Car Loan Basics – How Long is Too Long?
Everyone needs a new car every now-and-then right? I mean, don’t we all deserve it? [In case you haven't guessed, I'm cringing as I say the word "deserve"]. Just recently I had a client/friend/relative who said to me, “O.G., I’m just so used to having a new car every couple years, I had to get rid of my Cadillac and get a new one…I mean, it was soooo old.”
My response (under my breath and probably not even that loud): “REALLY????”
If you’ve thought about a new car, and you’re not paying cash [tisk tisk] then you’re thinking about a car loan or a car lease, right? What’s the best way to incorporate your personal finance goals while not killing yourself with a loan or a lease payment? A recent article in the WSJ discusses a growing trend: 7 year car loans. Whoa nelly! 7 years? You’ve got to be kidding me. If there’s one thing you can learn from me: Don’t do this. It’s the equivalent of financial suicide.
What about a car lease? Here I have to agree with Dave Ramsey. Here’s Dave’s take from a recent article:
Nothing says, “Please, sir, take my money. A bunch of it!” quite like a car lease. Statistically, leasing is the most expensive way to drive a car. But, according to CNW Marketing Research, nearly one in five people lease their cars. The National Auto Dealers Association says car companies make more money off leasing you a car than if you bought a car with cash. Don’t fall victim to the “fleece.”
Ok, so I can’t get a 7-year payment plan, and you say leasing is bad…what can I do? What about a home equity loan? Well, let’s first assume you can even get a HELOC or HE Loan (assuming your house is one of the 7 in America above water), you’re willing to subjugate the safety and security of where you live for a car? Gimme a break. Don’t do that either. So what’s a person to do?
This is where planning, patience, and persistence takes over. First planning: Think ahead for your next car purchase. As we’ve talked about repeatedly in our podcasts, I recently purchased a new(to me) car. As someone who’s really quick with decision making, to actually take an entire summer to research, plan out, and find my car was an eternity. I almost gave up…which would’ve been OK too.
Patience: You need to realize and be OK with the fact that unless you’re driving something that’s unsafe to you or others, you don’t need a brand spankin’ new Cadillac CTS – V turbo to be cool. No one really cares that much – and those that do care less than you think. In fact, we’re usually so busy being concerned about ourselves and being self-centered as human beings, we rarely consider anyone else. So face it – the only reason you want a new car is because you’re thinking other people are thinking about you. Sounds a little narcissistic, doesn’t it? Be patient. Work your plan and execute it on schedule. You’ll be rewarded in no time.
Finally, be persistent. Be persistent to yourself, your goals, dreams and your family’s goals and dreams, but also it’s OK to be persistent towards the things you want. For my recent car purchase, I was looking for a specific brand, model, year, and options. I finally found one, within my budget, that was in good shape. It was the only one I saw in all of the United States. But, it took a specific plan, certainly a lot of patience, and persistence to stay the course when a couple other “close-but-no-cigars” came by.
I’m not going to go so far as Dave Ramsey does and say “You can NEVER have a debt payment” but I do agree it’s silly to have one. What’s the best length of car loan? The best one is the shortest one you and your family can take out without impacting your family’s future financial goals. It’s important to realize a car’s a car. It’s a depreciating asset that you’ll forget all about 10 years after it’s gone. Don’t ruin your retirement over a SUV you just had to have. It’s not worth it.
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