One of the reasons – probably the main reason – people buy a new car is because their old car has gotten to the point that it is costing them too much to keep. Repair bills vs. monthly car payment bills. You reach that tipping point in a vehicle’s life when it makes more sense to spend money on a new car than to keep on spending money on the old car.
But what happens when that dynamic reverses?
The average monthly new car payment is currently an almost unbelievable $525, according to Experian – the credit reporting agency. And the average new car loan is now six years (72 months) long.
Four months of payments out of those 72 months is more than $2,000.
Six months of those payments is $3,150.
That’s a whole lot of regular paying.
As expensive as car repairs often are, $3,150 pays for a lot of fixing. A year’s worth of $525-per-month new car payments pays for fixing almost anything that could possibly go wrong with a car.
It might be worth not making those payments.
Think about it. How likely is it that something big ticket will go wrong with whatever you’re driving that will cost you not just $525 once but every month – for the next six years?
And if the car is paid for and nothing goes wrong this month or next month, you just banked what you would have had to spend on a new car payment. On a car that is losing value in exactly the same way that the Titanic lost buoyancy after it kissed the iceberg. Which has created a problem almost as serious as the one faced by the passengers on the ill-starred liner that cold April night. Like them, you are likely to find yourself under water . . . owing more in payments yet-to-make than the car is currently worth. This problem has become so common – and so bad – that some new car loans even include what is called “gap” coverage, an extra charge added to your tab to make up for the loss of the car’s value (depreciation) which someone (you) has to pay for in the event it is totaled in an accident.
You won’t die, but the lender is making a killing on you.
