The average car payment is $480 a month. If you were to purchase an older, second hand run around car, with cash for around $1000 (see gumtree or craigslist for plenty of options). Such a low cost car could be the equivalent of 1-2 months car payments. This allows you to save what you would have spend on a car payment each month for a upgraded vehicle.
Doing this in 24 months (assuming you savings make a return of 5%) you could have $12,000 to upgrade with. Plus the original cash value of your car, because older cars don't depreciate that much. Thats one serious upgrade, and whats even better its a debt free upgrade. So many people find themselves paying car payments all their working lives.
If you continued to invest that money each month, then in 10 years time you would have just under $75000. Think of all the amazing opportunities having that sort of money would bring into your life. This just shows how much car finance is impacting peoples ability to reach their financial goals and in particular saving for retirement.
If you have car finance its time to start working on paying it off as soon as early. It is important to understand what kind of finance you have (do you have a bank loan, Hire Purchase, PCP etc). Understanding what kind of finance will help you to make plans for paying off your finance. For example an increasing number of consumers are choosing PCP which means that you essentially rent the car with the option for purchase at the end of the lease (meaning you have to have saved a cash lump sum). We advise calling up your dealer and getting as much information on the type of finance plan you are on so you can make a comprehensive plan for paying off the loan.
Here are some simple ways to speed up paying off your car
- Opt for bi-monthly payments and you'll slip an extra payment in each year this also helps reduce how much interest you will pay.
- round up your payments. Say your monthly car bill is $480 round it up to $500 a month and you'll make an extra half payment each year.
- Make extra payments has a tax return just come in, or done some overtime this month, put it straight towards that car.
- Pay based on a shorter term - Decide when you want to have the loan paid off by and adjust the monthly payments to reflect the amount required to reach that goal.
Do you have or have had car finance? How did you pay it off?
We have not one, but two, car payments right now and I hate it! After we get others debt paid off, we will tackle the cars. I love the idea of rounding up payments.
ReplyDeleteWhen I was just starting out one of my co-workers told me him and his wife weren't able to save until they paid off their car loans. This has stayed with me and after that I always paid off my car loans early.
ReplyDeleteI've always driven used cars and only had a car payment once, for about a year. I know that some people say you are buying other people's problems when you buy a used car, but you pay a lot of repair bills for the price of a car payment. Also, if your car isn't worth much you don't have to carry comprehensive or collision insurance, which is another savings. Once they start breaking down too much (a real subject term I know, but it depends on who is driving it, how far, where and what other transportation options are available if a car is in the shop.
ReplyDeleteI have a car on finance, but it's at a low interest rate (less than 1%), it's only $250/month and I'm planning on it being my last financed car. Once the loan is paid off, I'm going to save that $250/month to start building my fund for the next car. By the time I need another one (I plan on driving this one for many years to come), I should be ready to buy it in cash.
ReplyDeleteOur struggle is that when you have a car that is worth so little, sometimes you get to the point where you have to spend a money payments worth of money on repairs for the vehicles. But we definitely plan to tackle the car payment boomerang as soon as we get our nasty CC debt out of the way.
ReplyDeleteWe are currently tacking our car payments. It is such a burden, but luckily we have been paying bi-weekly which has sped up the process. We are sending extra payments whenever possible and we're almost there. This year's tax return will also go towards our balance.
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