$1,000 Car Payment? Not Anymore!
Apr. 27th, 2024 08:37 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
canyonwalkerI've seen a lot of articles in the news the past few months about people struggling with $1,000+ monthly payments for their car loans. For a few years that's been us, too! ...Well, the $1,000 part, but not the struggling part. When we bought our used BMW convertible in July 2021 we chose to finance it with a loan from the manufacturer. The monthly bill was technically only $945 and change but we rounded up the payments to $1,000. Now, 33 months later, we're done.
There's an old saying, Don't write checks you can't cash. In this context that's not just a figure of speech but a literal statement. We financed the car with a high monthly payment because we could afford it. We had the money to buy the car outright with cash, so making the loan payments was never an issue.
That's the biggest problem with people and their $1,000 car payments (IMO). They've bought more than they can afford. Like, they've bought a $60,000 pickup truck without the budget to afford it. What would have fit their budget was a $35k sedan or a used pickup. Now their monthly payments of over $1,000 are a monthly hardship for the next 5 years. They've written a proverbial check they struggle to cash.
The other thing that gives people trouble with loans is the interest rate. You can end up paying a lot more than the original cost of an item with all the interest charges. When rates were low several years ago, at least for people with strong credit, interest wasn't such a big issue. Indeed, part of our decision to borrow instead of buying the car outright was that we got a great rate. At 0.9% APR it was almost like free money. In fact, it was like being paid to borrow because I could invest the principal in low-risk securities and earn a better return than 0.9%. In addition, rounding up our payments to an even $1,000/month let us retire our 36 month loan 3 months early.
What's next? Well, we're still happy with the car, and it has just over 50k miles on it, so we're in no rush to replace it. If anything it's our other car, our 12½ year old SUV nearing 125,000 miles, that we'll replace first. But for now we'll enjoy being free of car payments for a while.
There's an old saying, Don't write checks you can't cash. In this context that's not just a figure of speech but a literal statement. We financed the car with a high monthly payment because we could afford it. We had the money to buy the car outright with cash, so making the loan payments was never an issue.
That's the biggest problem with people and their $1,000 car payments (IMO). They've bought more than they can afford. Like, they've bought a $60,000 pickup truck without the budget to afford it. What would have fit their budget was a $35k sedan or a used pickup. Now their monthly payments of over $1,000 are a monthly hardship for the next 5 years. They've written a proverbial check they struggle to cash.
The other thing that gives people trouble with loans is the interest rate. You can end up paying a lot more than the original cost of an item with all the interest charges. When rates were low several years ago, at least for people with strong credit, interest wasn't such a big issue. Indeed, part of our decision to borrow instead of buying the car outright was that we got a great rate. At 0.9% APR it was almost like free money. In fact, it was like being paid to borrow because I could invest the principal in low-risk securities and earn a better return than 0.9%. In addition, rounding up our payments to an even $1,000/month let us retire our 36 month loan 3 months early.
What's next? Well, we're still happy with the car, and it has just over 50k miles on it, so we're in no rush to replace it. If anything it's our other car, our 12½ year old SUV nearing 125,000 miles, that we'll replace first. But for now we'll enjoy being free of car payments for a while.
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Date: 2024-04-27 09:19 pm (UTC)... Sorry, sometimes word stuff just sticks in my head ...
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Date: 2024-04-28 03:29 am (UTC)