The Best Way to Pay for Your Next Vehicle
You took our advice and narrowed down your search for your next vehicle. You’ve honed in on the perfect used car. Great job! Now you don’t have to worry about the depreciation problem we talked about in this post. But you’re not out of the woods yet. The dealer still has a few tricks up their sleeve too. You didn’t think you were gonna get away that easy, did you?
Let’s set up the scenario. The car you chose costs $20,000. The dealer comes back with what they claim is a more than generous offer of 4.5% APR over a 72 month term. The monthly payment is “only” $317. Now that’s a great deal! Or so they’ll ATTEMPT to lead you to believe. Little do they know, you’ve been honing your skills in The Money Dojo lately. Don’t sign that dotted line just yet.
While I’m sure most of us in the market for a new vehicle could afford that $317 monthly payment, we like to get the most out of every dollar we spend here in the Dojo. The fact of the matter is (tax, title, and license aside) if you finance your car under the parameters listed above, you will actually pay $22,858.60 by the time it’s paid in full. That’s over 14% more than the original $20,000 price tag.
There is only one way to combat this problem. Don’t finance. Pay Cash. It may seem scary to drop such a large amount of money at one time, but in my opinion, it beats the brakes off of paying an extra 14% for the exact same vehicle. Now, this route will require a little discipline. To pay cash for a $20,000 vehicle, it requires you to have $20,000. This is where a budget comes into play. Every month, you need to be paying yourself a car note. But, instead of overpaying a finance company or dealership for your current vehicle, you will now be saving up for your future vehicle. In fact, if you were paying yourself a car note for that 72 month period, instead of the dealership, you would only have to put away $278 a month!
It’s really a simple concept; it just takes the dedication and discipline to set it into action. Obviously, this method of payment will take some planning, but it will save you thousands upon thousands of dollars in the long run. Ditch the “normal” approach of wasting your hard earned money on interest, and start doing things the Dojo Way today!
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