People who buy new cars pay an average of $551 per month for 69 months, according to the car-buying advice site Edmunds. But making smart decisions around how you get a vehicle can help you eliminate that monthly car payment, either immediately or relatively soon, and achieve your other financial goals.
Here are three smart, cost-effective moves you can make when choosing a car that will save you a lot of money down the road.
In 2018, nearly one-third of drivers leased, rather than purchased, their new car, according to Experian Automotive. Leasing can be a trap, though, experts warn, and an expensive one, at that. Leasing is like renting: A typical car lease is three years, at which point you have the option of returning the car or buying it.
Plus, though leasing can seem less expensive at the outset, you can’t always get a low-cost deal. Those tend to go to people with a FICO credit score of at least 750. If you don’t have that, you’re looking at a higher down payment and more interest.
Either way, you’re no closer to a period when you are payment-free.
Consumer Reports says a well-maintained car has a reasonable shot of making it to 200,000 miles, which could be 15 years. So if you borrow only what you can pay back in five years, and then aim to drive your car for at least another five years beyond that payoff date, you’ll be able to spend half or more of your driving time without having to make monthly payments.
“Do that for three car purchases over your adult life and you are giving yourself 15 out of 30 years where you don’t have car payments,” says Bryan Bibbo, a financial advisor in Avon, Ohio, who drives a 2009 Lincoln MKZ with 175,000 miles on it. “Those are years you can take the money you no longer are paying to your car lender and put it toward other goals.”
Maybe that extra cash pays down your student loans, or fills up your emergency fund. Or you tuck $400 a month into an online savings account earning 2%. Five years of regular contributions just to that kind of savings account could grow to more than $25,000, which is enough to qualify for a low-down-payment mortgage in most parts of the country.
And if you invest the money, you could end up with far more.
“Getting car-buying right can make it possible to retire 3 to 5 years earlier,” says Bibbo. “That’s what’s at stake.”
Shop for a car that is 2 to 4 years old, and the price tag can be 30% to 40% lower than this year’s new model, says Matt Jones, senior consumer advice editor at car shopping site Edmunds.com. Cars are considered a depreciating asset, which means they lose money over time. A new car typically loses about 20% of its value in the first year alone, says Jones.
The popularity of leasing means there are plenty of high-quality, barely used cars you can buy.
“The best move you can make is to buy a certified pre-owned car from a dealer,” says Jones. He found that a 2019 Hyundai Sonata has an average price of nearly $25,000, whereas a 2016 Sonata has an average price of less than $15,000, and the average price for a new Ford F-150 is $51,000 versus less than $31,000 for a 2016 model.
Your car-buying decisions could affect when you’re able to buy a home and even when you’re able to retire. So choose wisely, and drive safely.
More from Grow: