This type of debt is one of the DUMBEST you can have - here’s why

Read time: 4 minutes

I HATE car loans

Of all the types of consumptive debt, car loans might be the most evil.

The same person who wouldn’t dare rack up $50,000 of credit card debt won’t even blink at buying a $50,000 car.

Yet that car drops in value at 15% per year, in addition to the interest rate you’re forking over to the greedy bank. (for new cars it’s even worse)

Add in the average used car interest rate of 12%, and your money is being destroyed at a rate of 27% PER YEAR.

Most people have no idea this is happening, then wonder why they never seem to have any money.

Go look in your stupid driveway, bro!!

And let’s be honest, any car that costs more than $5,000 is bought for comfort, fear or vanity, not utility.

Both cars will get you from point A to point B, so taking out a loan for a more expensive car is like taking out a loan to buy bluetooth speakers, a nice A/C unit, leather furniture, and whatever other features that pricey car has that the cheap one does not.

“But Zach”, I hear all the time, “they’re offering me a 3% interest rate. Why pay with cash when it’s so cheap to borrow?”

Why?

Because that “generously cheap interest rate” is making you buy WAY more car than you can afford!

You think the dealership salesperson is trying to be nice?

No! He’s trying to get you to buy the most expensive car possible by making you focus on monthly payments instead of the pile of money you’re handing him!

Don’t fool yourself, it’s not a necessity, it’s consumptive debt and it will keep you poor.

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You think I’m crazy

I already know what you’re saying.

“Zach, you’re out of touch. This isn’t 1936. I have to have a car to live, and I can’t afford to have my car break down.”

Oh yeah?

All around the world, people get around with public transit, bicycles, and their own two feet just fine.

And even in the car-obsessed United States, bike commuters are having a better time than anyone else.

Do you actually NEED a car, or are you just afraid not having a car will be uncomfortable?

But fine, let’s say you have some valid reason why you must have a car.

What you need is a cheap, old car with still some life in it.

These cars are literally everywhere, but because of their age, for some reason people think they’ll die if they drive them and they give them away for practically free.

Don’t believe me?

Here’s what I found with 5 minutes of searching on craigslist:

• Want a compact car? 2013 Chevrolet Cruze, 97k miles, $4,900

• Midsize car work better? 2011 Dodge Avenger, 114k miles, $4,999

• Need an SUV? 2012 Subaru Forester, 165k miles, $4,999

• Too expensive for you? 2008 Nissan Altima, 158k miles, $3,300

I know, I know. You think that a car with 165k miles on it is going to break down every week.

The idea that cars over 100k miles are nothing but problems hasn’t been updated since the 1970s. 

The average modern car will last for more than 200k miles before it gives out.

Plus, if you put what would have been your car payment into a savings account every month for repairs, you could break down every few months and STILL come out way ahead (and you won’t).

Will these cars make your neighbor’s jaw fall off when you pull into the garage? 

No.

But does anyone care what kind of car you drive?

Also no.

You impress poor people by spending money. You impress rich people by being disciplined.

I’ll give you one exception

That’s not enough for you, huh?

You’re really going to make me say it.

Fine.

SOMETIMES getting a car loan is okay.

Ugh. Gosh. I just puked a little.

If for some reason a bike won’t get you where you need to go and you don’t have $5,000 saved to buy a car, then yes, it might make sense to get a car loan.

But this isn’t to buy a BMW. 

If you don’t have cash, the goal is to buy the least expensive car that gets the job done.

To make sure you don’t go overboard, follow the 20/3/8 rule for car loans from The Money Guys.

For any car you buy, put at least 20% down, a term no longer than 3 years, and keep the payment to less than 8% of your take home pay.

If you do that, then fine, get a loan. It’s your future.

Why am I so angry?

Look, I get it.

You think I’m making a big deal out of nothing and I think everyone should be bike-riding Scrooges who never allow themselves to have nice things.

That’s not it at all - I WANT you to drive a car you like.

I just don’t want that for you more than I want you to retire early / take a dream vacation / surprise your kids / give outrageously / insert whatever meaningful goal you have.

The average used car payment is $523 per month, with a loan term of nearly 6 years.

That amount of money instead used to invest will build you a ridiculously amazing future.

If you invest what would have been your car payment your whole life, you’ll retire with over $2.6 million.

Is it really that easy?

YES.

But most people aren’t willing to say no to the immediate comfort a car loan gives you.

Wake up!

Is a backup camera really worth saying no to all your dreams?

Keep growing,

Think I’m wrong? Prove it! Hit reply to let me know!

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