Why You Should Be Making Car Payments to Yourself

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Do you drive a new car or an old beater that has seen more than its share of miles and needs a bit of work? Do you not own a car at all? No matter what your answer is, there’s one thing that every family should be doing and it’s something that a lot of people simply don’t do. For some people, they just don’t see the point of it. For others, they think it will take too long. For the rest, they just never consider it. I’m talking about making car payments to yourself instead of taking out a car loan.

Why You Should Be Making Car Payments to Yourself

The last time that we bought a car was in 2013. We drive a 2010 Honda Accord and I’m sure that if you’ve seen the posts where I occasionally post our monthly budget, you know that I include a car payment. Unfortunately, when we bought our car, we took a loan. In fact, we took a $19,000 loan, paid $5,000 down and now, 2 years later, I still owe almost $12,000 on it due to interest. Not to mention the fact that we are totally upside down on it meaning that my car is worth less than I owe on the loan.

Fantastic, right?

Unfortunately, there isn’t much I can do about it except pay it off. Oh and tell you what I should have done.

Need a new car? Don't take a loan! Instead, see why I think you should make car payments to yourself before you ever consider a loan!

The idea behind paying yourself a car payment is pretty simple. Instead of taking a loan and paying thousands of dollars extra in interest, you will instead, take the payment you would be making (if you had a loan) and putting it into your savings account. Obviously, the first thing you’ll need is a good savings account. If you don’t already have one, I highly recommend Discover Bank for them. I personally would keep this money separate from any regular savings that you have since it is to be used only for buying a replacement car. Doing so keeps you from accidentally spending the money and not having it when you might need it.

The second thing you’ll need to do is figure out how much you want to spend on your next car and how long you want to save for. The longer you give yourself to save the smaller your payment can be so be sure that you set a realistic goal. On the other hand, if your budget can handle a high payment each month and you already have a well established emergency fund, by all means set a shorter time period if you want. For most families though, that won’t be the case and they will need the extra time. Also be sure that you give yourself a payment that you actually can afford to make each month. You wouldn’t be able to skip a payment if you had an actual car loan so don’t allow yourself to fall into the trap of letting yourself skip this one.

After you have all of that ready, it’s time to start paying yourself. The next time that you do your monthly budget make sure that you add in your new payment. You don’t have to give yourself a specific due date, but it can be helpful if you do. If you don’t set an actual date, just keep in mind that you need to make your payment by the end of the month. To make your payment, simply deposit the monthly amount into your savings account and forget about it. Keep making your monthly savings deposits until you have enough saved to purchase your new car.

You might be questioning why you should go through all of this trouble (and why I wish I had). When you take a loan, you are locking yourself in to not only the possibility of losing your car if you happen to really and truly not be able to pay for one month, but you also will pay thousands of dollars extra in interest, loan fees and more. Not to mention the fact that loan fees are outrageous and that the car really and truly isn’t yours until it’s paid off. Paying $5,000 for a cheap, but reliable car that needs a little bit of work is a far wiser decision than paying $5,000 down on the same car and owing another $7,000. Instead, using your $5,000 to buy your car outright means that while you might have to put a little bit of work into it, you owe no one and you really are getting the best deal possible.

So what do you think? Do you save to pay cash for the cars you buy or will you continue taking a loan each time?




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Stacy Williams

Stacy Williams is a 37-year old wife to a USAF Gulf War Veteran, mother of two teen girls and fur-mamma to a rescued pit bull. The face and brain behind the frugal living and lifestyle blog Six Dollar Family, she also owns and manages Long Haul Wife, Republic Preparedness, The Genealogy Queen and a handful of others sites. By the age of 30, Stacy had overcome a drinking problem, a drug addiction, divorce, survived domestic violence, and had built a life for herself and her daughter after spending 10 months in a homeless shelter. Stacy is passionate about homeless advocacy and addiction education.  Her first book, also called Six Dollar Family is available on Amazon.

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  1. Where in the USA do you find a running used car for $5000. Just bought a 6 year old used car with 70,000 miles on it and paid $17,000 for it after looking for three months, this was the best deal. I agree with your concept iof saving up for vehicle purchases, but not so sure about your cost of purchase suggestions. My old car had 230,000 miles on it, was rusting, and costing a lot to maintain. The car sold for $4000 and the motor, transmission were all original. This car was pretty close to its final departure and still sold for $4,000. Not sure a long succession of end of life autos would be very cost effective.

    • Until I purchased the car we have now, I never once paid over $5,000 for a car that ran well and looked good as well. Yes, with some of them you may need to do minor repairs (such as new tires or new brake pads), but $400 for tires is certainly a lot cheaper than paying what you and I both did for our current cars. Cheaper cars can be found if you spend the time looking on Craigslist, in newspapers and other places that classifieds are posted. If you head straight to a dealer though? You’ll pay dealer prices.

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