current car’s condition is not that reliable, then base your estimate on a car a few years older as a hedge. If you’re car is older but reliable, then keep the schedule for it’s age. I’d rather you err on the conservative side and have more money in your pocket.
Don’t be disappointed if your current car throws off your schedule a bit and breaks down sooner than you anticipate.
Automate Your ‘Car Payments’
Believe it or not, if you want to get free from a cycle of car payments, you need to make some more. The good news is that these car payments are much more manageable and earn you money, instead of draining you.
Start small and automate 1/2 of your previous monthly car loan payment to put into specified savings. Your family’s monthly cash flow will have some more breathing room since you’re only putting in some of your old payments. Reallocate the rest as you see fit.
This step can help you build financial cushion, especially in turbulent economic times like these. If you want to slowly increase your savings, then go ahead adjust your automated deposits.
Find the Best Account to Keep Your Money
Find an FDIC bank or CUNA credit union in your neighborhood that offer high interest rates for savings and watch it grow faster. Look at Bankrate to compare checking and savings accounts. You should be able to find something to suit your needs.
Hunt for a Great Deal Early
Start looking for your new car about 9-12 months before your plan on getting it. The first step is filtering potentials based on your budget and your must have list.
- What kind of car do you want? (ie Sedan, Coupe, SUV,Convertible)
- What kind of transmission do you want?
- What’s the total cost of the car you want? Edmunds offers a True Cost to Own list that they update regularly.
- What’s the gas mileage for the car?
Now that you’re armed with information and you have cash in your car replacement, you can get the car that you want and spare yourself huge car payments.
Buying Cars with Cash – Not Just Us!
There are some great resources on the topic if you’re serious about paying for your next car in cash. If you’re looking for some more stories to help keep you focused, here are some of my favorites:
- Don’t Laugh, It’s Paid For!
- Four Years Without A Car Payment
- My Plan For Purchasing An Automobile With Cash
- Car Strategies to Cut your Costs in Four
Food for Thought
Maybe these posts will motivate you to at least consider the possibility of being free of car loans. I don’t think car loans are evil; I just thing we should look at all of our options, including waiting and paying for a car with cash.