Friday, April 4, 2008

Freedom Finances: car loans

We needed a station wagon. I had an S-10 pickup and he had a battered old blue van. The station wagon was the compromise vehicle and we started reviewing our resources.

After some budget work, we decided we could afford a car payment. We sold the pickup for more than its loan value (because I had borrowed as little as possible when I bought it) and sold some other unused items.

We shopped for an older vehicle, waiting to buy for a couple of months until the one in our price range came available. Thanks to a Colorado hailstorm, it came on the market with some minor craters on the roof.

After some negotiating with the salesman, we walked away with an older station wagon and no car loan. That’s when we kicked in our new plan.

We made the car payments anyway. We treated that car payment just like any other bill and paid it promptly every month. Instead of paying out 8-10% interest, we were earning 2%. That’s a 10-12% difference – not bad return on investment.

So here’s the idea for you: keep your present vehicle as long as possible. Take good care of the maintenance, which will keep it running a little longer. When it’s paid off, put the car payments into a special account every month so that when it’s time for the next car, you won’t need to borrow as much. With that kind of plan, you will be paying cash for vehicles in a few years. And paying the interest to yourself instead of to a car dealership.

Debt is a form of slavery (take a look at Neh 5:4-5 to see its effect on families) and any steps we can take to ease that load brings us the light of freedom.

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