Do what the Millionaires Do….. Shop Smart.
For many, a car payment is a constant. From the time they were old enough to get a loan – or get a parent to co-sign on a loan – they’ve had a car payment. It’s as if that was simply a required cost of living.
Some keep a car only a year or two before it gets “traded in” on a new model. It’s a matter of pride and self-esteem to be driving something new and shiny. And of course, since cars lose a huge percentage of their value as soon as they’re driven off the lot, these folks just keep sinking farther into debt.
After only a year or two of payments the equity on the old car is usually nil, and the new car costs more. So the payment goes up from year to year – or car to car.
This is especially true if the consumer has low credit scores. Most people can get a car loan, but only those with the highest credit scores get the rates they advertise on television. And on a $15,000 car loan, the difference between an advertised 2% rate and an actual 14% rate is about $185 per month.
If you long for a new car, exercise patience. Save for a large down payment. And before you shop, check your free online credit report with scores. If your scores are still low, work on credit repair until they’re high enough to let you qualify for a good rate.
Interestingly, in “The Millionaire Next Door,” Thomas Stanley and William Danko point out that millionaires – at least the self-made variety – do not have these self-esteem and pride issues. When they buy a car most of them choose not to buy brand-new. Instead, they’ll choose a car that has been used as a demo model, or a newer rental return unit. They choose to avoid that huge hit that a car’s value takes the minute it has 10 miles on the odometer.
So – copy the millionaires. Don’t let false pride put you in “bad debt.”
Is a car loan always bad debt?
Given the fact that a motor vehicle will quickly decline in value, automobile debt is known as “bad debt.” But is it always bad debt?
No, not always. Especially given the current price of gas.
If a person is driving 60 miles to get to work each morning in a vehicle that gets 8 or 10 miles per gallon, he or she is using 12 gallons of gas or more per day. At $3 per gallon, that’s $36 per day.
Driving an economy car that gets 30 miles per gallon would use only 4 gallons, or $12 per day. A savings of $24 per day for 20 work days amounts to $480 per month, so a car payment of less than $480 would be a wise investment, especially since a new car comes with a warranty and new tires.
However, for those whose commute is short, financing a new car does mean taking on “bad debt.”
CreditScoreQuick.com
