Our Car Loan

I am sure all you long time readers of this blog are like, “Enough with the life posts — what is going on with your budget?!” (Although let’s be honest, any hard-core personal finance gurus have no doubt dropped off since the last financial post was… oh, forever ago. Seriously, I tried to search the last few posts and got tired of clicking “Older Entries” at the bottom of the page.)

I’ve loved sharing my weekends, trips, recipes, decorations, and random every day thoughts with you all! But it’s probably time I update where my wallet stands. Part of the reason I haven’t been talking about my money is because there isn’t much to talk about. Things have been wonderfully quiet and automatic.

So today I’m going to give a little background on the car loan we have. I got an email from a reader asking: why someone like me (who hates debt and worked so hard to pay off my student loans) would willingly go into another loan?

That’s a great question. The simple answer? Convenience.

My old Honda (may it rest in peace), was rapidly declining at the beginning of this year. It would take a good four minutes to start the engine (took longer in the cold), stall out if you break too fast on the road (resulting in near-accidents on multiple occasions), and would shake uncontrollably when it reached higher than 60 mph (which is just plain annoying). I had owned this car since college, but I think my bi-monthly trips to and from DC in 2009 put a great toll on my sweet car.

And J’s giant Buick wasn’t much better. Both of us owned cars approaching their 20th birthday and we felt that at the age of 25 and 26 it was about time we owned at least one reliable car made this millennium. Plus we had about eight out-of-town trips approaching, and neither of our cars would be up for that challenge.

After a lot of back and forth, we decided to buy a new car after we got married. We chose to finance a newer car as opposed to buying an older model with cash. It took a lot of convincing (on J’s part) since I could hear Dave Ramsey’s voice in my head screaming about that decision. But the truth is that financing a newer car was just easier. We could have spent $1,000 to fix my car, or $2,500 on an older car, but we felt like that would have been a waste when it could take us six months to save for a new car and then would have to go through the whole process of selling, buying and transferring all the title and insurance. We actually had enough savings to buy a reliable car, but didn’t want to blow all of our savings away (which ended up a wise decision when we had to replace J’s car in July) so financing was a safer option. I don’t think that car loans are for everyone, and in the future I will save and pay cash for any cars we get, but in this situation it was a good decision for us. Plus, so far we have only paid $78 in interest, and to me that is worth the security of having one reliable car in our family.

Once we agreed (and ignored Dave Ramsey’s nagging voice), we chose a reliable, modest car (read: no power locks or windows [I know, sad]) and put together a plan on how we could intensely pay it off as soon as possible. Every bonus or extra cash has been added to our loan.

Right now we are on schedule to pay it off at the end of this month (woohoo!). It makes me so excited to have a reliable car and enter 2012 with zero payments and an extra chunk of our budget to use on savings, giving or spending.

I’m curious: What is your view on car loans? Have you ever had a good justifiable reason to finance a car? Or do you side with Dave Ramsey and think all car loans are evil?

(photo credit)

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  • I bought a new car a few years ago so that I wouldn’t have to deal with the hassle. I think as long as you get a car that is justifiable for you and isn’t a waste, then you are fine.

    I bought my car 3 years ago, it still runs great and is worth only $1,000 less than what I bought it for. So I think I’m doing good.

  • I don’t think car loans are as horrible as some make them out to be. Of course I want my future car to be paid for mostly in cash, but if I’m in a position where I need a loan, I won’t feel too badly about it.

  • Dave can be annoying sometimes. You have to do what is right for your family. There is nothing better than paying off a car loan! Had my feeling last year!!! Good luck!

  • My first big post-college purchase was a brand new car. I figured it was worth the money to finally get a car that was reliable. I’ve had really bad car luck. I managed to get a pretty good trade-in value for my POS Saturn (cracked engine block. twice. and man, is that expensive to fix.) I also got a “new graduate” discount. Thanks to good credit and a special the dealer was running, I financed with a 3-year, 0% loan. It was awesome. Of course it’s also awesome not having any monthly car payments. Been loan-free for over 4 years now and since I drive so little my current car should last for a long time. It has also kept its value pretty well.

  • We bought our most recent car in cash, but I had a car loan in college (that my parents helped out with). I honestly don’t think it is a big deal. The real issue is when people get a 5 year car loan, then as soon as they pay it off, they start shopping for new cars. that is not smart. But when you are young & just starting out, it sometimes makes a lot of sense.

  • I sometimes can’t stand people who are all “You got a car loan?! You evil person!” There are SO many life expenses, SO many things to save for, I have no idea sometimes how people do it. If we buy a reliable used car with cash, then we will have to start our house down payment fund all over again! It just seems impossible sometimes to keep up with it all.

    I think as long as you can pay it off in 4 years or less and you have a reasonable interest rate, I’m all in.

  • I side with Dave Ramsey – I would not take out a car loan. There’s a world of prices available between a $2,500 beater and a brand new car, and that’s where I would (and did) do my car shopping. Our $8,500 paid-for car will last many years with proper maintenance. We paid for it up front and have been able to rebuild that savings in just a few months, without having to pay any interest to anyone else.

    It just doesn’t make sense to me to take out a loan on a depreciating asset, and that’s what a car is, whether it’s brand new or used.

  • I took out a loan for my new car last year to build credit history because I wanted to buy a place within a short amount of time. That’s been a huge boost to my credit score. I also auto-paid mine out of a savings account that had the entire principal amount of the loan plus some room for interest in it.

    I agree with you – $78 in interest so far for a reliable car isn’t bad at all, especially when your old cars were going on 20 years old!

    I would say that financing a car when you can secure a 0% interest rate isn’t a bad idea either.

  • I would never get a car loan, not because of Dave Ramsey but because of my spiritual beliefs. The borrower is slave to the lender, owe no man anything but love. I have learned the hard way that new is not always synonymous with reliable, and that often if I don’t have money reserved for a repair or large purchase like a car it was because of poor planning and materialism, two thing a car loan will not remedy. Finances are so personal, its something each family has to decide for themselves, but a loan would not be for us.

  • I don’t think any loan is a bad loan, same as with any debt unless however it was due to something stupid as overspending on items that you do not need.

    if you need a car and the way to get it is by taking a loan then hopefully you have researched your options and considered everything. As long as you are smart about it why not.

    but, everyone has their own opinions