Financing a car is one of the most popular ways to buy a car, but it can also be one of the worst financial decisions you can make. In this blog post, I will explain why I would do everything in my power not to finance a car and what I would do instead.
When it comes to buying a car, there are three options: buying cash, financing, or leasing. While leasing can be like flying first class, with the luxury of driving a new car without the long-term commitment, financing a car can come with its own set of problems.
One of the main reasons I would avoid financing a car is because you end up paying interest on a depreciating asset. Cars lose value quickly, especially if you buy a new car. This means that you could end up paying more in interest than the car is actually worth over time.
Additionally, financing a car ties you down to monthly payments for a limited lifespan. Once you pay off the car, you may feel the need to upgrade to a new one, starting the cycle of car payments all over again.
While there are arguments for financing a car, such as being able to invest the money you would have spent upfront, the reality is that you could end up paying more in interest than you would earn from investments.
Instead of financing a car, I recommend buying a used car with cash or finding a more affordable option that fits your budget. By following the rule of five – if you can’t buy five of them, you can’t afford one of them – you can ensure that you are making a financially sound decision when it comes to buying a car.
Ultimately, it’s important to prioritize building wealth and investing in assets that will appreciate over time, rather than sinking money into a depreciating asset like a car. By making smart financial decisions, you can set yourself up for long-term financial success.
