Have you noticed the way car companies show pricing in their commercials over the past couple years? They heavily advertise the low monthly price ($159 per month!) but never mention any other terms of the loan. If they even show you the fine print (I’ve seen some that don’t even show that), the loan is usually for something ridiculous like 80 months! I’ve even seen one that went up to 84 months! How about a 7 year loan on a car? Are you kidding me?
Of course, you should just ignore the monthly price for anything you see advertised. The only thing that matters is the price of what you’re buying anywhere else, so why is it different for cars? You need to find out the price of the vehicle you want to purchase, then you can worry about getting the best deal on a loan (if you need one).
Really though, you should not take out a loan on a vehicle. You should just save up until you have enough cash on hand to pay for it. It should be treated just like any other expense: if you don’t have the money to buy it, you can’t afford it.
Now, I know we’re not all perfect. I have a car loan. We shouldn’t have done it, but we did. And now we’re working really hard to get it paid off before our second child is born. We should have it paid off in just over 2 years though. We wouldn’t have even been in this position if we just kept our old car for a couple more years. But the plan is that will be the last car loan we’ll ever have. We are going to start saving for a new car as soon as that’s paid off, and we will only spend what we have saved. That’s what we should have done before, and what most people should do.
Wondering how you can set the money aside? Using YNAB, it’s really easy. You just create a category, and treat a car savings fund just like a car payment fund. Decide how much you can afford for a car “payment,” and put that much into the car savings fund every month. It’ll automatically build up every month, and when you reach the amount you want to pay for a car, you can go get it without a loan.
If you aren’t using YNAB, you can still set up a savings account, and set up an automatic transfer to it at the beginning of every month. Still too hard? Set up the automatic transfer on the day you get paid, but make it for half of what you want to save for the month. This will even get you a bonus savings of an extra month throughout the course of the year (assuming you get paid every two weeks).
So don’t listen to those stupid car commercials. If you’re looking for a new car, follow my post on how to buy a new car. If you’re looking used, try to find the best deal you can that fits your budget.