Are you looking to get rid of your car payment? It is possible to have a reliable car that is fully paid for. Here’s how you can do it.
A few years ago we paid cash for our van. Since buying a van we have purchased four other cars for cash. These days having a car payment seems like a way of life, but let me encourage you to not have a car payment!
Do we drive brand new cars- No
Do we drive reliable, clean, and paid for cars- Yes
If you want to rid your life and your budget of a car payment here are 5 simple ways (or not so simple) to make that happen.
Table of Contents
Pay Off Your Current Vehicle
When we owed money on our vehicle we started adding extra money every month to the payment. To make sure we paid extra we made the deductions automatic. Any extra money that came in went to the payment.
Side note: if you still have credit card debt or other high interest loans, pay off those first! When we were getting out of debt we only had a car payment left, so all the extra money went towards paying off the car.
When Your Vehicle is Paid For, Keep Driving It!
After you pay off your vehicle, don’t trade it in for a newer model, keep driving it. According to The Simple Dollar, the average American family spends $300 a month on a car payment. If you drove your paid for vehicle for 2 years and saved that car payment money you would have over $7000 CASH saved for a new vehicle.
When I think back over the cars we have owned throughout the years, I noticed that we drive them until they wear out or we don’t need them anymore. We drove our suburban for twelve years, then passed it down to one of our kids.
My husband has been driving his car for over eight years now. The longer you can drive your car after it is paid off, the more money you are able to save. Even if you have to spend money on repairs, it’s usually cheaper than purchasing a new vehicle.
Sell Your Current Vehicle and Buy a Clunker
A few years ago we needed a “get around car” nothing fancy, just something for my husband to drive to work. We researched the most reliable older vehicles and narrowed our search. After looking for a few months my husband found a car for $500! This was in the D.C. area, where prices are not cheap. Since purchasing the car we have put another $300 into maintaining and making repairs.
After ten months of owning the car we spent a total of $800. That equals an $80 a month car payment, which is significantly less than the national average of $300. Even if this car lasts us a year or two we have accumulated a large savings for another vehicle.
That car ended up lasting us about three years. We spent around $1000 in repairs to maintain it during that time. So the car cost us $500 a year to own, which is less than $50 a month!
Drive Your Vehicle Until it is Ready for the Junk Yard
We never had new cars growing up. My dad’s philosophy was to drive a car until you have to pay someone to take it out of your driveway. That meant we would have the same car for years. But it was years of not having a payment. Yes, there were repairs (although my dad always found inexpensive mechanics) but they were less than payments. By the time our cars were ready to be towed out of the driveway (and yes, this did happen) my parents had saved enough money to replace our vehicle for cash.
In 2000, we bought a two year old minivan. We took out a loan and paid it off in 3 years. Then we continued to drive this car for 6 more years. During those six years we were able to save our $250 car payment. When we finally sold the van (for about $1000) we had saved around $18,000 for a vehicle. Do you know that you can buy a really nice used car for $18,000? I know this because I am driving it right now. While our minivan wasn’t the prettiest thing to look at we kept driving it because it worked, and it was paid for, and we were savings towards the future.
Go Without
When I wrote about owning only one vehicle a few years ago, people told me it just wasn’t possible. I still disagree. For years we were a one car family, and I have many friends who are still a one car family. Can it be inconvenient, yes, does it require sacrifice, yes, will you miss out on things, probably. But if you need to get your finances under control this is one way to do it.
Here’s what we did to save up enough money to pay cash!
- Live without a car payment. We lived for 3 years without a car payment. This meant my husband drove an old car that wasn’t “cool.” It worked to get him where he needed to go. Our second car was a nicer, newer car that we paid off in 3 years.
- Drive your cars until they cannot be driven anymore. If you are switching cars every 3 to 4 years, you will not have time to save for a new one. Yes, older cars need repairs, but it has been my experience that the repairs usually don’t cost as much as a new car payment. When the repairs get so frequent or expensive that they are costing as much as payments we usually start looking for something newer. Even the most unreliable car we ever owned did not cost as much to repair in one year as our payments did on our new car.
- Save your “car payment” in a car fund. Once we paid off our Suburban, we took those monthly payments and started saving them in a car fund. If you had a $300 car payment (below the national average) in 3 years you would have over $11,000 in 4 years over $15,000. This is plenty of money to buy a decent used car.
- Maintain your current cars. Frequent oil changes and routine maintenance prolong the life of your current vehicle. Prevention is cheaper than repairs. The longer you are able to drive your cars the more money you can save towards your next car purchase.
- Do not upgrade your vehicles until it is necessary. We were planning on keeping our two vehicles forever, but with baby #7 coming soon, we needed a bigger vehicle to hold our whole family.
- Buy used. This does not mean you need to buy a 10 year old car (although that is fine too). According to statistics, cars depreciate between 20 to 40% in the first year and another 15% the second year.This means you could purchase a nice two year old car for up to 55% off the new car price. Since I have kids, the new cars that I have owned looked like used cars after a week anyway so why not go for the savings. We just purchased a two year old vehicle for 45% off what the original owner paid for it. This car looks new, smells new and drives like a new car.
- When it comes time to buy research, research, and research. There are several great sites for getting information on car values,EdmundsandKelly Blue Bookare two of the most popular. We were looking for 15 passenger vans so we didn’t have many choices, but our research helped us decide on features that were important to us (sliding door, remote locks) and how much those would add to the cost of the vehicle.
- Decide on how much you can afford and how much you want to pay. After looking at vans for 5 months I knew what these vehicles were selling for in my area. I also knew which ones were popular and which ones were not. When we finally found our van we knew what a fair price was for this specific vehicle.
- Use cash to help you negotiate. This was our first time paying with cash at a dealership, although I had hoped to buy from a private owner, we couldn’t find anyone selling a van we needed in our area. The process was very smooth and uncomplicated. The van had an asking price and we had a price we wanted to pay. We met somewhere in the middle. Since the van was priced below blue book value it was already very close to the price we felt was fair. We were able to negotiate some extras into the deal since we were paying cash
