New cars have become ridiculously expensive. Today, new cars under $30,000 make up just 8% of vehicles for sale. This number was 38% in 2019.
One of the biggest killers of wealth is falling into the trap of spending way more than you can afford on a car. Think about this. You get an auto loan at a 10% interest rate to buy something that will go DOWN in value an average of 10% per year. This is a TERRIBLE deal. And that’s not even to mention the opportunity cost of not investing that money!!
Auto loans are usually pretty easy to qualify for and they can be twisted around to make it look like a good deal. Car salespeople will focus on what payment you want and then just extend the length of your loan to get the monthly payment lower. BUT, you end up paying more for an asset that’ll be worth far less by the time you actually own it.
What does all of this mean to you? Don’t buy more car than you need. Don’t buy a flashy car just to try and show off. It’s not worth it. And, whatever you do, avoid going into debt when buying a car. That way you can take the monthly payment that would be going into the loan and plow it into low cost index funds. This will speed up your timeline to achieve financial independence.
The $725 per month average payment for a new car is according to a recent survey that Experian did. For used cars, the average is $516.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Vivi & Shane
