Financing a vehicle is a scary thing. We’ve all been through it at one time or another, or at least have looked into it. Before you head to your next dealership, here’s a little financing quiz for you.
For how many months should you finance your next vehicle?
a) Thirty-six months
b) Forty-eight months
c) Sixty months
d) Seventy-two months
What’s your answer? If you picked any of them, you’d be wrong. At least according to Women’s Wall Street. According to their recent article “Self Worth vs. Net Worth,” if you didn’t pay cash for the car you just bought, you likely can’t afford it at all. Here’s the skinny: the longer the term of your loan, the more likely it is you will owe more on the vehicle than what it is worth at any one time.
We all know the second you drive that car off the lot that the value plummets. Well, if you have only paid six months on a loan (remember, it was financed at full value, not at what the value was when you drove it home that same day), and if that car gets stolen then where are you financially? You are now “upside down” in that loan because you owe more than what that car is worth.
According to that same article at Women’s Wall Street, if you plan to keep that car until the payments are completely paid off, then all right, keep going. Finance your pretty little heart out! However, if you swap out cars as often as the protagonist, like in the Women’s Wall Street article example story, Georgia (who buys a new BMW X5 only one year after buying her previous car) then you will find yourself in a heap of trouble one day.
Here is a great tip from the article, “Couples who discuss and make financial decisions together end up feeling that level of equality we all strive for in a partner.” They go on to say that, “most couples have different salary levels, and communicating with our partners or spouses about finances reminds us that self-worth is more important than net worth.”
So ladies, which is it? You don’t really need that expensive car. Try opting for a certified pre-owned or a vehicle with great features but that doesn’t break the bank.
Here are a few Ask Patty financial tips for you:
- If you can pay cash for the entire vehicle purchase, do it.
- If you can’t pay cash, try to save up for a sizable down payment so you won’t end up being upside down in your loan.
- Look into used or pre-owned vehicles as an option
- Know your financial means and make sure you are discussing it with your spouse/partner and take into account all of your monthly bills when deciding how much to spend.
By Breanne Boyle