Why I’m Happy I Paid Off My Car Loan
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Car loans are one of those debts that look sensible on paper (I need transportation!), but usually becomes an unnecessary burden. I learned this the hard way, but I'm glad I got the lesson.
Upgrading My Ride (and Paying Dearly for It)
From around 18 to 22 I had paid cash for my cars. They were definitely beaters, but they were fine for a college student getting around the city.
After awhile I felt like I deserved a newer car since I worked so hard and people were telling me how cheap it was to get one.
I looked around and found a used car for a good price, but it was still too much for my income at the time.
The dealer had an easy solution: get a co-signer for my car loan. So my mom agreed to co-sign (I love her, but I now know this was a very bad idea) and I got the car I wanted.
Bad Used Car Loan
Fast forward a few months later and I got into a wreck and my car was totaled by the insurance company. I got a check from the insurance company for a little more than $2,000 (the difference between my car loan and its worth).
I should’ve gotten a used car with that money and it would've been good.
Instead, I let ego and peer pressure to cloud my judgment again and I got another car loan, again with a co-signer. (When I say loaning money to family can be a bad thing, just understand I have been on both sides of the table.)
The payments were lower than my first car loan, but the interest rate was high (almost 14% ).
The $10,000 car that I bought would've costed me $15,962 if I paid it according to the car loan schedule. We paid it off early, but I still paid too much in interest and fees.
Didn't Count the Total Cost of the Car
Instead of focusing on the monthly payments, I should looked at the big picture. Besides the car loan, there were some additional expenses with the car. What didn't I take into consideration? Quite a bit in my hasty for an upgrade on my transportation.
What didn't I take into consideration? Quite a bit in my hasty for an upgrade on my transportation.
- DMV Fees
- Property Taxes
- Insurance Costs
These were extra expenses coming out of my pocket that further depleted my finances at the time.
Happy to Be Car Debt Free
Having no car loan is a fantastic and while I do time to time want another car, I understand that getting a car loan is not the best solution.
If you're looking to dump your car loan, find out how we paid off ours off.
My wife and I own three cars currently (don’t panic, one will be sold!) all paid for. It is so great to not have car loan payments, and basically, all that money is funneled into investments now.
I actually made a vow to never buy a car that costs more than 10% of my gross annual income. For my one-income family that is currently a cap of $6,500. Well, our latest purchase was a 2007 Honda Odyssey to haul around our growing number of kids. Private sale, so no taxes, of $4,600. It’s worth at least $1,000 more now that I cleaned it up and fixed a few things myself.
You know what a new one of these minivans cost? About $35,000-$45,000! That is what a lot of people would have done when they decided to get a minivan, go buy new. With payments and interest.
This one decision, to buy new instead of used, is pretty much why so many families struggle with money.
Yes, I remember when we were hunting for a family sedan, we kept checking ads from dealers and private sellers to see if we could find the right deal. We eventually found a car on Craigslist and picked it up. Got it less than KBB and it’s been wonderful these last few years!