Last week we purchased our new (to us) 15 passenger van. This is the first time we have purchased an almost new vehicle for cash. We have purchased a few beaters for cash, but coming up with the $1000 needed for the old cars that served as my husband’s get to work vehicle didn’t seem as daunting a task as saving thousands.
Why we decided to purchase our car for cash.
- We don’t like debt. We believe the words from Proverbs 22:7 are ones to live by, …and the borrower is servant to the lender.
- Because we don’t like debt, we have purposed to not take on any debt, except a mortgage.
- We believe you can get a better deal when you pay cash.
- We don’t want to owe money on a depreciating asset.
- Life changes, payments don’t. Just because you can afford payments on a car today, does not mean you can afford them in 3 years. Things happen, people move, have babies, lose jobs. It is hard to be upside down on a car that you need to get rid of for any reason!
Unfortunately there isn’t an easy or fast way to purchase a late model car for cash, it takes work, diligence, and patience. Here is how we did it.
- Live without a car payment. We have lived for the past 3 years without a car payment. This meant my husband drove an old car that wasn’t “cool.” It worked to get him where he needed to go. Our second car was a nicer, newer car that we paid off in 3 years. When we purchased that car (before we realized we didn’t want car payments) we had a rather large car payment.
- Drive your cars until they cannot be driven anymore. If you are switching cars every 3 to 4 years, you will not have time to save for a new one. Yes, older cars need repairs, but it has been my experience that the repairs usually don’t cost as much as a new car payment. When the repairs get so frequent or expensive that they are costing as much as payments we usually start looking for something newer. Even the most unreliable car we ever owned did not cost as much to repair in one year as our payments did on our new car.
- Save your “car payment” in a car fund. Once we paid off our Suburban, we took those monthly payments and started saving them in a car fund. If you had a $300 car payment (below the national average) in 3 years you would have over $11,000 in 4 years over $15,000. This is plenty of money to buy a decent used car.
- Maintain your current cars. Frequent oil changes and routine maintenance prolong the life of your current vehicle. Prevention is cheaper than repairs. The longer you are able to drive your cars the more money you can save towards your next car purchase.
- Do not upgrade your vehicles until it is necessary. We were planning on keeping our two vehicles forever, but with baby #7 coming soon, we needed a bigger vehicle to hold our whole family.
- Buy used. This does not mean you need to buy a 10 year old car (although that is fine too). According to statistics, cars depreciate between 20 to 40% in the first year and another 15% the second year. This means you could purchase a nice two year old car for up to 55% off the new car price. Since I have kids, the new cars that I have owned looked like used cars after a week anyway so why not go for the savings. We just purchased a two year old vehicle for 45% off what the original owner paid for it. This car looks new, smells new and drives like a new car.
- When it comes time to buy research, research, and research. There are several great sites for getting information on car values, Edmunds and Kelly Blue Book are two of the most popular. We were looking for 15 passenger vans so we didn’t have many choices, but our research helped us decide on features that were important to us (sliding door, remote locks) and how much those would add to the cost of the vehicle.
- Decide on how much you can afford and how much you want to pay. After looking at vans for 5 months I knew what these vehicles were selling for in my area. I also knew which ones were popular and which ones were not. When we finally found our van we knew what a fair price was for this specific vehicle.
- Use cash to help you negotiate. This was our first time paying with cash at a dealership, although I had hoped to buy from a private owner, we couldn’t find anyone selling a van we needed in our area. The process was very smooth and uncomplicated. The van had an asking price and we had a price we wanted to pay. We met somewhere in the middle. Since the van was priced below blue book value it was already very close to the price we felt was fair. We were able to negotiate some extras into the deal since we were paying cash.
Where do you stand when it comes to buying cars? Do you prefer new cars or do you drive your cars until they have to be towed to the junkyard? Do you pay cash or finance your vehicles? Feel free to discuss it in the comments but keep it friendly.
For more Frugal Fridays visit Life as Mom.
We bought our last car with cash – a friend offered us a great deal on an older used car, knowing our teen son would some day need a way to get to college. I felt great about this transaction because we had no debt burden to worry about.
One great way to improve your car-buying leverage is to learn to do basic maintenance yourself. If you are military, visit your Auto Hobby or Auto Skills shop. You can do all kinds of maintenance and repair – under the watchful eye of a talented mechanic – for less than $10 plus parts. If you don’t know how to fix a car, consider paying someone to teach you the basics. (We did this at our first duty station. Two tours later, I figured that we’d saved almost $3,000 – in the late 1980s! – in maintenance and repair costs because my husband did so many repairs himself. 20+ years later, our savings are in the $10K range, I’m sure. Even if you’re not in the military, learning to change oil, rotate tires, change brake pads and rotors, etc., can save you hundreds or thousands of dollars over the life of your car.
You make a great point. Military bases almost always have an auto repair shop, with people willing to share their knowledge with you. Learning to do simple (or even not so simple) repairs yourself is a huge money saver.
Toni
We like to purchase our cars for cash. I see no logical reason to finance a vehicle brand new to just be upside down in the loan. However, I am glad that someone does that so that I can then purchase the vehicle used. The van we have right now is the only vehicle we had ever financed. We purchased it last June and it is about 3 years old. I really wanted a van, and we were hoping for it to help bring up our credit so that we could buy a home. We were able to buy a home several months later, but I have no idea if financing the van really helped. Before my hubby’s hours were cut we had the goal of paying the van off this year. I am not quite sure if that is going to happen now. However, it will be the first thing we pay off because it has the highest interest rate.
We have had cars with no car payment, but now we have a significant payment. I would have preferred keeping our van, but it was really starting to have major issues. Now we have a honda that I plan on driving until it falls apart. I’m getting my money’s worth.
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I agree, where there are children, there is a messy car. Except in my sister’s case, but she’s so close to perfect, it ain’t funny.
There you go making us re-think things for frugality.
Great advice! I really need to start saving for a new to me car, since my old one died a couple weeks ago. I’m still hoping my husband can fix it, for at least a little while.
We bought a vehicle with financing in the past and are still paying on it. We still have over a year left and I really feel like a slave to that payment. I like the idea of saving the payment. That’s what we need to do when it is paid off. I’m just hoping it won’t need too many major repairs that will eat up that money. This is a great post! Very informative! Thanks!
God bless,
Amanda
We have always gotten used cars. We have had payments in the past but paid them off and drove them until they died. Currently we have one car that is paid for (our van) and a payment on another car. Hopefully we can get this paid off as quickly as possible because I definitely prefer no car payment.
My van is a 1992 Toyota Previa, with 150K, and it’s still rocking!! Regular maintenance is crucial indeed.
But, we are saving now for a newer van in five years, if she can hold out that long. Not only do we save-a-payment, but each year we stuff some of our tax refund in that account, too.
We bought our 12 passenger van about 8 years ago and paid it off in a two years. All other cars we have paid with cash. We drive them until they are towed or sold as scrap.
Good post!
My family also does not believe in carrying debt on depreciating assets. I paid my way through college, and when I graduated, my dad loaned me the money to buy a car, until I could get on my feet a little financially.
With the loan from dad, I purchased a 1993 Geo Prism and paid it off the following year.
It is a great little car, super gas mileage, low repairs, and still going strong at 16 years old!! Haven’t had a car payment on that one in 9 years.
We are planning to go down to one car (now that I’m a stay-at-home mom), and I really hate the thought of parting with my little GoCart, as my husband calls it.
As newlyweds, we purchased two older cars for my husband (with cash). Unfortunately, both cars had thousands and thousands of dollars in repairs, which depleted our car savings.
Finally we decided to go with a car in the 3-year-old range to avoid all the crazy old-car-issues. So in 2006, we bought a 2003 Crown Victoria. We didn’t have all the cash in hand, but we paid it off within a year of purchasing it. It is a great car.
Our financial picture is not ideal right now, because my husband has lost his job twice in the past 3 years, due to the economy. (We have no savings for the next car at this point.) But there is NO WAY we could have made it through these past few years if we had a car payment on top of everything else!
Although it doesn’t always work out perfectly, living debt-free is a very wise goal.
We just paid cash for a car. It was a *great* feeling! We’d been saving up for some time and were able to find something in our price range. Now that we’ve done it this way, I never want to have a payment on a car. When I called to add it to the insurance, the agent was shocked that we paid in full. That’ll give you an ego boost!
(We also got rear-ended the next day, but that’s another story…)
We follow all the same rules as you…we buy used cars, we drive them for as long as possible, we don’t have car payments, and we do lots of research before buying. My husband currently drives a 1996 Lexus that we purchased from his parents and I drive a 2002 Ford Explorer that we purchased used from a dealer after an extensive search to find exactly what I wanted. We will have both of these cars for many more years.
If there has been a money-hole for our family – it’s been vehicles. We were tired of having second hand cars that didn’t “look good”. So a few years ago we bought a newer SUV. I’ll never do that again. It took years to pay it off and we were fixing it while still paying for it. We have learned the hard way, save, save, and save more….
Great post! We are currently saving money to replace my husband’s 1997 Jeep Grand Cherokee. It is running fine right now, but with well over 150,000 miles, we know the time will soon come when we need to get something else. I think our struggle will come when we have to part with that large sum we have set aside – but that’s good! It makes us think long and hard about the purchase and ensures that we will spend that money wisely.
We just did this ourselves! We had been saving for years for my next vehicle, and when we knew we were going to have baby #3 (and I was tired of being so cramped in my 4-door sedan with two huge car seats in the back seat!), we started mini-van shopping. We found what we wanted, got a great deal, and paid nearly $10000 cash for it. What a freeing feeling! I think my mom nearly fell out of her chair when she asked, ‘What’s your note on that new van?’ and said, “Nothing. We paid cash.” What a great feeling. Glad we’re not alone!!
My husband and I have never held a car payment. We didn’t even have a car the first 18 months that we lived together in Australia…couldn’t afford one. Didn’t even occur to us to get a loan, we just walked and took public transport. Here though, we wouldn’t have that option, the public transport system is so bad where we live. We got two older used cars when we moved here though…one was a total beater truck, but hey, it was paid for and lasted us over 3 years before the transmission (among other things) died. And we were still able to sell it to a mechanic who planned to fix it. Win-win!
In the past we have financed our car purchases. However, we have been without a car payment for over 3 years now, and I don’t ever want to have one again! We are currently putting a large amount each month in our “auto savings” – the plan is to pay cash for any vehicles we need in the future.
However, I am hoping that our current vehicles hold out for a lot longer (I love my CRV!) – but hubby commutes almost 100 miles (round trip) each day to work – and his car has over 200K on it – so it’s day is quickly approaching
My hubby is a Finance Director for three dealerships. It is impossible to convince him of the need to not have a car payment. I’ve never been a huge fan of putting money into something that is constantly losing value. But he makes a good living for us and I chose not to fight over it. We have two car payments that are pretty heafty but he provides well for our family and I have learned to cut in other areas to balance.
My hubby is driving my 1997 Geo Prism to work everyday, that I bought in 1998. He hates it, but as long as it is kicking, we will keep it. We just paid off our 2004 Suzuki XL-7 (SUV). We had two compact (and paid for) cars at one time, but when I got pregnant with my son, we decided a larger (and safer in a crash) vehicle was necessary. We were two-income at the time, so the payments weren’t a big deal, but they killed us when I became a SAHM. As long as I can keep hubby in line, we will keep it until it falls apart (he likes shiny new things).
We are working on paying off our car. After this, it’s no car payment for us. We own a Buick and a Ford F150 that are both in very excellent shape. The F150 is still under warranty. Our Subaru however, was purchased last September. We’ve already paid off $13,000 and I plan to have it paid off by the end of the year. Unfortunately, my job requires a pretty car. But we were able to get a great deal, under blue book, and the car payments are around $300/month. We try to pay $1,000/month towards it. The second the car is paid off, we’re going to set $300/month into an account, so we’ll never have to buy a car on credit again.
Plus, since our Subaru is brand new and we have two other working vehicles, I think we can save $300/month for six or seven years and that purchases us a rather nice brand new, 0 miles, vehicle in cash.
I can’t complain! Great advice!
I must add: we did most of that in a one-income family. As I didn’t start working again until just this past month.
I envy your discipline so much. I am so embarassed to say that we are payng 1100 a month for 2 new cars, an o6 yukon xl and an 08 gmc truck. Now I can say that we have zero credit card debt. My husband hates the credit cards. We do save every single month in retirement accounts, regular savings and also save a sizable christmas club each year, all of which we debit directly out of our checks, so theres no temptation not to do it.
I will probably give you a small stroke when I tell you we are intalling a pool in a few weeks and we are financing half of it…..we did save $22,000 though to put towards this purchase. Sad part…we had an above ground pool that was fine….we just wanted an upgrade! We are spoiled brats…..now I am really ashamed!
That is so great! We had to learn the hard way… We’ve bought three new cars, one after the other off the lot. After reading one of Dave Ramsey’s books, we realized how unwise it was to be making decisions like that. We saw first hand after my husband lost his job, how the payments almost killed us!
Right now our Volkswagen Golf is paid off and we’d love to get a mini-van as the car is so squishy for a family of five, but we are determined to pay cash this time and to get out of debt for good!
We bought a Toyota Sequoia in 2007 when our third baby was on the way- because we needed a car that could hold three car seats. We paid $40k for it. Shortly after that (about six months I think) the value of the car decreased by half. It’s now worth about $20k and we still owe about $35 or something like that. Needless to say we regret purchasing it due to the large payment, but now we are glad we have it because of the great space it provides our family. We are determined to drive it until it can’t go anymore and never buy like that again!
Gabriel does all the maintance on our vehicles and other friends vehicles. He love doing it. And it’s way cheaper.
We are with you on paying cash. We had 2 beaters, one which my husband still drives. The other died. It was going to cost more than we paid for it to fix it, last March. Houston had a great aircheck thing where you got $3,000 off a up to 4 year old or newer car if you got approved for this rebate, which we did. So we got a 2007 van last april (for 10,000 off the original purchase price), less $3,000, less our down payment. We financed, but did a 24 month loan, we we will have paid off this July, in 13 payments!
And, we won’t have a car payment ever again!
Oh, and i just saw you have a nurtured family button on your blog. I LOVE them! Their store is actually about 12 miles from my house, so I go out there whenever I need something. They had awesome black friday/cyber monday sales last year, and then again right before/after christmas! My baby (was 2 months at christmas) got cloth diapers for christmas
We too just bought a car with cash. We only have one car- which is a huge money saver if you can swing it- but when the one car is unreliable, it was time to go for a new(er) one.
When I was searching for the car- I found all the same things you did- I just wish I could have had someone lay it out so nicely for me 6 months ago!
Thanks for your post, it’s great! We think exactly the same, we don’t like debts (and have no debts) especially for things that are not a “must have”. I need a car to drive to work but we are thinking of other options as to owning a car, such as leasing one. It might be cheaper than owning one. Anyone, not buying a car and leasing or hiring one instead? I just think having a car is such a money hole with all the extra costs involved. And because we live in the UK, petrol is very expensive so we were also thinking of buying an electric car. Any thoughts on that?
I’ve only ever borrowed once to buy the four cars I’ve had over the years. I’ve never bought a new car as it seems like an insane waste of money to me when you can get a very near new car for a lot cheaper price. My sister just bought an SUV. She bought it brand new and she is single with a little dog. I thought she was mad to buy a brand new biggish vehicle when she’s not that well off but she wanted this type of car. Each to their own I guess. I would rather spend the money on a holiday.
I’m driving a 10 year old Honda Accord. It’s been paid for for six years. I love it as much as they day we bought it–maybe even more now that we aren’t making payments. I plan to drive it till it drops, which could be quite a while yet. Keeping my list of “wants” under control is a big part of how I limit spending.
Thanks for the added inspiration. Now that we are debt-free our goal is to save enough this year to buy a new-to-us Suburban. FishPapa really wants to be able to haul boogie boards, cooler, jogging stroller, etc w/o having to tie children or things to the roof of the van. Thanks for some great tips!
I have a 1995 red Saturn coupe that I paid $1500 cash for last year. It’s a great car and it’s kind of sporty so it doesn’t even look that old! I am definitely all for paying cash!
We are dedicated to not buying a new car when needed. We have always bought new but we do keep them for many years; we put alot of miles on them so need reliable cars and with all the miles they aren’t worth much after a few years, so we keep them (example: our 1989 Chevy truck, sold in 2002; our current car is a 1998).
We will buy our next car used. Thanks!
Alyzabeth’s Mommy for Six Months!
We did exactly what you did. My husband has had the same beater for almost 15 years…Honda’s are great. My vehicle is 7 yrs old…still looks good cleaned up. We are saving for a new one….may not be this year…but we will pay cash…I refuse to be a slave to the car lot.
Great points…we also teach Dave Ramsey’s FP.
I’ve never understood car payments. From age 16-22 I drove the family hand-me-down. It was 3 years older than me, had no AC, and the speakers would blow out in a week of replacement, the 8-track players was a source of great amusement, and I could fit 8 people comfortably. Once the repair costs seemed too much, I decided to buy my own car and let my parents do what they wanted with that lovable ancient beast. I was very blessed to have a small trust fund. I used about 2/3 of it to buy a very nice, used car. I did a ton of research using MSN cars, and picked out a few makes and models of specific years that I was willing to look at. When I went shopping I took the piece of paper with me with the prices that were acceptable on those vehicles and what problems the car may have. I ended up getting the car for a good bit under blue book value and with one or two previous owners. It was nice. I kept that car until I was going out of country and didn’t want my family to wreck or ruin it while I was gone. Sold it and bought another car cash when I came back.
We only buy new after a bad experience with a used. I wish we could pay cash but that hasn’t been a reality so far. When you say “research, research, and research” you are exactly right. The sites we use are kbb.com, edmonds.com and http://www.truecar.com. You need to always do your homework no matter how you plan on paying. Any time you spend will come back to you in savings.