The Problem with Cars and Debt and Monthly Payments

May 24, 2017

Monthly payments, Cars and Debt..

I was recently updating my resume.  Looking at the jobs I held previous to teaching  in South Korea .  My most recent ex-job was selling cars.  A Korean brand, ironically.


If you’ve bought a car in the last few years, chances are it was fairly new and probably financed.  I should know, since 90% of the deals that went through my dealership were financed.


Coming from a family that very rarely bought things on credit and shunned debt, I found it rather peculiar for so many people to sign on for the better part of a decade worth of monthly payments.  


I was told not to sell on the price of the vehicle, but rather ensure the car met the needs of the buyer.  Most important, was to ensure what I was showing them was within their monthly budget.


Granted, the banks give kickbacks to the dealership when the buyer finances.  You usually got a better ‘initial price’ by financing.


Now if you’ve got the cash to pay on the spot, taking the finance route then paying off after the month or two holding period is great.  But most people aren’t in that position.


Most people are over extending themselves into debt with a comfortable monthly payment.


Most people want the newest model, with all the bells and whistles, and are willing to spread the hit of that new car over any length of time.  As long as they can make the monthly payment.


I’m using cars as an example.   With credit cards however, there isn’t much we aren’t overextending ourselves into as long as we can hit our monthlies.


The truth hurts..

Unfortunately I am also guilty of this ridiculousness.  While working at the dealership I was driving an economy shitbox.  $1,000 out of pocket and I drove it for 3 years.  Gas, insurance and oil changes were my only costs.

About a month into my new employment and something finally gave.  I was hit with a $250 repair bill.  Ignorantly, I decided to just finance a pre-owned car (2013).  To be fair to myself, they offered to pay me to drive a car from the store.  I was actually getting paid more a month than my monthly payment so I thought I was making money.


How ignorant, indeed.


I financed the car over a 7 year period.  Insanity.


If I was to use the full term to pay off the car, the cost on that $14,000 car would increase by $3,000.  That’s not including the fee’s and taxes I paid because I bought from a dealership.


Yes, there can be benefits to buying a new car, and from a dealership.  You probably have a better idea of the car’s history, less chance of repairs and if some do come up, they are usually covered.


If you don’t mind working until you’re 65 and materialism makes you happy, then maybe the extra costs of buying new and going into debt aren’t an issue for you.


But if you’re like me; someone who cares about freedom and wealth creation.  Then a financed new car is not for you.  You should avoid the monthly payment trap altogether, as best you can.


Poor or riches..

Debt is the #1 hinderance to wealth creation.  Read here why wealth creation and having Fuck You money is so important.


Debt is ugly; because you pay interest on top of your principal payment.  The interest you pay is someone’s passive income for lending you money.  They are making their money work for them by acquiring your money.


Does that piss you off?  It should.


Alternatively, when you invest your money rather than buy something on credit or financed (ultimately buying something outside your means) you put your money to work to earn YOU more money.


That, ladies and gentlemen.. Is the secret of the rich.


I’ve already dug into why renting and investing could be a better route to wealth creation as opposed to owning real estate HERE, let me paint you a picture of driving something more modest as opposed to the new, new.


Scenario #1

You buy a new car for $20,000.  

After taxes (13%), the total cost is $22,600 – I’m going to ignore fee’s for simplicity

You put down $5,000

Finance $17,600 over 60 months (5 years) @ 5.99%

Monthly payment: $340


Total interest paid: ~$2,800


Depreciation.  New cars depreciate like crazy. According to Carfax, cars lose on average 60% of their value over the first year. 6

60% of $20,000 is $12,000 you car has lost in value.  Leaving its value at $8,000


After 5 years..

You’ve paid  -$25,400
Your car is worth:   $8,000


Net value after 5 years: -$17,400



Scenario #2

You buy an economy beater for $5,000

After taxes (13%) $5,650

You finance the taxes for 2 months @ 5.99%

Monthly payments: $340


Total interest paid: ~$5


Depreciation also hits your old beater, I am having a hard time finding the yearly depreciation value for after 5 years.  So let’s use the 60% depreciation value for the used car too.  Though in reality it’s probably much lower.

60% of $5,000 is $3,000 your beater has lost in value.  Leaving its worth at $2,000


Now, instead of paying monthly payments toward a car and PAYING interest, you invest $340 a month and EARN interest.


$340 a month invested in a Total market index fund yielding an average 7% will turn into ~$25,000 after 5 years.


After 5 years..

You’ve paid -$5,655
Your car’s worth $2,000
Your investment’s worth $25,000


Net value after 5 years $21,345



You can have a sunroof, heated seats, never have to worry about a ‘potential’ repair and be behind $17,000.  Or you can have $20,000 working for you and still having a vehicle to get you from point A to B that you might need to service occasionally.


Add another 5 years, and your roughly -$20,000 behind with the new fancy car, or $60,000 ahead with the beater.  $54,000 if you account for the new beater you need to acquire.


Or you can go carless and have probably $100,000 after 10 years when you account for money saved on gas and insurance.


A fancy ride or freedom, your choice


Ta ta,


debt slave
Calculator for interest accrued

Calculator for compound investment income built

A word from our sponsors

Shipping Now Free on Orders Over $49 at! Shop Now and Save on the 25+ B-Elite Brands Including Optimum Nutrition, JYM, EVL Nutrition, RSP, BSN, MusclePharm, and Much More!

  • Currently located in China, teaching English and working towards Financial Freedom. I write about money, travel, personal development and more!


7 Pingbacks

Leave a Comment

Your email address will not be published.