Can You Afford to Drive a Used Car? (Part 4)
In Part 1 of this series, we talked about new-car depreciation, in Part 2 we talked about the benefits of buying a used vehicle and in Part 3 we discussed some of the tradeoffs to consider when not buying a new car. In this last part, we will talk about things you can do with all the money you’ll save by buying used.
Though we’ve already talked about Certified Pre-Owned (CPO) warranties as compared to new car warranties, one thing we haven’t discussed is buying a used car without a warranty. This leads to one of the most heated of used-car-buying topics: “I can’t afford a used car because I can’t afford to pay for repairs.”
For the sake of clarity, please allow me to restate my position on vehicle financing: I am in favor of only one method of financing a vehicle: 100% down. That is paying for the vehicle either with cash or trade or both, but not with any type of loan.
Yes. It is possible to do. I’ve done it several times. Read about The Step-Up Method here.
I say this almost facetiously, but with a sense of seriousness: Did you know you don’t need a car loan? Yes, really. And you don’t have to be rich to own your car.
What happens if you don’t have a loan on your vehicle?
The thing that most people notice right away is that they don’t have to make a monthly loan payment. Let that sink in for a minute: No. Car. Payment.
Recent data from Experian indicate that the average new car payment in America is $503 per month. Just imagine what you could do with an extra $503 each month!
This gets to the heart of the issue we’ve taken four articles to get to.
The argument we commonly hear about people not being able to afford a used car is because they don’t have enough in savings to cover a major repair should one arise. (In all honesty, some of the people we speak with don’t have enough in savings to cover an oil change and have financed “service packages” with their new cars to cover such routine maintenance.)
By eliminating the car payments that most people are already making, those folks would have an extra $503 per month to put in savings to go toward any major repairs. The huge benefit here is that cash in savings could go toward shoring up the financial stability of the entire household – not just the car. When you make a car payment, you’re only covering the car. When you put the money in savings, you can take care of the car, or the house, or the doctor – you name it. Literally. Cash in savings is yours. You get to apply those funds to whatever you want.
That’s just one step down the path to Financial Freedom!