Budget Saver Tip #21: Vehicle Purchasing

According to my observations and the latest statistics, most people in the United States take out loans to buy their vehicles. In fact, this is such a common occurrence that most people probably don't even think much about it: That's just how you get a car. (You can also get a really nice car that way.) But since I grew up with very frugal parents who saved as much as they could and avoided debt like the plague, my mentality has always been different. We never had really nice cars, but we always had what we needed, and my parents were never paying off an auto loan. After all, they had things like music, dance, and art lessons to pay for, not to mention school and camp fees and all the other expenses that raising a family entails. They certainly didn't need an auto loan hanging over their heads too.

For about two years now, knowing that with the addition of another child to our family (whenever that happened) we would outgrow our small car, I have been collecting information about minivans. I learned from friends, my parents' mechanic, official statistical reports, and consumer reviews what type of vehicle would best fit our family's needs, meet my desires, have excellent value, and be safe. I also learned approximately how much we would need to spend. For a while, with no extra income whatsoever, all I could do was collect this information without doing anything else about it. Once my husband finished his Masters degree, obtained a job, and we finally had some good income again, we figured out how much money we could save per month and began putting away several hundred dollars a month toward a larger vehicle. Keep in mind, my husband is a school teacher and we are a one-income family. With the tremendous additional help of a large tax refund, we were able to purchase a minivan this past weekend that fit well within our desires and needs. It's certainly not the latest model with the most up-to-date technology, but it's the nicest (and I'll even say fanciest) vehicle we have ever owned. We are thrilled. And we paid for it in cash (well, technically money orders).

I can't tell you how many times over the past couple years I was tempted to just go the "easy" route and get an auto loan--or at least borrow money from family. After all, so many people get auto loans and appear to get along just fine. And, I reasoned, if we monthly put the same amount toward a loan that we had been putting into our car fund in savings, we'd have it paid off in no time. But we have always bought our cars with cash and my husband steadily balked at the idea of going into debt for a car. And I knew we really didn't want to do that if there was any way around it. After all, the more in debt you are, the less freedom you have, and with all the other things we need to purchase or pay for (like a new baby), we need our money to be as fluid as possible, not locked into another loan.

There are lots of things to factor into a calculation of how much you can save by paying for a vehicle in cash versus getting an auto loan, but no matter how little or much you put down, or how long or short your loan term is, if you're paying interest you're paying interest--whether that be hundreds or thousands of extra dollars over the life of the loan. Of course, this also varies depending on the interest rate you're able to get. In our case, our credit union has the currently very low rate of 2.99% (which added to the temptation). So even if we hadn't put any money down, over a five year period we would've only paid several hundred dollars extra. But that's still several hundred dollars that could've gone to something else we needed. Not to mention five years of bondage. And I've always hated the idea of potentially having to make repairs on a vehicle we still owe money on. Paying for gas and maintenance costs enough as it is!

Now, I realize that not everyone is able to line all their ducks in a row to purchase a car in full, particularly when unexpected things happen and there isn't enough time to save up the needed money. But I also believe that "where there is a will there is a way" and that most of us could do a better job of anticipating our needs and planning for the future. It's amazing how much a plan (and the action necessary to adhere to that plan) can, in the long run, give freedom and peace of mind.

There's just something so sweet about the satisfaction of making a large purchase that you have planned and saved for, and owning it free and clear. I love being able to say that it's not financed but is truly ours!