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What Would You Do If You Had No Car Payments?

What Would You Do If You Had No Car Payments? post image

Looking at your monthly budget right now, what would you do if you had no more car loans? For some couples that extra money could be used to pay down other debts or it could help fund a house down payment. When we first married we had a car loan and I remember looking at the monthly payments wondering why did I sign up for it. I had gotten the car loan before we were married after my other car was totaled in an accident.

Car Loans, Money Problems

I was a working college student with a very limited income. The insurance company was going to send me a check for a little over $2,000 for the difference. Instead of just being patient and finding rides to work and using that insurance check to get a commuter car, I went ahead and got a car loan with ‘small’ payments. It was a financially stupid move as it added another monthly bill to my tight budget and I had to get a co-signer.

Here are the ugly numbers:

  • I bought the 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.

That car payment alone was about 20% of my take home pay when I got it.

Fortunately my husband and I agreed that having this car payment was not in our best interest and we worked head to pay off the car loan early. Basically we found learned to optimize our expenses. Some of our strategies included:

  • Examined our budget line by line. We looked at what was necessary and what was important to us and we;ve kept that in. everything else was reduced or eliminated.
  • Shopped around for the best deals. We looked at what companies could take care of our needs at the best price. We compared cell phone companies, cable options, and even car insurance to trim our expenses.
  • We had cheap fun. We looked for happy hour deals around town and met with friends then. We had potlucks which meant stepping up our cooking skills a bit.
  • Snowflaked payments. Our tax refunds and stimulus check went to lower the principal.

If you’re curious about the specifics, please check out out above linked post for all the details.

Buying Cars with Cash and Taking Care of Them

After buying our family car this spring and getting my husband’s car fixed this past week, w’m hoping that the cars will last us for years as our most of previous ones have. Honestly I hope we don’t have to get another car loan, but the reality is that if we want to buy our next car with cash we need to plan now. That basically means that we need to:

  1. Set aside some money for the next car and,
  2. Maintain what we already have

As far as saving money for the next car we have a separate car fund started. When we decided that we needed a bigger vehicle last year we got aggressive with contributing it monthly. Now that we have both cars ready to go we’re a bit more casual about it. I make small monthly transfers to the account. Once we sell the 3 rd vehicle, that money will be deposited into the car fund. (We have a few other goals we’d like to put our energies into for now).

When the cars we currently own start needing repairs regularly and it looks like replacing them makes financial sense, we’ll go back to save aggressively for our next cars. Until then, not having car payments has given some freedom with our money, allowing us to pay down some debts and save.

Seeing that we keep our cars for a very long time, we’re trying to maintain our cars to the best of our abilities. Neither one of us are mechanics, but we  check the cars regularly for fluids, check tires,  and when needed, we follow a regular maintenance schedule with mechanics we trust.

Buying a used car in most cases can make financial sense, especially if you’re not heavily commuting. For those one the fence on whether to buy new or used car, be aware that cars depreciate around 60%-70% in the first 5 years.  The longer we can go without car payments, the better for us as we can build a bigger fund for when the time comes to shop.

Thoughts on Having No Car Loan

I’d love to hear from you about car loans and your budget. How many of you have a car payment? How many of you have no car loan?

by Elle Martinez

Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

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  1. I just discussed this topic over on my blog! My car recently needed some repairs, and my mother (the queen of leasing a new car every 2 years) immediately started pushing for me to get a new car because mine is a whole 8 years old (shocking!). But, I haven’t had a car payment in 2 years, and the grand total for the repairs came to a whopping under $100.

    The only time I plan on getting a new car is when the cost to repair it gets so huge that it overtakes the cost of having a monthly payment again. And it’s going to be a while before that happens…

    1. Glad you could ignore the peer (er..family) pressure. If you start setting aside some money now, you may avoid having a car loan or at least making a big down payment.

  2. I can’t wait until I don’t have a car payment anymore! I was looking at my finances, thinking, “yeah, I will never ever have a car payment again.

    1. Hope you reach your goal soon! It’s kind of nice having one less bill hanging over our heads.

  3. We haven’t had a car payment for several years (we have two vehicles), and now that our cars are aging, it’s killing me to think about getting another one. I love not having that cash drained out of our account each month. We probably spend an average of $150 per month in maintenance on our old cars, but it’s a heck of a lot cheaper than two car payments!

    1. True! Car payments can take huge chunk out of the budget Lena. Have you two started a car fund for the inevitable day when one or both of your cars break down?

  4. I don’t have a car payment. The extra money just goes into savings/investments and against my girlfriend’s student loans for us.

    1. Our savings from not having a car loan is split similarly to yours Lance – paying down debts and saving the rest for other goals.

  5. I paid off my car like 18 months ago but it seems we almost took the exact same route…broken car little income and needed something! That being said I don’t ever see myself not having some type of car payment as The Wife leases. When her lease is up I think we may buy her a newish car which would bring back the payment for the most part since I’d rather have the liquidity in the bank

    1. Yeah, when your car breaks down and there’s no income, it’s so tempting to look at the specials at the dealerships. They always seem to offer those no money down or very low payment options.

  6. After paying off my car, I saved those car payments I was making in order to afford upgrades to my car. Now I love working on my Jeep and upgrading it with the money that I was using for car payments.

    1. Ooh, what kind of upgrades are you doing to your Jeep?