I met a young married couple a few days ago. The husband recently bought a brand-new $30,000 truck. The monthly payment for his dream truck is $500 for the next "eight" years. Let's take a closer look at this picture: $500 a month times 12 (one year) = $6,000 a year. Consider that $6,000 a year for "eight" years is $48,000. Also consider that in eight years the truck is no longer shinny and new with that new car smell that we all love.
The truck will have lost its magic years before the final payment is due. If he is like most consumers, the husband will trade the truck in for a newer model (his next dream vehicle). If like most consumers the husband only makes the minimum monthly payments on the truck, he will soon "owe" more on the loan than the truck is worth.
If the couple purchases a $500 savings bond each month instead, they would have invested $6,000 each year with a future value of $12,000. $12,000 times the "eight" years for the monthly truck payments would have given them a future value of $96,000! How much will his used truck be worth in eight years?
What's worse is that the truck will depreciate by at least 20% the moment he pulls off the car lot. Which means the value will go from $30,000 down to about $24,000 in minutes! Now he owes $48,000 for a truck that is now worth $24,000 and he has not made it home yet. Wasted wealth.
So true! People have no idea how little sense it makes to even have a car payment... Save up and pay cash if you can! We made the mistake with 1 car that we are trying to pay off as quickly as possible! BUT it was not a $30k truck!! And my car is a 97 Honda Accord that we paid cash for... and is my G.O.O.D. car (200k miles and many more to go!)
ReplyDeleteI totally agree. Car payments are a trap and a waste of money. My 97 Explorer runs perfectly
ReplyDeleteThank you for your comments,
ReplyDeleteI sold cars for a year and I stood by while soooo many people became trapped by large car payments.