Many individuals in Colorado Springs, as well as in other parts of the country, are stuck in the cycle of car payments. Some people finance another car prior to paying off their current car, forcing them to roll over the old loan with the new one. Meanwhile, others finance another car immediately after paying off one vehicle. If any or both the situations are familiar to you, you know what it feels like to go through a seemingly endless cycle of car loan payments.
Know that your situation is not hopeless—the cycle can be broken. Remember the tips below so that you can buy a car without financing in the future.
Pay with Cash
This is a no-brainer. Paying for a car in cash is the best way to avoid the debt trap. However, it is a suggestion that many people don’t think they can take. Not all car buyers have the money to pay cash. Cars, regardless if they are new or used, require hefty sums of money to purchase and many don’t have enough cash for a huge lump-sum payment.
If you have enough savings to cover your chosen vehicle’s purchase price, use it for the auto purchase. The difference between the interest you need to pay for an auto loan and the interest your savings account earns will encourage you to pay cash; after all, the former is higher than the latter. If you don’t have enough savings to pay in cash, consider the next step.
Save Car Payments in Advance
Prepare for your next auto purchase so you don’t need to borrow. Save at least half of your previous car payment monthly. If you often find yourself tempted to spend, automate your savings—if the amount is automatically deducted, you wouldn’t be able to touch the money. Save more than this amount if you can, and adjust the amount you save accordingly.
To get more out of your savings, find an account that allows for high returns. Opt for a bank or credit union savings account with a high interest rate.
Know When to Buy
In order to properly prepare for your next auto cash purchase, schedule it. Determine how soon you will need a new (or new to you) vehicle. Consumer Reports claim that properly maintained vehicles can have a maximum mileage of 200,000. Estimate how many miles you drive each year and compute how many years you have before another vehicle becomes a necessity. You can set your savings goal/s based on the time frame you set.
Stop Thinking in Monthly Payments
The car with the low monthly payment isn’t necessarily that which you can afford to pay in cash. Don’t be fooled by the seemingly low number. The low car payment will not add up to a small amount if the repayment period is extended. $300 a month may not seem like much, until you have to pay it for 60 months. Change the way you think of auto purchases so you can break the chain of car payments. Focus on the purchase price instead.
Choose a Lower Priced Car
You wouldn’t need to borrow if the car you are eyeing is relatively inexpensive. Most people are compelled to finance because the vehicle they want is beyond their budget. The best thing to do is prioritize function and not style. Opt for a reliable and economical ride that will get you from point A to point B. If all you can afford is a pre-owned car, don’t insist on a brand new one.
Take Care of Your Car
You are less likely to be trapped in a cycle of car payments if you stick with your car for a long time. With regular maintenance (and non-aggressive driving), your old ride can serve you for many years. Resist the urge to buy a new vehicle if your current one is still safe and reliable transportation.