Monday, March 12, 2012

The joy of paying off a car loan

The average middle-class person has three big debts in their life. Their house, their car and a credit card or two. The house is always difficult to get out from under, and carrying credit card debt of more than a couple of hundred dollars or pounds is just idiotic. But a car loan is one of those financial drains tied to a luxury item, and cars are a luxury item. In the world that a lot of my readers live in, I wouldn't be surprised if the household had two cars, but there are obviously places in the world - here at home too - where people just can't afford a car. So it's a luxury item, and taking out a loan on one is something you should only do if you have a chance of paying it off. Two years ago I picked up a new car and took out a car loan on about 50% of the value of it (my trade-in paid for the other half). For two years I've been putting most of my spare money into the loan as additional principal payments, and a few weeks ago I achieved motoring nirvana - a lien release from the credit company, giving me a clean title. ie. I paid off the loan and now I own my car. I can't tell you what a weight that is to be lifted off my shoulders, especially as I'm staring down the barrel of unemployment (a long and torrid story of a company so full of managers and process that we've forgotten how to actually produce anything). I try not to carry much debt on my credit card (singular) but I still have a mortgage. Not having a car payment every month is really nice though. But here's my problem. I'm a car guy and shiny new Precious's always catch my eye. If I'm still employed by this time next year, I just know I'm going to be in the market for a car change, which inevitably will mean a new loan.
So if you're in the percentage of the world's population that owns a car, and you have a loan on it, do everything you can to get out from under that loan. It's a lovely feeling.

7 comments:

David said...

Know what feels even better? Not having the loan in the first place. Picking up the keys and driving away knowing you've just handed over one of the largest-value cheques you'll ever personally carry, but there's no debt behind it.

Of course instead of paying off this car, now we're "merely" saving for the next one!...

Chris said...

True but that comes with it's own pain knowing 30% of that cheque evaporates in depreciation the instant you hand it over. If it's a new car. If it's used, you're in the perfect situation.

Micah Cameron said...

To be honest, I never got car loans. in fact, the only type of loan I do understand are morgages. Even with the housing market the way it is, it's near impossible to find a decent house under say $50,000, and most people just don't have that much disposable income. However there are countless nice used cars that can be had regardless of budget. As a car guy, I happen to love my Audi that I picked up for $700. it's certainly not as flash as new ones, but it does what I need it to and leaves me smiling every time I drive it. As you said, cars are a luxury item. So rather than spending 5-10k on a down payment, why not just buy a nice used car for that amount of money?

Chris said...

Because new = shiny sparkly goodness?

Justin said...

I have to agree with David and Micah. I haven't owned that many cars but they were all used and all paid for with cash. I don't understand this need most people have to buy a shiny new car every couple years. I picked up my current Audi allroad two years ago when it was 6 years old for 1/3 of what it cost new, but it still looked and drove like a nearly new car to me. And since it's used I'm not afraid of scratches or dents, I can beat on it without feeling bad, and can mod it if I want to. All without having to think about a car payment.

Paul said...

A car is a luxury item? Really? Well here in Houston there is no bus service, there are no footpaths (sorry, sidewalks) and there isn't any shops close by even though we are in an urban environment. So a car certainly isn't a luxury item in my opinion.
And I know plenty of people in my situation. What would you suggest? Walking for the groceries and to work?

Chris said...

In the grand scheme of things yes - if the need presented itself you could walk. You might not want to but that's why you bought a car and why you live where you do. That was sort of my point. If you're down and out, a car is the last thing you can afford. You'd have somewhere close to public transport, close to stores and you'd walk. To put it in perspective, I didn't own a car or even have a driving license until I was about 24. It was only when I moved to a place where public transport was bad and my commute was extended that I finally did the test and bought a car.