You should always have a car payment. Unless you live somewhere like NYC where you don’t need a car, then you can move on to another one of our great articles. You should always have a car payment, not so you can drive the newest model every year, that would be crazy. However, most of us are in a place where we will be needing a new car sooner or later. How are you going to pay for that car without going into debt and taking on a few hundred dollars a month?
If your car is paid off, find some money in your budget and dedicate it to your car fund. Even if it is just $50 or $100 dollars a month it will help a lot in the long run.
Think about it. If you take out a loan for a $10,000 car and you just pay the minimum you are paying around $2000 in interest over the course of the 5 year loan. That is 20% increase in the cost of the car. Would you have paid 20% more for your car up front?
Every thousand dollars you put down saves you close to $200 in extra interest. And perhaps you can even save enough to not need a loan in the first place. If you take good care of your car there is no reason why you can’t pay cash for your next one.
This habit also prevents lifestyle creep. If you always have a car payment you never get used to living without one. Then if you really did need to take out a loan you don’t won’t feel the squeeze in your budget, because the payment is already there.
I am a fan of driving a car as long as you can, but I will admit I don’t feel like taking that route with my wife and kids so perhaps she can get a newer car before I do.
Financial Samurai has a great article on how to determine how much you can spend on a car. It is an interesting idea but I am not sure how practical it is if you try to live it out. It would definitely help to prevent getting in over your head.
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