Are you currently paying a car loan that’s straining your budget and making it hard to meet your necessities? Then consider yourself “car-poor,” specifically someone who owns an expensive car but struggles to make a living.
Recent figures show that many Americans, especially those in the low and middle classes, have car loans because it’s the only way they can afford a new or used car. The problem is that non-discretionary car financing has become too stretched, averaging 66 months long and over $27,000. Even worse, cars depreciate over years of usage but incur several costs, including gas, insurance, maintenance, and repair.
In other words, they’re stuck into a costly long-term auto loan for a car that doesn’t increase in value but with ongoing (probably increasing) costs. It made many Americans live above their means, eventually becoming car-poor. How can they avoid this way of living?
Make Wise Financial Decisions
The ideal financing doesn’t leave you financially strapped and stuck in almost endless monthly repayments. An example of this is a short-term car loan. Although the installments can be strenuous, loans with shorter terms have lower interest rates, making the cost of borrowing cheaper.
However, if you want lower monthly car payments but still want to save more, consider providing a larger down payment. Paying a lender more upfront means you don’t have to borrow as much, allowing for lower monthly fees. Besides, the less you borrow, the more you save in interest.
If you already have an existing auto loan, refinance it to help you save more. It potentially reduces your interest rate, lowers your monthly payments, and lets you pay off the car loan faster. How much you can save varies from person to person, usually depending on your credit status and the rate you qualify for.
Consider reaching out to alternative lenders as well. Their car loans are much more affordable and disbursed faster than most traditional lenders. They also have accessible borrowing options, such as CreditNinja cash advance, if you’re in a pinch. These can temporarily help you pay off car payments and avoid defaulting, eventually affecting your credit score.
Limit Car’s Depreciation
If you opt for newer car models, as mentioned, note that cars are depreciating assets. It means their value decreases over time after purchase due to wear and tear (i.e., asset use) and planned obsolescence (i.e., no longer functional or unfashionable by current standards).
Statistics show that most cars lose their value by up to 20% within the first year and continue to lose 15% annually until the four- to five-year mark. Additionally, there’s no predetermined rate at which a car will depreciate.
Thankfully, the factors that affect car depreciation are known. These include your car’s make and model, condition, age, and mileage. By monitoring and taking care of these, you can limit how much value your vehicle depreciates and avoid more costs.
Here are some tips to limit a car’s depreciation:
1. Limit how much you drive – Consider driving your car for less than 10,000 miles per year.
2. Keep your car in a covered spot or garage – Avoid damage from severe weather and elements that ruin paint jobs and other car parts.
3. Perform regular car maintenance – Never neglect your car’s engine, and always follow the manufacturer’s or other professionals’ suggestions on when to receive oil changes, tire rotations, and more.
Consider A Used Vehicle
Another tip for saving yourself from car depreciation is opting for used cars. They depreciate slower than the new models will because brand-new cars’ value is greatly influenced by the markup car dealers. That means they lose a lot of their value as soon as they leave the dealership.
Furthermore, second-hand cars are significantly cheaper in value than brand-new cars. Considering that they never appreciate value, buying a used car for one or two years can help you save a considerable amount.
For example, the average repayment for a new car is $725, while a used car is around $516 this year. If you calculate per year, it’ll be $9,024 less $6,192. The result is a significant amount of savings of $2,823 per year in repayment.
Consider the Size and Efficiency
A car’s size mainly determines its cost. Its body shape is also a determining factor in whether it’s a fuel-efficient vehicle or not. If you want to buy something cheaper and avoid extra costs, experts recommend a smaller car instead of SUVs and larger models.
For technicalities, consider opting for 23 MPG (miles per gallon) or higher in combined EPA (Environmental Protection Agency) fuel economy. EPA gas mileage is the standard for good gas mileage nowadays.
Don’t miss: What is a Benefit of Obtaining a Personal Loan?
The bottom line
The key to preventing a car-poor life is awareness. Keep in mind that cars aren’t equally developed and depreciate in time and that financing is a complex matter, so researching is a must.
To make better-informed decisions, always seek professional help.
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