How to stop financing cars
Many people pay more than sticker price for their automobiles because they finance the vehicle and pay interest on the debt every month. I used to be one of those people… never again.
What follows is a quick summary of how you can STOP financing your vehicles and start paying cash. Doing so will help you save money, lower your debt burden, and give you true ownership and control over your purchases.
- Stop thinking you have to borrow money to buy a car. Most finance problems are thinking problems. If you think buying a car with cash is not doable, then you will probably never do it. Believe me, it is doable… starting thinking it is.
- Aggressively pay down existing auto loans. If you can afford extra debt payments, make them. If you have a lump sum amount saved that you can put toward your existing auto loan, do it. If you have to sacrifice to start making extra payments, then consider lowering your cell phone plan, cutting cable, or making any other sacrifice you can think of to help repay your loan faster.
- Continue saving after loan is paid off. After you pay off your existing loan, continue putting that amount away every month. The difference is… rather than paying the financing company, you’re paying yourself. Create a separate savings account called “Next Auto Fund” and begin funding it every month. You can also use an envelope and stash the money there.
- Buy used. Many new cars are simply not worth the extra cost. Next time you purchase a vehicle consider something that is at least a year or two old. Betsy and I usually settle on cars that are no more than $6,000 and are working to fund our “Next Auto Fund” with $12,000 to cover both our vehicles.
- Don’t forget to save for repairs and maintenance too. Alongside our “Next Auto Fund” we also have a “Auto Repair & Maintenance Fund”. After speaking with my auto mechanic, we decided that $100/vehicle/month is a good basic number to use for funding this account. Betsy and I have been saving $200/month for over a year now and it has worked phenomenally.
Using these tips and some good old fashioned discipline you can stop financing vehicles and start paying cash. Don’t forget point number 5 – it is key to your success! If you don’t create a maintenance savings then you’ll undoubtedly end up tapping into your “Next Auto Fund” to pay for repairs… which defeats the whole purpose.
My history with financing cars
My first automobile was a 1987 Pontiac Sunbird. I loved it. For me it was the best car in the world… and to get it, I was willing to go into debt for the first time.
I was 17 years old and had $700 cash savings to use toward the car – but it cost $1,700. I couldn’t get a loan without a cosigner and my dad wouldn’t do it so I hit up my grandpa… he obliged and we signed on the dotted line for a $1,000 loan. I paid $100/month for 10 months (along with an extra interest payment the 11th month) until it was paid off.
That is how I started financing vehicles.
After the Sunbird I financed two other vehicles – both used. I’m 35 and have owned these 5 vehciles:
- 1987 Pontaic Sunbird – Paid $700 cash and financed $1,000.
- 1991 Chevy S-10 Pickup – Gift from my amazing mother Kathy.
- 1988 Chevy Sprint – Paid $1,300 cash.
- 1996 Ford Mustang – Financed $6,000.
- 1999 Jeep Cherokee – Financed $7,200.
Paid off and saving
Now-a-days we have both our vehicles paid off and have around $4,000 saved for our next vehicles. As mentioned above, we also fund our repair and maintenance account with $200 each month to cover expected care costs of the vehicles.
Next time we go to purchase a vehicle, rather than paying $7,000 for a $6,000 car… we plan to pay closer to $5,000. Because like Dave Ramsey always says… 90 days is NOT the same as cash!