Painless Guides to Paying Off Your Car

This post is sponsored by Kia.

The Megan Method — Overpay, Then Sell

My first car was a wonderful, amazing, dark green faux-wood-interior-paneled convertible. I bought it outright from a lady in the neighborhood, and I used all my savings—$5,000.

When that car broke down, I bought another car, this one from my “car guy.” I traded my car in to him and financed the rest—$4,000.

I got a loan through the credit union, and overpaid each month so that I could pay it off early and avoid some interest. But now I need to replace my brakes and my air conditioner—to the tune of $2,200, which I will not be doing. I’ll sell it as-is and pay off the remainder of the loan and start over. Not with a used European car. Never again with a used European car.

The Logan Method — You pay for your car once and your parents also pay for the same car once

The first car I bought when I moved from Virginia to L.A. was one that had a tendency to break down at inopportune times. My parents were my Google, and so after a few 2 a.m. phone calls asking if they could please look up the number of a tow place thanks so much, they said: We will help you buy a new car, but only if you buy an actual New Car and also promise to never call us again.

My dad flew to California and we researched cars, and they put $10,000 as a down payment on a new hatchback. The remaining $12,000 was mine to pay off—I got a loan through a credit union and then had $239 deducted from my checking account automatically each month.

Two years later I extended the pay-off date to bring my payments down to $150, and then a year after that, I refinanced the car to pay off some credit card debt, essentially selling the car back to the credit union and then repurchasing it with a new loan.

When I moved to New York, I left the car with my parents but still made the payments since it was my cross to bear. Eventually my parents paid off the $10,000 lien on the hatchback, which means they paid for half the car twice and I paid for half the car twice meaning together we paid for the whole car twice, but let’s not think about that and instead decide that all is well that ends well.

The Lauren Method — Be Unlucky, Then Lucky And Also Perhaps a Little Bit Dishonest

I took out a $3,500 “loan” from my parents and bought my first car for sale by owner. I had paid back about $1,000 of it when I backed into a parked car, making a huge dent in the back. It was ugly but still driveable.

Then I got slammed by a college maintenance truck on my way to class one day. The college gave me massive check based on damage they assessed that may or may not have included the original dent.

I paid off the rest of car with this check.

My dad fixed the dent shortly thereafter with a crafty as-seen-on-TV dent-popper-outer.

The William Method — Buy With Cash

Over the last 12 years I’ve owned three specimens of the same model of car, one from 1980, one from ’82, and one from ’83. I bought the first one via a classified ad in the Washington Post, way back when Craigslist existed only in San Francisco. I found the ’81 and the ’83 on the Philadelphia and Portland Craigslists, respectively. My current car, the ’83, was the most expensive one at $3,800. I paid cash each time, but only after taking the car to a mechanic for a pre-purchase inspection, which, if you’re looking for tips, is My Tip. Never don’t do that.

The Alec Method — Get it Done

I bought my first car with savings and help from for my parents and never had a car loan. I liked not having a car loan. When it was time to buy a new car, I didn’t have the cash to not have a car loan at all, but I knew I wanted one for as little as possible. So I put 20 percent down, and then made my monthly payments the max that my budget could make room for. I wince each month, but it will be over in a year.

The Lisa Method — Be Clever Enough to Get a Good Interest Rate on Your Car Loan

I just bought my first car in December. Prior to that I was leasing a car (and prior to that I had just inherited paid-off cars from my parents). When I went looking for my next car at the end of last year (because I knew my lease was ending soon), I thought I would just start another lease. I know this is stupid because people told me it’s stupid, but I still don’t completely understand or internalize the stupidity of leasing. The way I see it, I can’t afford to buy a car in cash, so leasing a car is a cheaper way to allow me to transport myself automotively. I can’t buy a house now, so I rent an apartment. I understand that leasing is just throwing money into a pit and then once it’s over all that money is gone and I have nothing to show for it, but isn’t an apartment the same way? I mean, when you lease a car, it has a warranty that lasts the extent of the lease and all of the services are taken care of—the same way all the repairs to a rented apartment are taken care of. Isn’t that great?! I thought so. Anyway! My last car cost me about $219 a month.

When I went car shopping at the end of 2012, I realized I could spend a little more so I looked into some more expensive cars, specifically hatchbacks (Why? Who knows? Just a random decision to help me narrow my search). I test-drove a new model, and I think the lease on that would have been around $275/month which sounded do-able, but then—THEN—I (again, for reasons beyond my memory or explanation) test-drove an older version and liked it so much more than the newer model. Leasing isn’t available for used cars (I’m sorry—”pre-owned”—let’s be PC about it), so I went down the purchasing route.

I went back and forth negotiating with a few dealerships. When I was looking for a new car I used CarWoo, a site where you can list what you want and then have dealerships give you bids on what they can offer (the LendingTree of car shopping, I guess). I would neither recommend nor not recommend CarWoo. It’s fine. I’m sure it’s helpful for a lot of people. For me, it was helpful in getting me in touch with dealers in the area VIA EMAIL (which for me, was very important because I don’t have time, nor do I like talking on the phone). So I landed with one dealership who had a few of the car I was looking for—one in the color I wanted—and we eventually landed on a fair price which I am paying monthly through Wells Fargo!

Here’s the story on that:

I researched a fair interest rate and then asked for less! I went to my bank, which offered 2.9 percent. In the final in-person financing talk at the dealership they offered 2.6 percent. I then told them that my bank offered 2.2 percent (LIES!), and they found a bank to match that. WHAAAAAAA?!

I got sucked into an extended warranty situation (which I’m actually glad that I did since my right speaker went out a couple weeks ago and would have been a ton of money to repair if it wasn’t covered), and so now I pay a whopping $329/month for the next five years, and then—THEN—I will own the heck out of that car. I’m happy and proud of that. :)

Things to think about before opening up your wallet:

Cars are expensive. If you need a car, but can’t buy it in cash, that means you’re going to have to finance it. So: Think more about what kind of car you need, and less about what kind of car you want. Don’t buy more than what you need, and you’ll keep the cost down and pay off your car faster.

New or used? New cars are pretty and shiny, are reliable, and if anything goes wrong, the warranty should take care of it. New models can also be a lot more fuel-efficient and fitted with the latest, modern safety features. They’re also very expensive, and since cars are depreciating assets, they quickly lose value. You can get a lot of bang for your bucks with a pre-owned car. You can find a used model of the car you like for significantly less than the cost of a new one. But: They’re not outfitted with the latest safety features, and your mileage literally varies—some previous owners take better care of their cars than others, and some used cars quickly become lemons. Consider what you can afford, what features you’re looking for, and what you’re comfortable with. If you don’t have much cash to work with, and don’t care about having the latest features, go used, and do your research to find a reliable one.

So you’ve decided to finance. Some tips.
- Ask about zero-percent financing, which can save you a ton of money over the course of a car loan, and is usually reserved for buyers with excellent credit. Yes, this is where having a good credit score comes in handy. Just make sure the monthly payments are still manageable.

- Ask about “cash back” offers, which essentially means a price reduction off of the retail price. Your salesperson should be able to lay out for you available offers, like rebates or other dealer incentives, and then walk you through which offer is best for you (but do your own calculations too, just in case).

- The most important thing to do when financing is to read the fine print. You don’t want to agree to anything you’re not comfortable with.

 

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20 Comments / Post A Comment

joyballz (#2,000)

My tip is to get the warranty through a credit union. I did that and it was half the cost and covered WAY more for a lot longer.

antheridia (#2,995)

I totally disagree that leasing is stupid. Everyone’s main argument against leasing is that you don’t own anything at the end of it. Who cares? A car is a rapidly depreciating asset. Usually, by the time your lease is up, all your warranties are gone and that’s when maintenance bills start piling up. I just leased a brand new car at 0% interest and I couldn’t be happier! I don’t have to worry about fixing it or selling it and in 3 years I can get a brand new car.

cjm (#3,397)

@antheridia I think the argument is that with the leasing method you always have a car payment. And maintenance costs on a car are usually less than the payment. So, if you pay off the car in 5 years and keep it for 3 more years, then your maintenance over those 8 years is usually less than 36x your payments. Say you pay 350 a month on an 18,0000 car for 60 months. Then, you drive it for 3 more years and then sell. Your payments on a lease that just continued during that time would be $12,600. Your maintenance costs would probably be less than $3,000. Then you sell or trade in the 8 year old car for 1,500. You come out $11,000 ahead financially at the end, but you did have to drive an older car for about 5 years of that time. An 8 year old car might not yet have 100,000 miles on it and could have even lower maintenance/repair costs.

jfruh (#161)

@cjm what exactly does “interest” mean on a leased car, anyway? If strictly analagous to renting an apartment, it’s not like there’s any principal to pay down, right, and you’d just pay lease payments for as long as you have the car? Or is it a rent-to-own type situation where you can just give it back if you want OR you can end up owning it if you pay lease payments for long enough?

lemonadefish (#3,296)

@antheridia My only maintenance costs on my 7-year-old car (purchased new, paid off in five years, dealer financing sale for 2%) is $30 twice a year for windshield wipers, and $35 3x year for oil changes. Honda FTW! I plan to drive it for another 10-15 years, not kidding. It will need a little something sometime I guess, but maintenance will not approach a car payment for hundreds of thousands of miles yet.

limenotapple (#1,748)

@lemonadefish Yeah, Honda FTW. I guess with any car there’s a chance that something will go wrong, but I feel pretty confident that I will not need to put any money into my CR-V for a very long time and plan on keeping it for 10 years minimum.

cjm (#3,397)

@limenotapple Yes, I’m probably over-estimating based on my experience of buying American made cars I figure a transmission costs about $1,500 and other things like major fluid changes, brakes,tires etc. probably add up to another $1,500. I think people who lease overestimate the maintenance costs of a car because they are often large chunks at an unexpected schedule. Even if you only drive it for 1 year after the loan, still spend $3,000 on repairs, and only sell it for $2,000 you come out $3,200 ahead of the person who leased 2 cars for 3 years each.

readyornot (#816)

I recently bought a car, and I have to say, I really got a lot out of the website truecar. (I’m not affiliated with it at all, and I also looked at Edmunds.) They tell you factory invoice, manufacturer’s suggested retail price, average price paid, and a price guaranteed by their website. Their posted prices include dealer fees and destination fees but not sales tax or service agreement costs. It is possible to have a dealer contact you via email and give you a guaranteed price, though I didn’t end up doing that because the partner dealerships were too far from my work/home.

But just being armed with the knowledge of what most people pay gave me a lot of confidence in negotiation. What I bought was the first car I had ever purchased for myself (I drove the car my parents bought when I was 16 for a long time), and I feel like I got a decent deal. So: endorse truecar.

When I saw it was a sponsored post, I was worried you would have comments turned off, like The Awl has been doing. And then I forgot what I was going to say but left this comment anyway.

OK here is my method: buy a solid, used car from a dealership and finance it, but make sure to finance it for well under the Blue Book value in case you need to sell it and pay off the loan — when you go to grad school overseas the following year, for example. Try to do this just before a global financial crisis so the car will be impossible to sell, and eventually allow it to be repossessed after trying literally everything to sell it for a reasonable price. Still receive e-mail advertisements from the dealership four years later.

LookUponMyWorks (#2,616)

Yikes, Lisa is paying almost $20,000 for a used car. And she seemed to have shopped around the most!

Dancercise (#94)

@LookUponMyWorks
I bought a used car two years ago for just under $19,000. It was 3 years old, had less than 15,000 miles on it, and was the exact model and color I wanted. The dealership also threw in 12 free oil changes and tire rotations, so maintenance has been dirt cheap. Totally worth it.

jfruh (#161)

Our method was to add enough money to our home equity line of credit to cover the cost of the car so we could buy it in cash. Well, technically, it took a couple weeks for the HELOC expansion to go through and we needed a new car pretty much right away because the old one died, so we ended up financing the car through the dealer and making one monthly payment before paying the whole loan off.

Since HELOCs have variable interest rates, this is a theoretically risky move, but it’s at 1.75% now and I’m sure it was as low if not lower when we bought the car (in 2008, right around the time of the Big Crash), whereas the dealership financing was 5.5%, so we definitely came out ahead.

Obviously this is a great instance of Financial Priviledge Helping Maintain Our Financial Priviledge, since we were only able to get this extremely cheap loan because we already (a) owned a house and (b) had plenty of equity in it, since my wife bought it right before the bubble began inflating.

We’ve taken money on and off the HELOC over the years since so it’s hard to say if or when we’ve paid the car off, but our overall debt load is lower now than it was when we bought the car so I’m going to say we have paid it off, more or less? Sure, let’s say that.

limenotapple (#1,748)

@jfruh Yeah, I was thinking about the whole Financial Privilege part of the equation. I just bought a car with 0% financing. But I could only do that because: awesome credit. There is a young girl I work with who has not ever established credit and who needs to buy a cheap car to get to work, and the interest offers she is getting are just absurdly high. Like the same as putting it on a credit card high.

juniorbizarre (#4,044)

I barely shopped around; I was lucky. I looked at a couple of craigslist cars and they had too much work needed after the pre-purchase mechanic inspection to be worth it. I also quickly realized that paying approx. $100 each time I even looked at a craiglist car, with no guarantee it would be good to buy, was going to add up. I looked into CarMax and immediately found a great deal on a 3 year old hatchback (hatchbacks ftw! tiny cars with huge storage!) with great mileage, stickshift, and it helped that it was my favorite color. It was only a county away so they shipped it to my local one free, and as I have zero credit history because I’ve never had debt, I could only finance through CarMax (all the banks I approached denied me. I have a good credit score number, but no history). I got an acceptable interest rate, and will be paid off just before 2016 at a bit under $250 a month. I am currently in aggressive payoff mode of a loan from family, and that’ll be done at the end of the year, so I might step up my payments and be done faster. So far, I’m really happy with the car, and it still has 2 years of factory warranty on it.

Crabtree (#774)

I luckily had some money saved up, and my parents gave me some money(2000) and helped me negotiate for snow tires (new and installed on the car) included in the price. I also took out a small line of credit that I was able to pay off with some bonds that matured a few weeks later. I was just really lucky that everything worked out like that. In total a 2008 car cost $10 600 in 2012.

CJH Fl (#4,299)

I hated my truck,13mpg & a lousy interior. I saw an SUV that was love at first sight.2013 Subaru XV Crosstrek, went to the local dealer,drove one and priced it $28,500. My best friend does the books for a used car dealer and told me he would look at what was out there.He called me from work, he had found one with 500 miles on it. Some women in Ft Lauderdale bought it new, the next day she backed into something and had to replace the back bumper,no other damage.Most of the mileage came from driving it from Ft Lauderdale to Ocala. So with 500 miles on it, still smelled like new I got it for $22,500. I had already been approved by my bank at 2.1%, dealers bank financed it for 1.9%. I spent $1,200 to put an A#1 sunroof in it. It’s getting 28mpg around town and they advertise 33 highway. The # of coincidences required to put this car in my driveway are on a par with winning the lottery and I absolutely love this vehicle.

Everyone needs to visit 2 sites before they talk about the true cost of a car. fueleconomy.gov and gasbuddy.com both have tools to aid in evaluating your choice. Average car in USA gets A~20 mpg prius car B will get~50mpg well woopdidoo ? Car (A)will consume 5K gallons to drive 100K miles car B will do it in 2K gallons multiply your fuel cost you find in your area times 3K you get your savings if fuel is $3.50 this will be $10.5K. Car A will have a larger tank to extend it’s range and this means you will be at the pump longer how many times has somebody tried to hustle you at the gas pump. What about when it was raining,hot,snowing,bullets flying you name it you are outdoors when you put fuel in your car. I rather put less than 11.9 gallons than be facing 15-22 gallons refuel. Range of prius at reasonable speeds is ~550 miles Car A will be ~400 miles at best usually top side of 300 miles. This means you can be more strategic when purchasing fuel with a prius meaning you will not only select club pricing but you will be at a better class of gas station maintained better with consistent fuel flow one where you are less likely to be hassled or you will be less likely to be influenced by suggestive sales. Next time you think that hybrid is too expensive just know you are basically paying for some your fuel in advance but after ~200-250K miles you will have paid for your car in fuel savings alone and it shall begin to pay you to drive it. People tell you the battery OMG the battery? Worst case if you had to completely replace the battery after 8K miles (first 8K are under warranty) full replacement is below $4K most people will have put 200K miles on that car by 8 years ownership so $21K-4K still puts $17K in your hand and you still have a car that has top resale value. I say the painless way to pay off a car is to drive it. There are tax breaks for buying hybrids also you can write your mileage off on your taxes for almost any car you have to be very specific about these deductions in order to qualify get this wrong and you could lose so know in advance what your are facing consult a CPA if you must. Remember better is a problem before it occurs than the end of it after ward. So next car you buy calculate what you will spend in fuel and tack that onto the front side for a realistic view of the cost of your vehicle. Not recommended but I have seen prius towing trailers google this you will see them towing boats, popup campers teardrop campers. One of the things we do with our savings is pay for AAA premire membership we drive with confidence that we have 2 times a year we can contact AAA for something no charge. Car can be towed 200 miles with this plan we get a flat we call, one time we had to call with the prius in 100K miles see after 6 years we never replaced the 12 volt batter it went out and we had to call AAA to help. The other time we had a flat years ago. Another thing we buy with the savings is tires from Walmart with insurance they have had to replace at least 3 tires over the years due to road hazard. It has paid for itself too. Some of you would say why have 200 mile towing I reasoned that should we lose our key it would have to be brought to a dealership to get another that could be 200 miles away and if so we want to be sure we get there. Not that we lose our keys but it happens you get robbed they take the keys you are SOL you are going to need some help. My point is I have all these insurances and I don’t really pay for them the fuel saved more than covers it and we can go places knowing we don’t have to bother any of our family to do this no matter what. My recommendation to pay a car off early is contact your lender to find the pay off every 3 months. Save all the money you can in an account the day you have enough to pay it off do when you do drop full coverage insurance if your car is over 3 years old. Usually after 3 years they are not going to give you squat compared to what you are paying them. Use that money you save on full coverage to go toward your down payment of a car should you experience an accident. Driving habits of prius owners usually is milder they usually maintain decent following distance to save fuel but this also increases safety. I hope this helps I have suffered many years of buying crap cars and they bust not being worth the repair I would say buy used prius but the cars hold their value you are better off buying new you get better interest rates,all of the warranty and best of all you know for sure it has been taken care of right from the start.

@Sean Adams@facebook I say the reason we have so many homeless people is by the time they are 30 they will have given an oil company well over $100K if they drive vehicles that don’t suit their needs. It is like using a machine gun to swat flies when you can do it with the flick of a wrist. If you dont get prius please get a hybrid that is fuel efficient. I drove my car legally in W Tx 80mph at that speed the car was 38 mpg range of 420 miles easy. Show me another vehicle you can drive at those speeds and have a range like that. We stop for fuel got less than 12 gallons and put it back in the wind. I could not do this with the metro I had metro would barely do 60.

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