Let's say someone buys a new car for $26,000 (average for new cars). They buy it on credit and finance it for 5 years. After four years, that car has lost 70% of its value, and there is still another year's worth of payments.
Some people talk about trade-ins and and other things but let's look a little closer.
Suppose you buy a car worth $2600 with cash. Instead of making payments, you have a car that may last you at least two to three years. Now, to be smarter, you decide to set up a car fund. You make payments to yourself into a savings account or cd or money-market account. Let's say you pay yourself $250 a month into this account. How much money do you have in a year? $3000 without the interest. How much money do you have after 2 years? $6000 without the interest. Let's say your $2600 car lasts 5 years, how much do you have then? $15,000 without including the interest.
What if you traded in you $2600 car in two years and paid cash for a $6000 car. Then you decide to wait 5 years to trade in your $6000 car. Do the math.
You can begin a trend now to start paying cash for cars and eventually save enough to buy a new car every five years (if you invest wisely)!
So what do you want? To be stuck in a 4 to 5 year contract paying incredible interest payments? Or to work yourself into a position to have a car - payment free?
Oh, by the way. Look at this:
- $250 x 60 months = $15,000
- $300 x 60 months = $18,000
- $350 x 60 months = $21,000
- $400 x 60 months = $24,000
- $500 x 60 months = $30,000 ($400 to $500 is typical for new car payments)
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