Having a vehicle can be very costly because vehicles will lose a lot of value quickly; you have to pay for repairs and maintenance; the vehicle will also have a higher cost if you are financing your purchase. In many cases if you finance more than you can afford, the purchase is going to place you in financial distress for many years because the vehicle is losing value every year.
You do not need to use complex formulas, percentages of income, or use complicated budgets; the best way to determine the maximum amount of money you can afford to pay for a vehicle is to use the amount of money that you currently have in savings for your vehicle purchase.
If you do not have enough money to pay cash for the total cost of the vehicle you will not be able to afford this vehicle; there are no exceptions to this rule! No “the monthly payment is low”; No “I will have money to pay for this vehicle later down the road”.
Why You Should Not Finance a Vehicle
Therefore, you are going to be paying much more for a vehicle that is actually getting lower in value each month. Staying out of Debt for Vehicles Is Like Climbing an Uphill Hill with Weights on Your Back.
Longer Loans For Buying Cars Often Aren’t Worth It
Longer-term auto loans (6-years, 7-years, 84 month) offered by dealerships allow them to make the monthly payment seem more affordable than it really is. Low monthly payments are not an indication of low overall costs, rather they typically mean that you will be financially encumbered for the majority of the car’s useful life.
You may very well still be making payments on a vehicle long after it has stopped feeling “new.”
Public Transportation Alternatives to Expensive Cars
If budgets are tight finding an expensive vehicle to buy may not be the best decision. Today there are many alternatives you can utilize for the time being (all may be inconvenient):
- Public transportation (when available).
- Sharing rides or paying gas.
- Riding or walking (when possible).
- Change jobs or move closer to work.
- Find a temporary solution until you can afford a vehicle.
None of these alternatives are glamorous but all of them are going to keep you from being in debt for an extended period of time.
If You Have No Alternatives, The Best Option Is
If you need to have a vehicle, keep it simple:
- Purchase a used car.
- Ideally an older car (up to ten years old).
- Don’t borrow more than $8,000.
- Keep the loan period under three years.
The purpose of the vehicle is for transportation, not for comfort or to impress others.
Vehicles Are Not Assets
A vehicle will not build wealth; it’s a tool that should cost as little as possible while still doing its job efficiently. The nicer and newer the vehicle, the quicker it will lose value, which makes them wasteful and expensive to own.
Paying interest on an asset that is depreciating is probably one of the biggest financial errors one can make.
The Benefits of Owning a Low-Cost Vehicle Without Stressing About Making Payments
You will feel more accomplished owning a low-cost vehicle than driving an expensive vehicle that you don’t truly own (meaning you still have payments left). No monthly payments, stress-free from making monthly payments, and no lender dictating your living expenses.
Freedom will always outweigh flashiness; buying transportation instead of a lifestyle will allow you to get from Point A to Point B without constantly worrying about if you will be able to pay for that next big investment (car). If you can afford to buy a vehicle outright (in cash), that is fantastic! If not, you may want to consider purchasing a less expensive vehicle and/or downsizing your dream of what type of car you would like to own to help safeguard your financial future.
