I Ditched My Car Payment and Here’s Why

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Are you wasting $300-500 every month?

What if…

Instead of wasting $300 a month, you could save it or spend it on things you ACTUALLY care about?

• A family vacation
• Paying off debt
• Home improvement projects
• Creating an emergency fund

So what is causing you to waste $300-500 a month?

Your car payment.

The average car payment in the United States for new and used cars is listed in this table.

Photo Credit – Experian via Lending Tree 

Here’s the entire article from Lending Tree devoted to auto loan statistics for 2020. It’s pretty mind boggling how much money Americans spend on auto loans, and what percentage of their monthly income is tied up to their car loan.

How Much Money Can You Save with No Car Payment?

Let’s look at an example of how much you can save without a car payment.

I’m going to take a few averages from this data:

• The average loan for a new car is $32,480.
• Average interest rate for ALL borrowers is 8.6%
• Average loan term for new cars is 69 months

Using a simple Google loan calculator, my average payment would be….

$598.

And with interest, the total amount I would pay on the car is $41,284.

But What if You DIDN’T have a Car Payment?

How else could you spend $41,284 in 6 years?

What else would be more important than paying for a car loan?

Read that again. ??

WHAT IF…

You saved up for a few years and paid cash for a used car? Maybe only 5 years old?

You can get a reliable used vehicle anywhere from $8,000-15,000 depending on what you’re looking for.

A quick search on Carmax shows used cars from 2015 ranging from $8,500-$15,000 depending on the model and mileage. Lower miles is going to cost you more, and upgrading to an SUV will raise the price too.

But it’s WAY cheaper than buying a new car, and you’ll save money in interest, even if you decide to get a car loan for $10,000 compared to $36,000.

If you save $300 a month for 3 years, you’ll be able to buy a solid used car without taking out a car loan.

That’s just half of the monthly payment I calculated above. 

That means…

You can save $300 a month AND get $300 back into your budget to save or spend as you wish. You can even use it to pay off debt.

And if you want to buy a used car faster, or a newer used car, you can put the entire $600 into savings until you have enough to upgrade your car.

And when you drive it off the lot, you can feel the joy and relief of never paying a cent in a loan or interest. 

Your budget doesn’t suffer at all. 

In fact, your budget is free to thrive with an extra $300-600 going into savings, paying off debt, or investing in other things that bring you joy.

How I Save Money with No Car Payment

I haven’t had a car payment since 2013 when I paid off my 2005 Pontiac Grand Prix.

That’s 7 years at the time of writing this.

So, assuming a $300 car payment, I’ve SAVED over $21,000. 

That’s over $3,000 a year that I’ve saved for other things I really care about.

• Vacation planning, 
• Creating an emergency fund, 
• Buying fun things for my wife,
• Investing in our hobbies
• More freedom to spend time with friends and family (because that’s not always free)

Plus, that only accounts for one vehicle. 

We’ve been a two car family since 2013, so you could pretty easily double the amount of money we’ve saved because we don’t have a car payment.

In 2019, we bought a used car to replace a car that was dying. It was a 2012 Chevy Traverse and we bought it with cash. We saved for a couple years knowing we wanted to upgrade, and we knew we didn’t want a car payment again. 

Yes, we could’ve financed our new car, but financing a car adds an extra expense and takes money out of your budget. Plus we didn’t want to pay EXTRA in interest.

By paying cash and avoiding a car payment, we were able to update our car and STILL maintain progress toward all of our other goals. 

Getting rid of your car payment is something EVERYBODY can do. It’s just like getting rid of ANY debt. With the right plan, you can ditch your car payment and save the extra money for something you REALLY care about.

3 Reasons Life is Better Without a Car Payment

I’ve lived without a car payment since 2013, and I LOVE IT! 

No car payments creates so much more freedom and choice in our budget, and that’s something I wish for everybody to experience in their life.

There are so many reasons that life is better with no car payment, but I’m going to narrow it down to just 3.

You Save Money on interest Payments:

I learned a lot from my student loans, and my mortgage. When you take out a big loan, you’re going to pay a lot in interest. In the example I used for the $32,000 car loan, over the course of 6 years, over $9,000 went to interest. 

Imagine saving $9,000 dollars over 6 years! 

What else could you do with that money?  

Your budget doesn’t suffer and you reach your financial and life goals faster:

This is a two-fer. Not only do you save money with no car payment, you have more money in your budget every month. I will always welcome extra money in my monthly budget. 

With extra money I can:

• Make extra debt payments
• Invest in retirement
• Start saving for my kid’s college
• Save money for vacation
• Splurge more on things I love (like dungeons and dragons ?)

A lot of items on that list are future goals. It’s easy to see how an extra few hundred dollars adds up quickly to reach your goals faster.

A car payment is just more debt:

Debt sucks. I say this all the time, and it’s true everytime. I know that some debt is unavoidable, but it doesn’t make it more enjoyable. In fact, I’d argue that forced debt is less enjoyable.

Debt sucks the joy out of your life, steals your options and freedom from your present and future, and forces you to delay your dreams and goals.

We had so much debt that we delayed starting a family because we couldn’t afford our student loan payments AND daycare costs. 

It was too much.

At the end of the day, a car payment is just more debt that crushes your dreams and goals.

Why would anyone want MORE DEBT? 

Saving money and paying for a used car with cash is a better solution that solves your problem of getting an upgraded car, and keeps you out of debt.

Why not be debt free instead?

What would you rather spend your money on?

I don’t know about you, but I despise wasteful spending. 

I analyze almost all of my purchases to see if it’s really something that brings joy or value to my family. 

A car payment brings zero joy or value to our life or our goals.

If you’re somebody who LOVES cars, then by all means spend the money on your car. A budget is a roadmap of your values and priorities. If a car is a value of yours, find a way to fit it into the budget.

For me, I could care less about cars. It’s wasted money. Wouldn’t you rather spend the money on things you care about?

• Fun family activities – vacations and roadtrips
• Investing in hobbies
• Giving money to your favorite charities and organizations
• Splurging on date night
• Saving for your kid’s college fund
• Investing in your own retirement

You can use the extra money you save from having no car payment for fun and practical things. Or just pile it into savings to build up your emergency fund. 

I wrote this a while ago, but I love how it gets you dreaming about better ways to spend money than on a car payment.

10 better ways to spend money than a car payment. 

3 Tips to Get Rid of Your Car Payment Faster

Maybe you already have a car loan. 

The good news is, you don’t have to have it forever. You can take some practical steps to get rid of your car loan ASAP!

Refinance your auto loan: If you have high payments and a high interest rate, refinancing could be a great option. You’ll get more money back in your budget every month, and save money with a lower interest rate. 

Increase your monthly payments: I love this option. This is how we paid off ALL of our debt in 5 years. Work with your budget, cut a few expenses, or increase your income to find extra cash you can shove at your auto loan. The faster you can pay it off, the more money you’ll save on interest. Using a debt snowball spreadsheet can help you get out of debt faster than you think.

Sell your car and buy a cheaper used car: this isn’t always a popular choice. A lot of people love their cars, and honestly it can be a hassle to sell your car and buy a different car. BUT if you’re desperate or really motivated to ditch your car payment, it’s a GREAT option. 

If you ABSOLUTELY have to Get an Auto Loan

Like I said before, I can’t predict or know every financial situation for every family. You might need a car like yesterday and a car loan is the only option.

If that’s you, let’s make the most of a less than ideal situation.

There are a few big factors to consider when you’re taking out ANY LOAN:

What is your interest rate?

The lower, the better. Your interest rate will be based on the current market, your credit score, and debt to income ration. 

If you have good or great credit, you can get a lower interest rate. Basically the bank trusts you more because you have a history of paying your bills on time. 

It’s okay to shop around to different banks and credit unions to find the lowest interest rate possible. I would avoid financing through a dealership. It’s in THEIR best interest for you to finance with them, which most likely doesn’t mean that it’s YOUR best interest.

Can you actually afford the car payment? 

A budget is your best friend to know how much of a car payment you can afford. 

Remember.

The amount you get approved for is DIFFERENT than how much you can afford. 

When we bought our house, the bank approved us for $180,000. We knew that we’d have a hard time affording a house payment on a $180,000 loan. 

We use our budget to make big financial decisions.

Instead, we bought our house for $127,500 because the monthly payments fit our budget, and helped us keep moving forward with our other financial goals. 

That’s a difference of $50,000 of what the bank says we can afford and what our budget says we can afford.

Listen to your budget.

Take out as small of a loan as possible

When you’re in desperation mode and buying a car, that’s not the time to buy your dream car, or to get carried away with new and fancy options.

You’re looking for something that’s practical and meets your needs in the short term.

Your best bet?

Search for something used and affordable. If the goal is to have no car payment, the next best alternative is to have a small loan that you can pay back quickly.

When you’re backed into a corner and have to get an auto loan, try to find a practical, functional vehicle with a small loan.

Do your research

Never walk into a dealership and let them sell a car to you. 

When you walk into a dealership, you want to KNOW which car you want to buy. And as much about it as you can.

Spend the time to research possible cars and narrow it down to a make and model, and a year range you want to buy. When you do a lot of research on the car you want, you get a better idea of what a good price is. You’ll know the market almost as well as the dealer.

And that is HUGE advantage!

The more information you know, the more you can stand your ground and be assertive in the negotiations.

We bought our 2012 Chevy Traverse for $15,000 with 74K miles on it. That was several thousands of dollars lower than anything else we saw for that year and mileage. It was a diamond in the rough. 

We researched for weeks leading up to buying this car, and even test drove multiple other vehicles. 

We walked away from other cars we loved too.

Our research paid off and we got a great deal on our car. 

Other Questions about Buying a Car

There are a lot of factors that go into buying a car. 

• Are you buying new or used?
• How much money do you have saved?
• What kind of car are you looking for?
• What can you afford?

I can’t possibly hope to cover every aspect of buying a car in this post, but I’m going to tackle a few common questions and misconceptions of buying a car, and avoiding a car payment in the process.

What about leasing a car? 

I have strong opinions about leasing cars. 

But before I share it, I’m going to give a few pros and cons to leasing a car and let you decide if it’s the right choice for you.

The part about always having a car payment jumps out at me. I know that as a vehicle ages, it will probably have more repairs and maintenance expenses.

BUT, at a certain point as I illustrate in a couple minutes, I won’t have to make a monthly payment. Not even a low monthly payment.

And for me, that is a difference maker. 

Without a car payment, yes, we’ve had to pay for vehicle repairs. But it’s still been way cheaper than leasing a vehicle would’ve been. And I’m happy driving older cars. In the end if it has 4 wheels and drives, I’ll be pretty happy.

Quick Tips for Buying a Car

• Know what kind of car you want
• Do your research – you’ll be better equipped to talk with a dealer. You’ll know a good price when you see one
• Commit to a budget – understand how much you can afford to spend, and don’t let the dealers talk you into buying a more expensive car or financing. 
• Don’t tell the dealer you’re paying cash right up front – we made this mistake and it left us feeling stuck. Listen and ask a lot of questions. Use your research to guide you. 
• Say no and be ready to walk away if you’re not fully certain this is the car for you, that fits into your budget.

Cost of car loan vs cost of repairs

One argument I hear a lot for buying a new car is that you’ll save money in repair costs compared to buying a used car.

In most cases this is probably true.

But it’s not a guarantee. Even new cars can rack up hundreds of dollars in repairs and problems. I have friends and relatives who have had numerous problems with their brand new vehicles.

So let’s do the math. Because math is fun. And so are tables and data. 🙂

Here’s some data from our vehicles since 2014.

Now let’s analyze that data a little bit.

A few of those were major repairs and others were minor maintenance.

You can’t avoid replacing tires, brakes, and headlights/taillights.

And if you buy a brand new car, you hopefully won’t need to replace those for a few years.

In 7 years of tracking our vehicle repairs, we’ve paid a grand total of $2,316.37, which makes for an average of $330.91 every year on repairs for two used cars. That would be about $28 dollars a month.

That’s pretty damn good. Other than gas and tab renewal, that’s all the money we paid for two vehicles over 7 years.

How much does a car payment add to total vehicles expenses?

Now let’s imagine we had a car payment ON TOP of that. And let’s make it a low car payment since we have used vehicles. The average car payment for used cars according to Lending Tree is $393. 

We have two vehicles, but we’ll just use $393 as a total for all of our vehicles instead of individually.

And let’s assume since both vehicles are used, that they get paid off in 2017.

If I had a car payment AND had to deal with repairs and maintenance, I would’ve paid almost $19,000 more for my vehicles.

That’s OUTRAGEOUS! 

We reached so many other goals and dreams because we had could save money with no car payments for all of those years.

• A 2 week trip to Ireland (paid for in cash)
• Bought a house
• Adopted 2 dogs
• Started a family
• Became debt free

I can’t imagine our life without those big goals happening, and with two car payments, it wouldn’t have been possible to do all of that AND be debt free.

It would’ve taken 3-5 years longer, and that would’ve been agonizing. I can’t imagine not being a Dad or a homeowner right now, or the freedom we’ve experienced since being debt free.

And having no car payment has freed up a lot of space in our budget over the years. I’m so thankful for that.

What do you think? Ready to ditch your car payment too?

I know there is so much to consider when buying a vehicle, and I can’t predict or imagine to know everyone’s unique circumstances.

But I do know that without a car payment, you can do a lot more with your budget and get out of debt even faster.

And that can change your life.

What’s up next?

Next, check out THIS other blog post highlighting 10 things you can do when you ditch your car payment for good. If you need help creating a plan to get out of debt, download my debt snowball spreadsheet. Get it here. ??

Our budget and goals changed our lives and it can change yours too.