Wednesday, December 5, 2012

Dismissing the Necessity of Car Debt.....Almost

     If you want a vehicle, then you must also accept being in debt for it. Right? Common practice suggests that debt for a vehicle is simply part of life. Does this necessarily have to be the case? Everyone has his/her own reasons for his/her decisions on this matter, but as for my husband and I we've decided to buck convention and dismiss the idea of car debt being a necessity in life...well, almost. I'll explain a little more on that later, but for now let's take a closer look at the real cost of purchasing a vehicle through a loan.

      There are two factors against you when you purchase a vehicle through a loan: 1) vehicles depreciate rapidly and 2) interest charges add to the amount owed. In other words, in a very short amount of time you'll owe more than the vehicle is worth. Even more gut-wrenching is the amount you will have paid over the purchase price when you complete repayment (and keep in mind the vehicle is worth far less now than the purchase price). What's the real worth of this common practice and is there another way to owning a vehicle?

      A month after we married one of our cars died and had to be replaced. With such a sort time frame to work with we hadn't even begun to be able to save for a replacement. We had to pay what little we could in a down payment and then the remainder came in the form of a bank loan. The original length of the loan was three years. We determined, however, that we would try to pay it off as soon as we could. We lived below our means, did without what everyone else had, and put every extra money we could towards the loan. Two years later, we've written the last check and saved ourselves a significant amount of money that would've gone towards interest! 

     Of course, this car isn't going to last forever (though we're pushing it to give us it's best!). We've got to think ahead to the next vehicle. Conventional practice would advise us to go ahead to purchase another vehicle through a loan again. After all, why continue to put up with a car that seems to need constant attention? And isn't it sometimes it's best to cut your losses and move on (ie plunge ahead into another full car loan)? Maybe, or maybe not.

      While I agree that the reliance on loans to purchase a vehicle is a costly option, I also acknowledge that our current vehicle will likely not last long enough for us to save the full amount for a purchase. (Dave Ramsey's advice is to drive the junker until you have cash to purchase. However, this is assuming that the vehicle doesn't have any issues or repairs that impede it's ability to run properly). Our plan is a middle road between convention's all-loan and Ramsey's all-cash plan. We've already demonstrated the monthly payment amount and total purchase amount that are manageable for our lifestyle. Our goal is to save for enough of a down payment that would, in turn, cause the loan necessary to be taken to be no more than what was previously taken. We intend for the  next car to be an upgrade from our current one, but purchased without expanding our decided loan limit. Through that method, we can either  slowly make progress in purchasing newer or nicer vehicles. Or, we could choose at some point to not upgrade, continue to drive what we have longer (nicer, newer vehicles should be able to do this better), and save for complete payment in purchasing a vehicle. The third option would be to choose not to upgrade, continue to drive what we have, and begin working towards purchasing a second vehicle in a similar fashion. 

       That's three options, when common practice only offers one! When we consider why we're making difference choices and living differently, we consider what we'd have to give up to do otherwise. To purchase a vehicle mostly through loan we'd have to concede that homemaking isn't a reality and that it is necessary for both individuals to work outside the home. That situation wouldn't be due to a necessity but due to wants. Though unconventional, our basic need for transportation is currently met and will continue to be met through our own process of making future purchases. It's the want for nicer, newer or two means of transportation that would urge us to take in more debt and force us to give up the home and family life we've devoted ourselves to create. We wouldn't for a moment trade for a car our life of being so fully present and committed in our home and marriage. It just isn't a good deal for us.

       In making the decision to incorporate homemaking into our lives, we also made the decision to find ways to make it work. When it came to our vehicles, we first determined to share a vehicle and then work towards an alternate path for purchasing future vehicles. So, yes we go against the grain of what is "normal." (I like Dave Ramsey's opinion of normal- "normal is broke." So why wish to be come that?). So, if your heart and calling is for homemaking then be encouraged that it is possible! This is just another means of making it so. 

Here is a video from the Dave Ramsey team. I disagree with the assumption of a purchase price being $26,000 (?!) and monthly payments of $464 (?!). Those numbers don't seem realistic to me for a vehicle, but that could be because we strive to keep ours much lower. Nonetheless, I find the premise of saving money for purchasing a vehicle inspirational and highly recommendable. 



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