One Step Closer To Financial Freedom


I'm dumping an annoying debt - the car payment


The average American makes a car payment each month.

I am no longer one of those people!

That's right, today I made my last car payment.  And by last, I mean my last car payment ever.


Why did I have a car payment?

My car looks like this one.  I love it!  Image from here.
When I bought my car four and a half years ago, I could have paid cash for it.  I had plenty of funds saved in cash accounts and investments.  But I allowed myself to be brainwashed by the concept that financing the car at a low interest rate was a good investment.  That would, I theorized, allow me to keep more money invested where it could earn higher interest rates.  It seemed like a good idea at the time!

So, I put 35% cash down on the car and financed the rest at a decent interest rate for five years.  The rest of the money went into my investments.  I drove off the lot with my new Volvo V70 and the smug feeling of someone who thought she beat the system.  Or so I thought.


Having a car payment really wasn't a good idea.

I have never regretted buying the car I did.  I love my practical Volvo wagon!  But I quickly came to regret financing it.  

It annoyed me to have to remember to pay the car payment each month.  It annoyed me that I didn't own my own car (technically, the bank owned it).  It annoyed me despite making extra payments, the bank would not allow me to pay off the car more than six months early without charging me a stupid prepayment penalty fee.

Oh, and did I mention that the stock market did more tumbling in the last five years than a gymnast at the Olympics?  That really annoyed me!  So much for my dream of using the excess car money to earn large capital gains in the stock market!

Today is the first day of the rest of my life!

Today, I own my car.  Woohoo!  No one can take it away from me, regardless of my financial situation.  That feels GOOD.

Steve Diggs (No Debt No Sweat Financial Ministry) says that 22% of all cars and trucks are bought with cash.  That means, a whopping 78% of auto purchases are financed!  I will never again be part of that 78% that finances a car, and in a future post, I will go into more detail on my plan to make that statement a reality.

How do you feel about automobile financing?  Have you found it to be as stressful and annoying as I did?  Or do you find it beneficial financially for your personal situation?  

18 comments:

The Budgeting Babe said...

Congrats! That's a huge accomplishment. I'm looking forward to paying mine off, too :)

Michelle P said...

Congrats! I just paid off my car also. Great feeling

MyCanadianFinances said...

Congratulations! I cannot wait for my car to be paid off. Although this is years down the road.

Emily @ evolvingPF said...

Woohoo, congratulations! How much was the prepayment penalty?

I paid off my car a couple years ago and while I want to buy all of our future cars in cash I'm not totally sure we'll be able to.

I wrote today about a stupid decision I made several years ago, too. I think all we can do is resolve to not repeat them!

WorkSaveLive said...

Congrats! That's so exciting to be able to get that knocked out!

You have to love the prepayment penalty from the finance guys...lol. What a joke!

I'm all for paying cash for cars. As a matter of fact my wife and I are test driving one for a couple of days and hope to make the purchase (in cash) by the end of the week! Yay!

The Frugallery said...

I took a loan for my first vehicle and once it was paid off I continued to put that payment into a savings account. By the time I needed another new car I had a good chunk of money saved up towards the next one. It feels so great not to have a car payment!

SB @ FPR said...

Congrats Dennis. I have a car payment ongoing but, that's with a 0% interest. so I am not complaining at all.

Financial Samurai said...

I HATE car payments! Can't stand them with a passion, which is why I swore them off about 9 years ago and have been clean ever since.

jefferson said...

That is great, Dennis!

I had to skate with 2 car payments for a while, and it destroyed our cash flow.. No payments at all would make a world of difference.

Dollar D @ The Dollar Disciple said...

Congrats! I dumped my car payment last year so I know the feeling!

This That and The MBA said...

I am done with my wifes car payment in July I cannot wait. That is surprising that 22% of purchases are paid for outright. I thought that was kind of high. Maybe I am poor and cant just buy a car outright. Someday...someday!!

John@MoneyPrinciple said...

Of course the garage that sold you the car made a lot more out of the kick-back from the finance company than profit from Volvo. A lot more. The salesman as well I guess.

And if the finance company was actually (owned by) a bank, 4 years ago or so, they only had 3% of the money they 'lent' you and printed the rest.

Like most of us, you have just been swelling the bank's profits. The yields that banks enjoy - even now - is eye-watering. We have been posting on TheMoneyPrinciple a little while ago but then I guest-posted on PositiveMoney.org.uk and got the book on where money comes from. Very interesting and I am sure it is the same over the pond.

But it is really bad that you couldn't pay it off early. That is always allowed over here under consumer protection laws.

Well done anyway - you are now quite a few dollars a month up.

Thrifty Mom in Boise said...

Congratulations! Job well done! I paid mine off in December. What a load off. I am much happier without that car payment. Onward & upward!

Tackling Our Debt said...

Congrats on paying off your car loan! Very cool.

Throughout my life I've purchased new cars with cash and I've purchased new cars on lease programs. Sometimes I didn't care if I owed monthly payments, but right now we only have 4 payments left on our current vehicle and we will own it. And we are really looking foward to that.

Kari@ Small Budget Big Dreams said...

Congratulations! Car payments are such a pain. It must ride better now that you're driving debt free ;-)

CultOfMoney said...

I've only had a car payment for a year after I bought my most recent vehicle, then I also got tired of it and paid it off. Granted I should have just paid cash in the first place, but it was significantly easier to finance at the time.

Thomas - Ways to Invest Money said...

Car payments suck! I still drive a 96 civic that I bought used for less then $3k. No problems and great on gas. When I see people in BMW and Benz i just say 600-800 that could be going to 401k or something else. But I guess it depends on what you value most.

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