Dave Ramsey’s Perspective: The Case Against Purchasing a New Car or Securing an Auto Loan in the Current Year
If you think you’ll always have a car payment, Dave Ramsey wants you to reconsider. The personal finance expert, known for his best-selling book “The Total Money Makeover,” advises paying for cars in cash.
Ramsey points out that society often views car payments as a normal part of life, much like filing taxes or doing laundry. However, he argues that this doesn’t have to be the case. He emphasizes that buying a car is not an investment and suggests exploring other options before committing to a car loan.
### Average Car Payment
According to recent data from Experian, the average monthly payment for a new car is $738, while for a used car, it’s $532. These high figures indicate that affording a car is becoming increasingly difficult for many Americans. Additionally, with rising inflation affecting everyday expenses like groceries, gas, and utilities, managing finances can be stressful for families. Ramsey offers alternative financial strategies to help alleviate this burden.
### Why Car Payments Are a Bad Idea
Car payments aren’t the only costs associated with owning a car. Interest rates on car loans add to the monthly payments, diverting money that could be used elsewhere. Unlike assets such as real estate that appreciate over time, cars lose value. Ramsey cites Carfax data showing that cars depreciate by 60% over five years. This means that if you have a car loan for several years, you’re paying for a depreciating asset, which can result in owing more than the car’s worth. This situation is financially risky, especially if the car is totaled and insurance doesn’t cover the remaining loan balance.
### Alternatives to Car Payments
#### Keep Your Current Car
It’s tempting to upgrade your vehicle, especially if others around you have newer models. However, if your current car is reliable, consider keeping it and maintaining it well. Regular oil changes and necessary repairs can extend its life, saving you from monthly car payments.
#### Buy Cheap Used Cars
If your current car is no longer drivable, Ramsey suggests buying a cheap, used car. While it may not be your dream car, it helps you avoid further debt. As you drive the cheaper car, you can save up to buy the car you really want in cash. There are many reliable used cars available for $10,000 or less.
#### Save and Pay Cash
Many people believe they can’t save enough to pay for a car in cash. However, Ramsey’s radio show frequently features individuals who have done just that. It requires patience and discipline, but being free from monthly payments offers greater financial freedom and peace of mind.
### Final Thoughts
Ramsey provides a different perspective on car payments. While many people see them as a necessity, he encourages saving to pay for a car in cash or paying off financed cars early. His goal is to help people build wealth over time, and owning a paid-off car is part of that strategy. Those who choose to live without car payments enjoy increased financial freedom and cash flow.