It is freeing – literally – to not have to come up with the average (with good credit!) $734 monthly new car payment (as of 2024).
But it’s not just that.
They – the lenders and those who rely on your willingness to buy this much debt – don’t want you to think about what else comes along for that ride, in addition to that monthly payment.
The insurance payment, for instance.
If you’re financing – that is, if you are borrowing – you also be paying for full-coverage policy that is based on the full replacement cost of the vehicle.
This is entirely reasonable – and justifiable – from the standpoint of the lender, who is in fact the actual owner of the vehicle you’re making payments on every month. (If you doubt who the actual owner is, irrespective of the name on the title, see what happens when you stop making those payments on what isn’t your vehicle until after you’ve paid off what you owe on it.)
If you wreck their vehicle, the lender would be left holding the bag. Hence the requirement – a condition of the loan and your conditional possession of what is not your vehicle in fact – irrespective of the etymological fiction – that you pay for a policy that will pay out whatever it takes to either repair the vehicle or replace it.
How much does that cost?
How about roughly $2,500 per year – on average? That’s – roughly – another $200 per month you’ll be paying, rounding out to just shy of $1,000 per month.
That used to be roughly enough to just about cover a mortgage on a modest single family home. It is still enough to cover about half the cost of a monthly mortgage payment on a modest single family home. Which explains why so many people cannot afford to make the monthly mortgage payment on a modest single family home anymore. How many can afford to pay roughly $2,000 a month for the mortgage and $1,000 (roughly) more for a new car payment plus the cost of insuring it?
That’s $36,000 per year – or roughly about half the average household income in this country. It doesn’t leave much for groceries – or gas – does it?
If you do own your vehicle, not only aren’t you making monthly payments, you can choose to pay less for insurance as well. Because you can choose to buy minimum, liability-only coverage. Regardless, you’ll pay much less to insure an older vehicle with a lower replacement cost than a new vehicle. So, zero monthly car payments – and perhaps only $500 annually in insurance payments.
