Follow Up To How To Not Have A Car Payment

by mike on December 16, 2011

I wanted to go a little farther with the argument against car payments.  Last post, I discussed how to buy your next car without car payments.  You may be wondering why.  Why should you buy a car without car payments?  Isn’t it a fact that you will always have a car payment?  It’s smart to use other people’s money through borrowing, right?  Well, let’s take a look.

Let’s say I want to buy a 2007 Ford Explorer from a dealer with payments.  According to Kelly Blue Book, it would cost me about $16,500.  Already, that is approximately $2,500 more than what I could expect to pay from a private seller.  If I trade in my 11 year old Explorer, I can expect to receive about $1,800 for it.  That is another $1,200 less than if I sell it myself.

The $16,500 to buy the Explorer minus $1,800 trade in means I would be financing around $14,700.  The average car payment interest rate right now for a used car, 36 month loan is around 6.34% (according to Bankrate.com).  So, for a three year loan, you would pay $1,483 in interest.

To sum up, buying from a dealer with car payments doing a trade in (dare I say, the “normal” way of doing things), will cost you a total of $16,183.  As seen in my previous post, if you would instead sell your car privately and buy from a private seller with cash, it would cost $11,000.  That is a savings of $5,183 for the same exact vehicle!  (That’s not even counting the fact that you would probably get an even better deal from the seller when you flash cash in front of their face.  I know from experience, it has an effect on them!)

And THAT is why you should buy a vehicle without payments!

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