Why Do People Choose to Be Car Poor?

Why Do People Choose to Be Car Poor - picture of rear end of fancy car

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Just last week, Kim at Eyes on the Dollar wrote about how her local newspaper was advertising six-year car loans for Honda Civics.  Gasp. 

For heaven’s sake, my oldest daughter just turned five and learned how to walk, talk, and write during that time.  I can’t imagine having to pay a monthly car payment for the duration of her life or longer.  That….is…..soooooooooooooooooooo….long.  Of course, it doesn’t help that I absolutely hate car paymentsBut I digress.

Why Are Americans Car Poor?

Shortly after I read the post about six-year car loans, I stumbled upon a Market Watch article on how lower class Americans are being forced to go into debt to afford basic necessities such as food and gas.  I felt slightly sympathetic until I got to this part:

Financing, whether in the form of a loan or a lease, is the only way low- and middle-class Americans can afford a new or used car.  But please appreciate how stretched non-discretionary car financing has now become. The following is per the Wall Street Journal:

“[The] average automotive loan term [reached] 66 months for the first time. According to Experian Automotive’s latest State of the Automotive Finance Market report, loan terms in the first quarter of 2014 reached the highest level since the company began publicly reporting the data in 2006. The analysis also shows that loans with terms extending out 73–84 months made up 24.9% of all new vehicle loans originated during the quarter, growing 27.6% since Q1 2013.”

Say WHAT?  Did I read that right?  The average vehicle loan is now at 66 months?  And 25 percent of loans extend from 73-84 months? 

Oh wait, it gets worse…..

“The average amount financed for a new vehicle loan also reached an all-time high of $27,612 in Q1 2014, up $964 from the previous year. In addition, the average monthly payment for a new vehicle loan reached its highest point on record at $474 in Q1 2014, up from $459 in Q1 2013.”


Now it makes sense.

People are being forced into six and seven years loans because they are borrowing over $27,000 for the privilege.

Got it.

Thoughts On Being “Car Poor”

Let me go out on a limb here with a few ideas:

  • If you have to finance a car for 5, 6, or 7 years, you cannot afford it.
  • If the average car payment is really $474, it makes perfect sense why so many American families are struggling to get ahead.
  • The fact that the average car loan is 66 months long and over $27,000 deep says a lot.  It says that we, as a country, have messed up priorities.  Remember, the average 401K balance for individuals ages 22-34 is only $16,500, and the average balance for those ages 35-48 is only $63,600!

How To Avoid Being Car Poor

As someone who is not that interested in cars and does not commute to work, I know it’s easy for me to say that your car doesn’t matter.  However, I know that many people actually need a reliable car for work I get it.  Trust me.  On the other hand, don’t delude yourself into thinking that only the newest, shiniest model will do.  You don’t need heated seats.  You don’t need a built-in stereo system.  You don’t need a rear camera or a subscription to satellite radio.  Want to avoid being “car poor?”  These tips can help:

  • Remember that cars are a depreciating asset.  According to the experts, a new car will lose at least 20 percent of its value within the first year.  The new car smell is not worth it.
  • Consider buying used.  Jacob at IHeartBudgets.net wrote an excellent post for my site about How to Buy a Used Car Like a BossCheck it out.
  • Buy a cheap and efficient new model.  If you’re convinced you need a brand new car, there are plenty of lower cost options out there.  For example, a new Ford S Sedan can be yours for $16,810.  That’s over $10,000 less than the national average!
  • Get over yourself.  A new car is not worth sacrificing your future financial health.  Ask yourself, “How would my life be better if I no longer had a car payment?”

DSCF3426Before you call me a hypocrite, let me end this post with a picture of my 2007 Dodge Caravan.  Sure, she’s sporting a little bit of duct tape on the front, but she’s comfortable, reliable, and most importantlypaid off.   

I may not look fancy when I roll into Meijer to buy some groceries, but I feel like a genius. 

What do you think about the size and length of the average car loan in the United States?  What do you think it says about our priorities?


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  1. I think like mortgages car debt has been so normalized that it’s crept up in size and scope over the years. But I can’t imagine a monthly car payment of almost $500 or one that lasts nearly 7 years!

    1. Sadly, I can imagine it. I bought a new car when I was about 22 and it ruined my life for a while. I think my payment was around $450. That was over a decade ago. Never again!

  2. I will never – I repeat – NEVER have a car payment ever again. It feels so freeing to not have that monthly bill. It seems like money comes just appears out of thin air when you finally get rid of it. And, while you may need a reliable car to get to work, reliable cars can be purchased with cash. In fact, I’d argue that if you can’t buy a car with cash, you probably can’t afford it – whether that is a $15,000 car or a $500 car.

    1. I agree, although I understand if people need to take out a short-term loan for a vehicle. A $27,000 loan, however, is not necessary.

      1. Ben @ The Wealth Gospel says:

        You two better agree! 😉

  3. Car poor person right here 🙂

    Last February I took in my leased car for it’s scheduled maintenace and came away from the dealership with a new truck. The lease had a few more months left to it but I wanted the truck now. It was a $580 monthly truck payment for 66 months.

    I have since seen the light and realized the error of my ways. I still plan on keeping the truck and will be driving it into the ground. However I’m putting in as much as I can to the payments and am on track to get it paid off later this year.

    My next vehicle will be paid for in cash 🙂

    1. Yikes! Well, all you can do now is pay it off then drive it forever!!!

  4. Unfortunately I think this is a simple case of the general public taking whatever dealers offer them. If the common person wants a car and can’t afford it, all the dealer has to do is offer one of these longer term loans with a smaller sounding monthly payment and that person is hooked. They don’t realize how much they end up paying in interest (or even care in some instances).

  5. Ha! I love the term “car poor” every time I see my neighbors driving around in their high end, high priced cars I don’t envy them, I feel smarter than them. I don’t understand the car thing either, especially because you only spend a few hours in it a week. I guess the thing the car represents, though, is the “mobile Jones” effect because how else is anyone going to know you are successful unless you drive up to them and prove it? 🙂

    1. I guess. I’ve had a nice car before, and it certainly didn’t make me feel successful. It only made me feel poor.

  6. Those averages kind of make my stomach hurt. I used to care a lot more about what kind of car I drove, but now that my priorities have shifted I care a whole lot less!

    1. Me too. I couldn’t care less now, but I’m old and boring.

  7. It’s been almost a decade since I last bought a car so I can’t really speak for people who are doing it these days…. except I’ll try anyway 🙂

    I wonder if they think that it makes sense to stretch out payments longer because cars also last longer. And when you add in maintenance, gas, insurance, and so forth, the cost of financing a car may not be a majority of its cost.

    Finally, rates are really low right now. If you can stretch out a 2% rate on a car loan for seven years while you’re averaging 5%+ long-term in your retirement portfolio, why not divert your money as long as possible?

    1. Ummmm……because you don’t want a car payment? Also, because spending an average of 27K on a vehicle is insane? As I illustrated in this post, people are barely saving for retirement. That should take precedence over huge car loans!

    2. I understand what you’re saying… if you would have spent the money anyway (so the financing didn’t affect your decision to purchase), then you could make the argument that you’re borrowing money at 2% and getting a return of 5% on it. In certain instances I suppose this could make sense. I’ve financed two cars (at 0%) that I could have paid cash for, it’s the same principle.

      I seriously doubt that even 1% of car loans have this reasoning behind it though… It’s a concept that many will understand, but few will execute properly. Most people would not follow through on getting 5% return, or buy more car as a result of the financing. Unless you’re a real stickler and will measure your own results religiously, I think this method will probably be more destructive than anything.

      I learned a lesson young in life, don’t pay interest on something that depreciates. I thinks that’s a good rule of thumb to live by. Are there exceptions? Sure! But not for most people.

      1. Davey Pockets says:

        Nathan you are actually very right. As long as you have the will power and the self discipline not to blow the money on a liability, car loan can actually be a huge asset. Especially if you can find a business or rental property that returns you 20% or more every year! Do the math loan at 2 or 3%. Return at 20%. Pay down the loan. Drive the car. And keep a 17-18% return on your money for no work!


          The math always wins, and depreciation kills your supposed “gains” by losing 60%+ of the car’s value in the first 5 years.

          Not sure how this is always missed.

          Financing a depreciating asset is always bad.

  8. The $27k average car loan is especially sad when you put it next to the average 401k balance as you did! I think cars are an area where many folks can go a little hog wild in efforts to keep up with the Joneses. As I drive through less nice parts of town I am often amused to see brand new vehicles sitting in the driveway of dumpy-looking houses. Maybe they have wealthy relatives visiting- or maybe it’s their priorities talking. I suspect it’s the latter 🙂

  9. We got a five year loan at a “rock bottom” interest rate. Originally I was planning on paying it back a bit faster, maybe tacking on an extra couple hundred each month. I’m a sucker for low interest rates, though, so I’d rather invest the money. I think 5 years IS really long, but we will be driving this car hopefully 8-10 years so we’ll have some time without the loan on the tail end. I think I love low-interest payments as much as you hate payments, Holly : / I should say we did drive a VERY nice (and newer) model of the Escape with the rear camera, interior leather, etc. and dang it was nice! But you can easily save $3k-$8k by going for a cheaper model that is just as reliable but not as fancy.

    1. The problem is, most people aren’t taking out low interest car loans so they can invest more. You are the rare exception!

    2. But you did invest your money. Into a car. That is losing value. And you are paying interest for that privelage.

      Imagine your car as a stock. You are paying (say 2%) on a stock that will plummet by 60% in the next 5 years. All the while you invest in the market and (hopefully) net 7% a year?

      The math is not working in your favor 🙂

      Sorry, I just hate the idea that buying a new car is ever a financial gain.

      1. We buy things all the time that depreciate in value – appliances, televisions, clothes, books, computers. Some people put cars in the same depreciating, eventually-disposable category. Especially poor people – they don’t generally think in terms of “investments.”

        I believe cars should be placed in the same category as appliances and computers and electronics – not homes and retirement plans.

        I financed a new Civic ($17000, which includes taxes and fees, etc). It’s 12 years old now, has duct tape on the trunk, and dings all around. I wasn’t concerned about the depreciation any more than I was concerned about my computer’s depreciation (which, btw, is 6 years old and quite worthless in the computer market). It was, in my mind, a piece of equipment that I need and planned to keep and take care of for many years to come.

        I am saving up to pay cash for my next car because I don’t want to pay anyone interest, so don’t think I’m justifying long-term car loans. I think they’re absurd and should be avoided at all costs. I just wanted to share a different perspective of the depreciation factor since you keep responding to other posts where people are ignoring depreciation.

        1. Davey Pockets says:

          Depreciation isnt the case in point though. All cars depreciate. Whether you pay cash, fully finance, take a vacation, or use the money to invest in a business. If you are going to own something that drops 60% in value (using your numbers) why not get a return on your money? Why would I pay 100% just cash and guarantee myself that all of my money is lost through depreciation when I can use the banks money to take the loss and go make money myself with an investment.

  10. My parents taught me to pay cash. My hubby now understands the same. I love certified pre owned. My car is 9 years old now. At the time I paid 10k. Do the math on how much I’ve spent a year on the car.

  11. I LOVE this post so much!! My car (a 2006 Honda Civic that I paid for), just basically died. And after a quick google search I discovered that Honda would replace my engine because there is basically a recall for my problem. I refuse to finance and get into car debt so I am finding ways to make this car last forever. Great tips!

  12. We always drive our cars into the ground. Sometimes I have questioned this strategy when near end of life, there were major repairs that were costing more than the cost of a new car payment would be. It’s hard to know when to stop throwing money at it. From everything I read on PF sites, it seems that our strategy is good. Maybe that one car was just a money pit and an anomaly. Something to watch out for, but I don’t think I’ll abandon our strategy yet!

    1. Me neither, although I’ll probably replace my car if/when it starts having problems.

  13. This is just nuts! I wrote a post about it last year after reading some articles stating that dealerships are starting to offer 97 month loans as people “need” it. I’m sorry, if you need 8 flipping years to pay for a car then something is wrong. I understand the need for a car, but there are so many options out there that will get you exactly what you need. That said, we’re committed to not having a car payment again. I understand that some will say low rates make it ok, but I’d much rather have my money go towards something that’s actually doing something for me.

  14. I’m probably a car clown, but we’ve purchased 2 vehicles in the last 10 years, and each of them cost us $7k. One is a 2000 Camry and the other a 2002 Pathfinder. We’ve had to do basic maintenance but nothing more, and we saved up for each of them and paid with cash. I can’t even imagine having a loan for a car that could be used to purchase an investment property instead. Arg!

    1. Me neither. I would cry if I had to pay $474 per month to drive something.

  15. I don’t get it either. My colleagues who can afford fancy cars for the most part have sensible cars or bought a fancy car used. Not everyone. But the fancy cars in our lot mostly belong to students. Maybe they’re not car poor, maybe they have wealthy parents, but I also know the majority of them are working crap jobs (based on a project my chair commissioned my stats class to do).

    1. Yeah, hopefully all those nice cars were gifts from wealthy parents! =/

      1. But if that’s the case, then why are the students spending so much time on crap jobs instead of doing much needed work on their studies (work that will pay off more dividends in faster graduation times and higher starting salaries down the road)?

        1. Yeah, you’re probably right. At least they’re young though. They have time to make mistakes and recover. I was an idiot until I was about 25.

  16. Can I just point out that 66 month is the AVERAGE! That means there are car loans longer? Oh my god….crazy! We got ourselves into a bit of a mess with our car payment but I hate it so much we are getting out of it as soon as we can! I can’t imagine having a 6 year (or longer) car payment and being ok with it!

    1. Me neither. No car on this planet is worth that.

  17. Okay, so I admit that I’m tempted by the bi-weekly payments painted on cars when I drive by the car lots. That being said, I would NEVER use that as my rationale as to whether I could afford it.

    My current car is 8 years old, and I’m happy with it. I’m hoping to get to 10 years without too many issues, and then we’ll see what happens. That being said, I won’t have enough money set aside by then to not finance at least part of a car. But I won’t be financing for 66 months, or for $500!

  18. Car payments are the worst! We have always tried to avoid them, but one time I did get suckered into financing a new van. The loan was 0 percent interest and only for 3 years, but we sure felt the hit in our budget. The reason we got the van, was the monster car seat that took up too much room in our Corolla. Those darn car seats!

    1. LOL. I could probably live with a zero percent interest loan.

  19. As someone who does have a car loan I feel like I have to tread lightly as to not sounds like a total hypocrite. I do that that amount is crazy, both for the payment and the lease term. I think somehow in the back of their minds people think they are getting a good deal. But there is evidence that we as Americans are NOT saving at all! So that math doesn’t add up. I’m really glad I got such a great deal on my lease. I could have actually paid cash but would have left myself cash poor, and you know as a freelancer that is very risky. I would have driven my old subaru with duct tape if I had too, but when it died, it would have cost me more in repairs than it was worth, with no guarantee it would run a long time.

    1. I agree that people think they are getting a good deal. I recently saw someone post a pic of a new SUV on Facebook and say that they got a great deal that made it “cheaper to buy new than used.”


  20. People become car poor because they can. It’s easier to get approved for a car loan than a mortgage and many people view it as a status symbol. If you have a nice car, you must be doing well!

  21. I know many guys who are car fanatics and get tired of their car after a few years…if that. They constantly want to upgrade to a newer or better model with the exciting new technology. I got my first car my junior year of college and drove it for 10 years…my friends must have went through 3 cars each. They couldn’t understand why I didn’t get a new one right after college when I started working.

    1. Because you don’t want to be “car poor!!!”

  22. This is probably the only area of finance my husband and I disagree on. I would be ok with buying used cars and he absolutely will not. He doesn’t need a super fancy car but it must be new. He simply doesn’t trust that buying used will not result in a myriad of service calls and money spent on repairs. And when you hear about all the auto recalls the companies put out, he does have a point. Two years ago he broke with his own philosophy and we bought a 5 year old Lexus. It only had 15,000 miles on it and we bought it for cash from his brother. So, he knew the history of the vehicle and how well maintained it was. Otherwise, I’d never be driving a Lexus…..new or used.

    1. Oh well, you can’t win all the time, right? Hopefully you guys aren’t financing them for 8 years!

  23. Funny thing…when I first read your title I thought it said, “Why do people choose to be CAT poor.”

    That would define us. Can you imagine the high cost of cat food? Ugh!

    1. Awww…I love cats. Greg won’t let me get one =(

  24. Holly — I am a huge fan of your blog and simply love the way you write it. I can almost hear your voice!

    I was stopped cold with this one, however, and haven’t made it past the third paragraph yet. Why? Your use of the term “lower class.” I know you mean “lower income.” As you know, we don’t have a “class” system in this country. I sure wish you’d correct that.

    OK, now I’ll read the rest. But that hit me in the face like a 2×4…

    1. It actually says “lower and middle-class” throughout the Market Watch article. I was just repeating it since I am quoting them. I see myself as middle class- I don’t see that as offensive at all.

      From Market Watch:

      “Here, again, non-discretionary credit fills the void. With savings low, few Americans can afford much more than the down payment on a new car. Financing, whether in the form of a loan or a lease, is the only way low- and middle-class Americans can afford a new or used car. ”

      Lower-income is probably more “PC,” but I don’t really strive to be PC here.

      1. I saw that when I went back and read the rest. Sorry for taking you to task! As I said, I absolutely love the way you write your posts — so casual and honest. Certain things “push my buttons,” so to speak, and I guess that’s one of them…

        Keep up the excellent work, Holly!

        1. Hey, no problem. I don’t mind at all! I appreciate the feedback!

  25. Wow, I can’t imagine getting a $27,000 car loan! We just bought a used car for $900 in cash. Granted, it’s 15 years old, but after $1200 in repairs, it’s in great shape and should last us for several years. By then, we’ll have saved enough for a substantially better newer used car, just by not having a monthly car payment! If it lasts 6 or 7 years, I’d think we’d almost be able to get a new car (not that we would) in cash, just by not having the loan.

    1. I hope it lasts!

      Our cars haven’t needed any big repairs yet….fingers crossed that it will be a while!

  26. A lot depends on circumstances. My car loan (1.99%) is the my only debt besides a small mortgage. I am making additional principle payments to have it paid off in less than 3 years. I also keep my cars forever! My last car was 17 years old and my wife’s car is 17 years old.

    1. Exactly! I bought my car new.
      with a 0% Interest rate, so I essentially boosted my credit score (which I needed to buy a house two years later) for free! Also buying a new car made the car eligible for ‘lifetime maitenance’ plans through the dealer (not Toyota corporate) that make my maitenance costs super low! I paid $200 once, amd the dealer will now change my oil, rotate the tires and wash the car every 5k miles for as long as I own the car- that works out cheaper than doing my own oil changes (if I could).
      However on the other hand, I did have a roommate who traded in her 10month old Civic for a newer Civic be ause she didn’t like the color of the car anymore…. She said her monthly payment didn’t really change, so she thought it really hadn’t cost her much money to change the car- and she didn’t seem to care that she had just reset the clock on a 5 YEAR car loan…Wtf?!

  27. This past weekend I went out for drinks with my sister. We were sitting outdoors and could see cars coming and going from the restaurant parking lot. I was shocked to see so many mercedes benz, bmws and audi’s coming in and out of that lot. It seems to be the norm these days. Priorities are out of wack for sure. Even a good friend of mine who is struggling financial had to be convinced that she doesn’t need to drive an SUV. I’m glad she settled for a Honda Civic but I still hear her say “one day I will get my SUV”. I’m hoping she changes her way of thinking sooner rather than later.

    1. Me too =) I’m going to buy something smaller than a van next time. I like for my vehicle to take up very little room in my garage.

  28. Hey Holly, just thinking about a car payment that lasts over 80 months just about made me sick…I just couldn’t do it. Then again…I couldn’t do 72 months or 66 months either for that matter.

  29. A few years ago, our (paid for) car died and I needed a new vehicle to get to and from work (and daycare), and we had agreed to buy a 4wd vehicle due to the lack of snowplowing on our street (we couldn’t get out of the neighborhood most of the time). We ended up with a RAV4. The loan was 29k for 5 years at 0%. We could have put more down, but at 0%, that money was better off remaining in our efund. Our payments are just under $490/mth. We’re not in a big hurry to pay it off though – we’ll save/invest the extra instead and if we need to get rid of the loan for cash flow, we’ll withdraw from our savings.

    1. Well, I think 0 percent is a different story. Hell, I would maybe (MAYBE!!!) even consider financing a used car at zero percent.


  30. I love the duct tape! I think that being car poor is ridiculous because it takes away ones biggest wealth building tool: their income. My wife and I both drive used, reliable cars that we paid less than $5,000 for and they do just fine. I meet with so many people that cant get ahead because of car payments and it drives me crazy.

    1. It makes me crazy too =) I could probably live with a $200 payment or so if I had to…but $474? That is as much as many people pay for rent.

  31. I can’t imagine having a $400+ car payment – well, even $250 seems steep to me. My boyfriend keeps looking at cars as his is in bad shape, and it’s pretty disheartening. At least where we are, a lot of used cars sold privately have rebuilt titles, and then others are just asking way too much. We will probably have to go to a dealership for a used car, but the plan is to only finance some of it. In the meantime, we’re saving as much as we can. No way are we being saddled with a long, expensive loan!

    1. I don’t blame you. It doesn’t seem worth it.

  32. It’s very humbling when you see what people are willing to pay for cars compared to average 401k balance. It’s sad that so many people have their priorities confused and even worse, most of them don’t even realize it. I have no problem with someone wanting a nice car but it needs to fit within their overall priorities. People get seduced by what appears to be low payments. They don’t understand the true cost. I’ll be honest – we do buy new cars, but we pay for them in cash and drive them for many, many years. Most importantly, we don’t ignore our far more important goals – retirement, children’s college education – to fund our vehicles either.

    1. Paying cash makes it hurt, I think. And it should hurt!

  33. This is a GREAT example of financial illiteracy.

    Every been to a dealership to shop for a new car? The first money-related question out of the salesperson’s mouth won’t be “What total cost can you afford?”. It’s always “What monthly payment are you looking for?”

    Normal people don’t understand how interest and term affect the total amount they pay. All they know is that their current payment is $250/mo and this brand new car also has a $250/mo payment. They don’t think about the ramifications of having a 72 month loan instead of a 48 month loan.

    It’s easy to make fun of people for having a car payment, but the system is setup to exploit them. It’s our job to help our friends and family understand the financial implications of giant loans on depreciating assets.

          1. It’s Gracie, our retired racing greyhound. We got her from a rescue org two years ago. She’s a fantastically good sport when it comes to posing for photos 🙂

    1. It’s true how blinded some people become with monthly payments. Case in point: when I got married my father in law asked which payment we’d rather take on, the car payment ($11k @ about 4%, with a $350/month payment) or my wife’s student loan payment ($45k @ an ungodly low interest rate, about $75/month at the time). He wanted to keep the student loan payment because it was “only” $75/month. We took the car payment and had it paid off within 18 months. He’s still paying on the student loans 11 years later.

    2. I once had a car salesman ask how much could I afford. I told him I could afford any car on the lot but that had nothing to do with how much I wanted to spend.

      1. Haha, yeah. That sounds like something I would say.

  34. When I got my first big boy job, I decided to buy a new car (well, financed) and I was car poor for a long time. I ended up paying over $24,000 for a $17,000 car after adding up the interest. I was so dumb.

    I now know better and I’m trying to teach people so they don’t make the same mistakes I made.

    1. I financed a new car in my early 20s too. You live, you learn. =)

  35. Many people definitely have their priorities out of whack. I just have to shake my head when I drive by crummy apartment complexes and see luxury vehicles parked out front.

  36. I’ll never understand why people choose to be car poor, but fancy cars have never really appealed to me. I seriously love my 2006 Toyota Corolla and will probably drive it into the ground. As long as I can keep my commute under a 10 miles a day (roundtrip) I think the car will be around for a while. My next car will be used and paid for in CASH.

    1. I hope to drive my minivan forever. I think it needs new tires though =(

  37. My last car payment ended a few years ago and I had paid that off in 3.5 years instead of the initial 5 year loan. I vowed to avoid another car payment if I could going forward and so far we have. I definitely support a good used car buy!

  38. Matthew Williams says:

    Wanted to sell my old SUV from college since my daughter refused to use it. My friend suggested Joliet-U-Pull-It and I was very satisfied! the process was easy and the workers were friendly. I’ll definitely be recommending them to anyone looking to sell an old car! Oh and they have a helpful website too! http://jolietupullit.com/

  39. Great post! It really is enlightening. I feel like we have great terms on our loan, but hate that we have monthly payments on it. Can’t wait until it’s off the books. 4 years to go!

  40. Great post! The only part I don’t agree with is that heated seats aren’t needed. I live in ND so heated seats are a must have. Leather seats and -20 degree temps in January don’t mix well. Luckily plenty of used vehicles come with them.

    1. Yikes! I agree with you, Dave. -20 sounds crazy to me.

  41. I love cars! Actually, just about anything with wheels…trucks, motorcycles, trailers, tractors, etc. I financed my first car in my 20s also. After that each one was purchased with cash (check). I don`t think of my vehicles/cycles as appliances. I never plan to purchase anything with front wheel drive (it’s inherently a poor design). Except for original warranty repairs, tire mounting, and wheel alignment, I perform all repairs at home. I think of my vehicles as “friends” and enjoy the uniqueness of each one. I might have an addiction with wheels…just kidding. I can stop at any time. 🙂

    1. That’s huge that you can do your own repairs! Losers like me have to pay someone.

  42. Well put, Holly. Cars are the number one anchor on Americans’ wealth. Student loans at least give you a chance at a higher income, and are generally worth the cost in the aggregate. Credit card debt is certainly a problem but the figures just don’t compare to what kind of debt people often have over the life of several vehicles.

    If you need a car, buying used is the only sensible option. If you need a car, then buy only the car you need, not the car you want.

  43. Prudence Debtfree says:

    The car thing baffles me too. I hope I’m not being sexist by saying I think it’s a guy thing. I know many men whose cars mean far too much to them, but I don’t know any women who self-identify with their cars in the same way. Keep loving that Dodge Caravan! Ours is a 1999, so your 2007 has many good years left. And you’re right. You ARE a genius : )

  44. Thanks so much for the mention. Since that post, I’ve learned a bit more about car financing. I guess if you credit is in the crapper, you only get super high interest loans and I guess you’d have to spread them our forever to afford the payment. I’m sorry, but this is just wrong on so many levels. If your credit is crap, you don’t need to be financing a car. You need to work on your credit and bike or walk or take the bus or ride with a friend or whatever you need to do. Take that money you’d use toward a payment and put it in the bank until you can buy a used car. We bought our 99 Civic for $3000. It is ugly and the paint is peeling off the hood, but it runs great and gets over 30mpg. Plus is someone dings it with a door or shopping cart, I could care less.You don’t have to have a car payment ever if you aren’t picky about what you drive.

  45. Lisa E. @ Lisa Vs. The Loans says:

    I am definitely car poor. Yes, I love my car, but I must admit that peer pressure (more like family pressure) had a lot to do with this purchase. Sometimes I just want to trade it in for something cheaper just to get rid of the nasty monthly payment!

  46. We’ve bought our car used and it’s the second year we’re using it and so far it’s been great. We were not in a hurry so we waited to get a car in a really good condition, we paid for it from our savings and we consider that we did the best possible deal.

  47. Oh man, this is insane! I could never imagine financing a car for 6 years. That’s a long time. I can only imagine the amount of interest charged over a six year long loan. By the time you’d pay off the car, it would be on it’s way out (not really, I’m exaggerating but still).

  48. I had a friend that kept getting a new car every 2 years or so. He would always finance the car so he would just keep rolling over the difference to the new car (most times, he owed more than what he got for the car when he traded it in). After about 4 times of doing this, he admitted that he had a loan of $40,000 for a truck that was worth $24,000 BRAND NEW.

  49. We bought a very basic car. We bought a Honda that actually doesn’t even have power locks. It also doesn’t have air conditioning. While that may seem like a burden for some the nice thing is we haven’t had to make any sort of car payment in 5 years now!

  50. Great post! I love my trusty Toyota Matrix with it’s 100,000 miles. And they have such a good reputation, I’ve got my fingers crossed that I’ll get another 100,000 out of her before she gives up the ghost.

    And she definitely sported some lovely duct tape for a while after a run in with a deer. Whatever. She still ran fine.

  51. We ended up buying a new Honda Pilot just before a cross-country trip last year, and I have been very happy with the purchase. The car wasn’t cheap, but it is a great family hauler and comes with an entertainment system. We got a zero percent interest rate, and overall it was a nice deal.

    Did it make us car poor?.. Nah.. Our other vehicle is a 2004 that we plan on running into the ground.

  52. Ben @ The Wealth Gospel says:

    I’ve been working in the auto industry on the banking side for the last 6 months or so, and I’ve been meaning to write a post lately about all the things dealers do to screw people over. It drives me insane!

  53. I guess the problem is not that people can’t afford the cars, but they prefer the cars which are beyond their budget. Most people want a luxury car which looks good and boost their social status.

  54. This is just more “it’s not my fault I’m poor” garbage, and it drives me nuts!!! I’m of the camp that if you really want a new car, then buy a new car! We love to have new cars for reliability’s sake. But then don’t go complaining about how poor you are and how horrible it is to struggle for money. Take responsibility! Those six, seven, and up car loans are just as bad as the new 40-year mortgage.

  55. Couldn’t have agreed more to the blogger on the topic. But honestly, let’s face reality only the rich and a person with a large savings can buy a car in cash, also the middle class cannot afford to pay in cash because it might have a big pull on the other necessities or commodities. Anyways, I’d give this a 5 stars because it can always be an eye-opener to think before loaning on a car.

  56. You know what I could do with a $27,000 bonus every 7 years….?

    Holy crap these numbers annoy me. Financing anything that goes down in value is a fool’s errand and will keep America broke.

    I write at least one post a month on how to buy a used car, why buying new is stupid, why used cars are more reliable, etc., because this trend is only getting worse.

    Honestly, people are just too lazy and scared to try. Buying used can seem scary, but with FREE KNOWLEDGE ON THE INTERNET people can get over that and save $20,000+ every 7 years. I mean, it’s crazy.


    1. I think my brain exploded when I read the car loan statistics too =/

  57. I earn six figures and bought a nice, second hand Audi for $6,500. It’s relatively modern, comfortable to drive and fuel efficient. I wouldn’t buy an expensive car until I could pay it in cash -it just seems stupid to me!

  58. I think some people choose to be car poor for the fact of having a reliable car. For example, my sister is car poor but she thinks of it as she has a car that is reliable, works for her family, and will get her to and from her job (100+ miles found trip) without any problems.

    1. But does she have a 27K car loan? The point of this post is that huge car loans are killing family budgets. There are cheaper options out there, even when it comes to getting a new car.

  59. Funny, this topic has been coming up for us over the last few months! Now that we’ve worked out the small issues in our 2005 Odyssey, it remains our trusty steed and it has been paid off for over five years now!

  60. I just taped my car’s window because a piece inside the door broke and the backseat’s drivers side window won’t stay up. I just didn’t want to shell out the $250ish to fix it right now. I’ve spent almost $1k fixing my car lately and didn’t want to add to that figure right now since that window isn’t necessary and I’m trying to pay off my debts.

  61. A year and a half ago we bought a 2000 Dodge truck for $2000. We had the cash in hand, but opted to get a loan for the amount so we’d have that $2000 in savings since we were moving and starting school etc.
    Life fell apart and not spending the $2000 upfront was a lifesaver. BUT a year and a half later the truck is paid off and I’m thrilled.
    We’re putting a few hundred into it fixing things like worn out tires and such, and it has over 170,000 on the odometer, but we hope to have it for some years yet.
    It’s so nice having a paid off vehicle that is reliable and hasn’t broken down on us – yet! Also like another commenter said, if someone slams their door into it, we could care less.
    Our other vehicle, a newer car, is another matter. I hate when it gets dings. There is something to be said about an older beat up vehicle for peace of mind!

  62. This is a late post but I thought it was important to chip in. I have a car payment. I bought a $20,000 car. I have no qualms with it and think I did good.

    I have a 1997 oldsmobile 88 that worked reliably for some time. However it was unreliable for longer than 10 miles. I changed everything I could: spark plus, wires sensors, camshaft sensor, water pump even. still would overheat and misfire. I needed a car that would be reliable and that I wouldn’t mind driving for many years.

    I looked at several cars: Toyota chevy and others. Cheap end at $7500. I have been storing up cash for an emergency fund. I started a new job after graduating college with my engineering degree.

    I ended up buying a used bmw. Why? The car is 3 years old and has depreciated by half. It was a one owner car that was very well maintained with all the service records. I negotiated another $7000 off the asking price. I can fix my own car if need be. ITS A FREAKIN BMW. Yeah, a car is a car, and it’s true, but when you drive something that makes you happy to be in, that you feel comfortable in and you will enjoy for years instead of just settling for cloth seats and a 4 cylinder underpowered car, it’s worth it.

    Also, I got a loan at 2% interest, so paying cash didn’t save me much money in the long term. I have the safety of having the extra money around. The total cost is less than 10% of my monthly income after tax, and it is a joy to drive.

    I could have paid cash for another old car or a base model car, but a bmw is simethjng that I wanted for myself since I was a kid watching Goldeneye.

    Not everything is just utilitarian

  63. Michael C says:

    I’m just now reading this post, so forgive me for the late response.
    Based upon the demographics of where I live, I tend to think people are just wanting to keep up with the joneses. As someone stated previously, I see way too many Mercs and BMs in front of the most raggedy looking apartments and houses you’ve ever seen. Why is this? Because anybody can qualify for a car loan.
    That doesn’t mean they can afford the car…it just means you are eligible to pay a car note for the rest of your natural life. I guess there’s a sucker born every minute.
    I’m a car fanatic, and the new cars nowadays are hunks of junk not built to last more than a week. Cars from the late 80’s and early 90’s are far superior vehicles. They had style and class and actually look like something…and they were built like tanks. Modern cars all look the same. You can’t tell a Maserati from a Toyota camry.
    So lucky for me, all those older cars are dirt cheap. A Mercedes E320 from 1992 in mint condition will run you all of $3000. And, properly taken care of it will out last the piece of crap Brand new 2015 Honda. Yeah it doesn’t have a built in navigation system, but my IPhone with Google Maps Navigation mounted on the dash works better than any car nab system…and it’s updated in real time. So do yourself a favor and buy a real car with some character that was built to last a million miles. And you can pay cash for it. Half of one paycheck and your car is all paid for. And the best part is you’re driving something that’s light years better in almost every way than all this brand new crap that’s on the road.
    People buy new BMWs because of the symbol. They have no idea what’s under the hood. But people that drive E30’s actually pass each other on the road and honk at each other.
    Stop trying to keep up with the jonses. It’s not that hard to pay cash for an excellent vehicle.
    But if that’s not your thing than by all means keep living check to check and driving an expensive hunk of junk for the next 72 months.

  64. you’re not an expert in any way. Someone sent me this now bc the knew I financed my lamborghini I just bought. Im a member of chase private client branch so they financed me $375k at 1.9% why on earth would I pay cash when I can trade with that money. Im a trader for a big firm in chicago and if I cant beat a 1.9% return in a year then I should just quit. Maybe for the average person financing is a bad idea, but when you make statements like “cant afford it if you finance” you’re just being ignorant bc Im worth well over 8 figures and still finance bc I have better uses for cash like selling puts and calls

    1. If you can afford to buy a lamborghini, then you should be smart enough to know that this website isn’t really directed at you. It’s directed at average earners who struggle to save for the future and pay their bills due to financing cars they cannot truly afford. Do you understand what “context” is?

  65. I drive a crappy car too. Ok, maybe not crappy like, the car Oscar The Grouch from Seasame st drives but, it is crappy ftom the stand point of most Americans. It is 11 years old and I bought it with cold hard cash. Money talk and something else I won’t mention walks. My cars calue is only around $4000, but it is an asset, not a debit. I laugh when I see people deiving $50,000 cars making $15 an hour, do the math people, it doesn’t make since. You can buy a house in auction for $50,000 in some cases. Car payments make you poor. Think about it what is your second biggest monthly expense? Usually a car payment, what could you do every month with an extra $300-$500. I’m sure a lot, maybe be able to work less and have more free time? Start a business? Save for retirement? Go on a vacation….a bunch of times. I need to do another post on this subject and take a pic of my car. I could go on forever about this subject.

  66. This is a half baked way to look at it. Just because you arent paying the bank anymore, doesnt mean your car is free. So you have that old ass crap box thats an embarrassment to drive and you have put thousands of dollars into unexpected repairs.

    Now take the purchase price and repairs and divide by the months you have owned it, you will get the figure of what that car cost you every month even without a financed note. A car will ALWAYS cost you.

    Cars are a depreciating asset no getting around it. Just cause you paid it off doesnt mean the money didnt come out of your bank account.

  67. Finance guy says:

    No one should ever buy a car in cash. Ever. Read below for why (or skip it if you don’t like nerdy math stuff).

    Imagine you put $10k in an investment account like eTrade on January 1st, 2017. You then take out a $10k, five year loan at 3% the same day and are paying $180/month. Over the 5 years let’s say you average a 5% annual return on your investment (pretty conservative) you will have earned about $2,800 in investment income.

    Now imagine taking that same $10k on 1/1/17 and using it to buy a Ford Focus instead of investing it. Sure you don’t have payments for the next 5 years but you’re also costing yourself money. $10,000 / 60 months = $167/month.

    So, a 5 year car loan a 3% is $180/month in payments but you’re getting $50 in investment income, so it nets to $130/month after 5 years. If you don’t think an extra $2,200 over 5 years is meaningful, I suspect you wouldn’t be on this site.

    1. IMO, that’s exactly the type of thinking that gets people into trouble. Why? Because it helps people spend more on things they can’t afford, piling up more and more debt. Is the math right? Yeah, usually… except 99.9% of people never invest that money. They end up spending the “savings” to finance something else they don’t need and can’t afford. When somebody uses that line, beware – they are giving you the hard sell 🙂

  68. Stumbled across this article based upon an entirely different google search, but I’m glad I read it. There’s some valuable information to ponder in this article and even more so in the comments, but I’m going to play devils advocate because the echo chamber in here is making me nauseous. To most of you, it sounds like cars are lifeless tools. A simple means from point A to B, and I can understand that as we all have different value systems—something presumably overlooked in here. While frugality is a part of life, it’s not the only measure of meaning. Chalk it up to being “young and dumb” or growing up without ever having to worry about money, but our lives are more than just numbers. I could have kept my 02 Accord, but I hated driving it. It was not “rewarding” me so to speak and it felt just like a lifeless tool. I’ve always wanted to replace it since the keys were handed down but I had other priorities while in college. Two weeks ago I bought a 3 year old BMW 328i. I could have paid cash, but instead I chose to finance with 40% down. My monthly payment of $400 for the next 42 months doesn’t make any meaningful difference in my finances. I won’t miss it, but I sure as heck will remember my first car purchase and the way she handles twisty roads. We all “waste” money on products whether it’s cars, coffee or computers. Instead of getting hung up on how to save money, figure out how to make money. The remaining money I didn’t put down can easily be invested returning more than my 1.99% loan would lose. Food for thought. Thanks.

  69. I’ve been served well being car-poor by choice.

    My daily driver is a 27-year old Honda Accord wagon with 285,000 miles. I bought it new.

    I taught myself auto mechanics and do everything including timing belt replacement.

    Fortunately, my wife agrees with this logic and we aren’t embarrassed about getting around in an old rusty car. The money saved has been a blessing.

  70. Even if you get a used car, it still will cost hundreds of dollars a month for gas/maintainase/I surance/tax/accident medical bills etc etc.

  71. Mark Neustedt says:

    Not only are you borrowing money, your borrowing money to purchase a depreciating asset. On average, new cars lose 63% of their value in the first 5 years of ownership. 10% of your cars value is lost immediately after you drive it off the lot of the dealership.

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