Reasons To Pay Off Your Car

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It’s better to be debt free than owe money.

I’m talking everything: your credit cards, student loans – even on your home.

It can be done – if – we make the right choices.

Regarding auto loans: if you have a choice, pay it off ASAP!

Here’s why.

Owning a car is expensive enough without a loan

Pay Off Your Car

Owning a car comes with many expenses: gas, insurance, registration, taxes, maintenance, care, and repair. Together these can total several thousand dollars per year. But throw a monthly car loan on top, and you have thousands more.

The secret to success? Pay cash for cars and save money for their regular care. If you take care of them they’ll take care of you.

If you lose your job, it’s one less payment

Living light never feels better than when you lose your job. Suddenly income evaporates (or is lowered to the level of an unemployment check) and one of your primary new tasks is to cut spending. If you own your car, one major expense is already out of the way.

In today’s unstable job market, this is a goal worth making reality!

The RISK of not making your payments

Most of us take the risk of auto loans a bit too lightly. After all, stop paying your credit cards and you may get nasty phone calls and a series of threatening letters, but nothing will be taken from you, at least not for a while. Stop paying on your mortgage and you’ll get to stay in the house for as long as the slow wheels of the foreclosure process will allow.

But – stop making payments on your car, and you’ll lose it, and quick!

If you lose your car you’re probably not able to earn a living. Do you see the vicious cycle here?

Never take this risk of borrowing money lightly.

Own important things free and clear, whenever possible

Call it peace of mind or whatever you want but owning things without debt is as a sanity issue.

If everything you own has a loan attached to it, life can be maddening. Debt is everywhere you look—even when you’re out driving your car.

A debt free car is like a mental and emotional oasis, it’s one very important asset you can own free and clear, and we all need as many of these victories as we can get.

Keep your options open

Few things in life are constant.

As we go through life, our circumstances change,  our directions change, and even we change. Even if you have no intention of it, your future can hold an unexpected life change.

If change does come – trust me – you’ll be better served by having all of your financial ducks in a row. And owning your car free and clear is one great way to prepare.

Benefits of owning your vehicle

Owning your vehicle free and clear benefits you in several ways, including but not limited to:

Sell your car. A car loan is a limiting factor if you should decide to sell. Auto loans reduce the amount of money you’ll clear on the sale ,and (if the loan is large enough) could even render the sale impossible.

Buy your next car. A loan means less money from a sale or trade-in, and that means a lower down payment on your next car.

A lower down payment means an even larger loan on the new car, and the cycle of ever higher car debt to continue. By being debt free on your car, the cycle is broken.

Start a new business. If you want to start a new business, being debt free on your car makes it easier. It’s not just one less bill to pay, it’s also one less obligation to worry about. If you start your own business you’ll want the fewest obligations possible.

Accept a lower paying job. There are at least two reasons this could happen, 1) you’re laid off and forced to take a pay cut, or 2) you move into a job that you really like but it pays less. The car loan, so easy to handle at your current pay level, may be impossible to manage in a lower paying job. By owing your car you’re in a position to move when you need or want.

Raise children at home. How much easier would this be to do if you owned your car debt free?

Just to take some time off. Each of us need to do this from time to time, especially between jobs or before starting a new career or business venture. It’s a way of clearing our heads before the next big move. Whatever the reason, it’s easier to do with no car loan to worry about.

We should work to be debt free in as many areas of our lives that we can – but – your car is one asset to be especially motivated to pay off.

Once you do, many risks and burdens go away, trust me!

Can you see why being debt free on your car is so important? Do you see why it should be one of the first debts to pay off?

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1 Joseph Lalonde

Awesome advice Kevin.

There is such a freedom that comes with having a paid off car. No monthly payments, if something breaks down there’s not an extra car payment on top of the repair, and it feels so freeing!

2 Kevin Mercadante

Thanks Joseph! While we’re never totally free in life, we can help ourselves out in that area by being free in certain important areas. I think being debt free on a car is one of those. So many people have car loans, almost as a default setting, that not having one is almost revolutionary. Of course it may mean owning an older car, but I’ll take freedom over a newer car anytime!

3 Adam Hagerman

We paid off my car about two months ago and it feels great. My wife’s car will be paid off in about two months. It’s nice to see that extra money in our accounts each month. I think we will start saving it for a rainy day!

4 Kevin Mercadante

Well done Adam! My wife and I paid off our cars a while back and now we’re trying to make owning cars free and clear a lifestyle!

5 Matt Jabs

Keep saving the amount of the payment(s) each month until you have enough saved for your next vehicles.

6 Suzette @ jambalaya

Great article! Totally agree. We have two vehicles, but one is via car loan. We are working at slicing it out as quickly as we can…aiming for November 2013 which would be knocking it out in less than two years! It takes serious commitment, but I know it will be so worth it! We will gain 10-15% of our income once our second vehicle is owned free and clear.

7 Kevin Mercadante

Hi Suzette–I think what you’re doing is a worthwhile goal. Paying off a car can be even more beneficial then trying to pay down a mortgage. When you pay off a car, you get an immediate boost in cash flow of hundreds of dollars per month (who couldn’t use that!). With a mortgage, it takes years of paying it down until you pay it off, and until you do, you still have the same size house payment.

8 JD

We currently are working extra diligently to pay off our used (new to us) SUV. Trying to shorten the time as much as we can and still eat. Hate car payments but our last one was older than dirt and we moved 2,000 miles and it wasn’t going to work.

9 Kyle

Well yes it is great to be able to pay off your car and if you have the money to do it then that is wonderful for you. Depending on your loan and length of time left on the loan and you financial situation it might make sense to put money toward something else. If you have high interest CC’s and maybe a low interest auto loan it might be better to pay off this high rate loan before paying on car. My point is that there are many situations out there… size solution like PAY OFF your car doesn’t always fit.

10 Kevin Mercadante

Still and all, you have to admit that from a strategic standpoint, paying off a car is huge!

11 Harshit Singhall

Great advice Kevin. I am thinking of purchasing a car soon and I’m glad I read this article as it reiterated the fact that it’s important to pay off one’s car loan as soon as possible or it becomes a burden soon.

12 Kevin Mercadante

Thanks Harshit! There’s so much focus on paying off credit cards that paying off car loans needs to be emphasized.

13 Fred@Foxy Finance

I always recommend a car loan especially if you own a business because it enables you to have a better cash flow. Obviously there is an element of risk but less so than if you’d paid for the car outright!

14 Kevin Mercadante

Hi Fred–I agree, that for a business use vehicle you may be better off with a loan, that way you can properly expense the vehicle over the years of service it provides. It does however depend on the type of business, percentage of business use and how much money you earn from the business.

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