EPISODE 60~ Pay for Your Car in Cash and Save Thousands on Interest Payments!

How to pay cash for a car, thus saving interest payments that can add up to thousands of dollars.
OK, I realize not everybody will be able to pay cash for a car – at first. So first let’s talk about how to limit the damage if you must take out a car loan. The problem is that most people make a small downpayment on a long loan. That’s upside down! Instead, you want to make a big downpayment on a short loan.
Make as big a down payment as you can. The national average is less than 20 percent. You can do better. 40 to 50 percent is more what I have in mind. The more you put down, the less you will be paying interest on. If you already own a car, a big down payment may not be as hard as it sounds because you might be able to combine your trade-in value and some savings to come up with a nice-sized down payment.
Now, let’s talk loan term. According to Edmunds.com, the most popular auto loan term in America is five years. Horrifying but true. Your car could easily depreciate faster than you pay it off, putting you “under water” in your car loan. Instead, I recommend, a maximum of 2-years for auto loans. A two-year loan should assure that you are paying the car off faster than it depreciates. And it will limit the amount of interest you shell out. And, because you made a chunky downpayment, the monthly payment should be manageable.
OK, so you’ve just taken out a loan to buy a car, so how do you put yourself in a position to pay cash for your NEXT car? There are two strategies. Choose whichever resonates with you:
1. Method number 1: After you’ve figured out a monthly car payment your family can truly afford, subtract $50 from it. In other words, if you can afford to spend $400 a month on a car paymjent, resolve to spend only $350. Then use the other $50 a month to immediately start a savings account to put toward your next car.
2. Method number 2: save nothing now, but after you’ve finished paying off your car loan, continue making that payment, but into your own savings account instead. You’re used to paying that amount, so it’s easy. Then, keep your first car as long as you can stand it, rather than trading it in in 3 years like so many people do, and that should give you plenty of time to save up for your next car, the one you’ll pay cash for.
What kind of savings will you see when you succeed in paying cash for a car? Let’s say you buy a $15,000 used car. If the interest on your car loan is 6 and a half percent over 5 years, you’ll end up paying $17,598 for the vehicle. So by paying cash for that same car, you save $2,598. THAT is the kind of savings I like. Big and bold!

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