I get it. Cruising around in a gorgeous NEW car can be quite a status symbol and make you feel pretty good. But how long will that feeling last—especially when you start looking at the debts you’ll have to pay off in retirement?
The cold, hard truth is that many people who are approaching retirement make a lot of mistakes. One of the biggest involves the cars they buy and how they set up their loans. In this article, we’ll discuss some tips for buying cars that your FUTURE SELF will surely appreciate during retirement!
New Cars Vs. Used Cars
I’ll make this section short and sweet. The bottom line is that if you want to save more for retirement (and you absolutely SHOULD), you should always lean toward buying used cars.
According to Bankrate, the average monthly payment for a NEW car in 2022 is $677. What’s more, the average loan period is six years. That kind of financial obligation can take a BIG bite out of your retirement savings. And carrying that kind of debt INTO retirement could seriously impact your plans.
If you need a new ride, you should strive to find a RELIABLE vehicle for the lowest cost possible. That formula equals one thing: a USED car.
How Long Should A Car Loan Be?
The length of a car loan is another area where you’re going to need some self-control. At first, taking out a loan with a longer term is going to look pretty attractive. After all, the longer the term, the lower your monthly payments will be. But you’re also going to end up paying more in the long run.
A good goal for you to shoot for is to purchase a used car with a loan term that’s 36 months, maximum. If you can’t pay it off in 3 years, then it’s too expensive. You’ll pay much less in interest and you can put that money toward your retirement plans.
Don’t fall into the trap of thinking that a perpetual monthly car payment is just a way of life. Speaking of which...
To Lease Or Not To Lease?
I’ll make it easy for you—your answer should always be “NOT TO LEASE”! Leasing a vehicle is another one of those situations that’s chockfull of temptation. On the surface, you’re getting a really nice car for a really low monthly payment. But remember, that really nice car is never really going to be yours. In most cases, you’ll make payments for 3 years and then trade it in for another lease, starting all over. In other words, you’re never NOT going to have a car payment!
Oh, and take a good look at the financial penalties should you exceed the maximum mileage terms of a lease. You might as well just set your wallet on fire.
Again, I understand the appeal of having a beautiful new car. But I’d much rather see you invest in a beautiful retirement. Many certified pre-owned vehicles look and perform just as great as the brand-new models, and they can usually be had for as much as 40% less than new models.
Being “car smart” is just one way you can start taking action to improve your financial health. If you’re interested in a full “financial health checkup,” get in touch with us and together we’ll see what we can do.