We Paid Cash For A New Vehicle (Why I’ll Never Finance Again)

Two months ago, we wrote a check and paid cash for a new-to-us vehicle. It was one of the most exciting days of my life. Why? Well, we bought a newer and more reliable vehicle, and we’re not stuck with monthly car payments. It was a win-win situation for us and the seller. 

I can’t even explain the rush I got after paying cash for the vehicle. It was the best feeling ever because I’d never paid cash for a vehicle. I’ve always been one of those people that finance their vehicles. 

I was a little scared buying a used vehicle, but we bought it off someone we know and trust.

Plus, I had purchased a car I found on Craigslist several years ago and it turned out to be a decent deal. However, with the car I purchased on Craigslist, I had to put a new transmission in it six months after buying it. If we had taken someone who knew about vehicles when we test drove the car, they could’ve told us not to buy it.

However, when we asked the guy about the car jerking forward a little, he said everything was fine. I can’t complain because once we got the transmission changed, it was a great vehicle.

If you’re buying a vehicle from Craigslist, Facebook Marketplace, etc, make sure you inspect it carefully.

The last thing you want to do is spend your savings on someone else’s car problems. That defeats the purpose of paying cash for a car, if it spends all the time in the shop.

What Did We Buy?

We bought a 2016 GMC Acadia, and we love it! 

I’m not sure if I love the vehicle or if I just love that we own the vehicle free and clear. Here’s a pic of the vehicle we bought. 

GMC Acadia

The only thing I don’t like is that it costs much more at the pump than the Prius, especially with the high cost of gas. But we only drive it on the weekends or when we go out of town.

We also don’t let the gas go below half a tank. For some reason it makes me feel better putting $36-$45 to fill it up than waiting until it’s empty and I need to pay $80 to fill it up.

How Did We Pay Cash for A New Vehicle? 

We knew the day was coming when we would have to buy a newer vehicle. Our Prius is 14 years old (it’s still running good, and I drive it to work), so we wanted something more reliable for longer road trips. 

I knew that I didn’t want to finance another vehicle. I’m 50 years old and trying to catch up on retirement; if I finance another vehicle, there goes the money I can put into my investments. 

So we decided to put some money into a savings account allocated for a new vehicle. Every month, we put any extra money we had into that account. 

Instead of financing the vehicle, we delayed our purchase until we could pay cash. 

We weren’t looking to buy a vehicle when we did, but we found a great offer we couldn’t turn down, so we bought it. 

As I’ve said, it’s the first time I’ve ever paid cash for a vehicle. In the past, I’ve always bought things using instant gratification. It’s so easy to get financing (well, maybe not now with the high inflation and recession issues), but in the past, it was. 

Banks would lend money to anyone who had a pulse and a job. I don’t know what they look at today, as I haven’t had to borrow money in the last decade or so. 

I’ve Always Financed Vehicles

If I’m being honest, I financed my first vehicle when I was in the military. It was a Geo Metro (I don’t remember the year), but I was only 21 or 22 years old. 

Back then, car payments weren’t as expensive as they are today. Unfortunately, I can’t remember how much I paid each month, but I’m sure it was a few hundred. 

After driving my first car for a few years (not sure how many), I got tired of it. It wasn’t the vehicle I wanted; it was the one I could get financing for. 

Once I got a better job and improved my credit, the banks were ready to loan me more money. So, I did what most Americans do; I traded up. 

My second vehicle was a pretty Tarheel Blue Toyota Celica. Unfortunately, along with the sporty Celica came a bigger payment and higher insurance premiums. 

I wasn’t planning on trading in that car, but it got totaled in a bad accident. The doctor told me that I would’ve died if I hadn’t been wearing my seatbelt. 

It was a hard time financially, and that was in my 20s. Unfortunately, I didn’t have gap insurance (I had no clue what that was then), so I got stuck paying for a totaled car. I had to call the bank and work out a deal to lower the payments, so I could get another vehicle. 

Then I went out and got another new vehicle. Unfortunately, I had to have a vehicle; it was the only way I could get to work. At that time in my life, I was commuting over an hour one way to and from work. 

I continued financing vehicles until my late 30s or early 40s. As I write this post, I remember financing five vehicles (it could be more) and never owning them long enough to pay them off. 

My Last New Vehicle

The last vehicle I financed (and will ever finance) is a 2008 Toyota Prius. So, why did I keep that car and not trade it in like I did in the past?

Well, that was the time I was going through Chapter 7 bankruptcy. My credit was shot, and no one would lend me any money. Banks considered me a credit risk because my credit was below 600. 

We purchased the Prius after going through bankruptcy because we didn’t have a vehicle. Unfortunately, we had no savings and couldn’t pay for a used vehicle in cash. 

So we financed it and had a ridiculous 19% interest rate and a high $575 monthly payment for five years. It was crazy; now that I think back, I was a fool to finance it. 

I cringe at how much I could’ve invested in my retirement accounts without a car payment.

Let’s see, $579/mo. invested over 25 years is $453,381 with a 7% annual return. 

However, at the time, I didn’t know better, plus I had just filed for bankruptcy and was embarrassed. So my partner and I kept our heads down and made those monthly payments. 

It was hard, especially since we’ve never made a lot of money. Fast forward to today, we have no car payments and haven’t had any for several years. 

Why I’ll Never Finance Another Vehicle

Financing a vehicle is the worst way to buy a car. You become a borrower and are at the lender’s mercy (the bank).

It sucks being a borrower, and every monthly payment you make steals money from your retirement account. 

No, you’re not pulling the money out of your retirement to pay for the vehicle. 

But imagine how much you could be saving if you didn’t have to pay the bank money? Just scroll up to see how much I could’ve put into my retirement account if I hadn’t financed the Toyota Prius. 

That’s not even including all the vehicles I financed in the past. If someone had taught me about finances, or I’d taken the time to educate myself sooner, I’d probably already be a millionaire. 

So you can either pay yourself or give your money to banks and car companies. It all boils down to a choice. Do you want instant gratification, or can you delay your purchase till you have the cash to buy something you can afford?

Today, I’m much more financially responsible and realize financing a vehicle kills your chances for wealth. 

Will I Ever Buy A New Vehicle Again? 

I love the new car smell as much as anyone else. However, today, I realize that a car depreciates 15 – 20% the minute you drive it off the lot

So unless I’m a millionaire and can afford to pay it in cash, I’ll probably never buy new again. But, even then, I don’t think I would still buy a brand-new car. 

If you do your research, you can find some fantastic deals on not-so-old vehicles and let the previous owner take the depreciation hit. 

I’m not saying to drive a clunker; depending on where you live, your family needs a reliable vehicle. Unfortunately, there is no public transportation system if you live in a rural area like me. 

My job is 22 miles away from my home. So it would be impossible for me to ride a bike, and I can’t carpool because no one lives close enough. 

So I must have a reliable vehicle, and I’m sure you do too. However, a reliable vehicle does not mean you must finance one. It means you need something reliable to get you from point A to point B. 

Start Saving Today For Your Next Vehicle

If you don’t like the car you’re driving today, start saving for the one you want. Open a high-yield savings account, CD or another account to start saving. 

The type of account you choose will depend on when you plan to withdraw the funds. For example, we saved ours in a high-yield Goldman Sachs account because we didn’t want to put the money in the market. 

Investing in stocks is for the long-term. It’s not a good place to save for short-term purchases. Especially today with how bearish the market is today. 

We’ve already started replenishing the savings account for a new vehicle. 

I’m not planning on purchasing another vehicle anytime soon. But I’m using that account to save for the yearly auto insurance premiums, new tires, inspections, property taxes, etc. 

Plus, the interest rates on high-yield savings accounts are better than they have been in the past, so I’m squirreling away as much as I can before the interest rates drop. 

Final Word

Instead of using instant gratification to purchase a new vehicle, start saving today for your future vehicle. Paying cash is one of the best ways to avoid debt.

When you don’t owe anyone, you can continue funding your retirement. I realize that if you need a car today and don’t have anything saved, you may have to borrow money to buy a new car. If that’s you then make sure you don’t over-extend yourself just to have the newest and greatest.

Shop around and try to finance as little as possible. Make sure you’re still able to invest 10-15% of your monthly income, to pay yourself first. Do everything you can to pay off that vehicle, even if it means getting a part-time job or working a side gig.

I’ll NEVER finance another vehicle because I love the freedom of not having a monthly car payment. If I had saved my money when I was younger instead of trading up every few years, I would probably be a millionaire today. 

I wish I had realized this sooner in life, but we can only do what we know at the time. 

Related Articles

Leave a Comment