Looking to buy a vehicle and want to make sure you maximize the best deal? This article shares three guaranteed tips to avoid an expensive car payment and not break the bank.
A car payment is one of the biggest financial black holes in most budgets, at least in the United States. The average monthly car payment in the U.S. as of Q4 2024 was $742, according to Lending Tree. That’s over 18.5% of the median U.S. salary. Even worse, one in five Americans pay over $1,000 per month on a car note, according to Edmunds. That’s an eye watering 25% of the median U.S. salary. Those numbers are equally terrifying and frustrating.
Needless to say, those payments are financially crippling for most Americans, especially when you add the cherry on top being the average loan term is 68 months. Let me repeat that—68 months! That’s 5.5 years.
Thankfully, you decided to swing by the Better Money Club and check out these three tips that will help you save money on that new car note—guaranteed. Let’s jump right into the first tip.
1. Don’t Own a Car
Seriously. Don’t finance or lease a new/used vehicle at all. Ditch the car all together.
Wait! Before you click off this article, hear me out. I know what you’re thinking: “Hey, Ozzie, you promised three tips to help save me money on my car note. Obviously, I clicked on this article because I want to purchase a new car.”
Seriously, I get it. If you are absolutely set on a new car, or genuinely need a vehicle, you can skip to the next tip. Still, even if you are in that position, I would encourage you to at least skim through the rest of this first section before you outright ignore it. The information here is at least as helpful as the other tips I’ll get into after.
If you were to find a way to avoid that new car purchase and instead invested that same amount of money in a broad market index fund like the S&P 500, that could be a life changing decision. I would argue it would be a generation-altering decision. That same $742 per month now growing as an investment over the same 68 months would turn into over $75,000. Over a 20 year period, it would grow to $566,000. Over a 30 year period it would be about $1.7M. If you were one of the 1 in 5 people that pay over $1,000 per month, those numbers would be $102,000, $763,000, and $2.1M respectively.
That’s legacy altering money for most people in the world.
How might you avoid owning a car? Here are a few options:
Utilize Public Transportation
If you live in a city, consider using public transportation. I’m a firm believer if you live in a place like New York City (or many others), you can get along quite comfortably, and in many cases faster, with less stress, and, most importantly, at considerable less cost. Millions of people live in cities, and a surprising number of people well into adulthood in these major cities don’t even know how to drive, let alone own a car.
Electric Bike or Electric Scooter
This is a good option inside or outside of a big city. According to Google AI search data, the average daily commute distance in the United States is 12 miles. This is more than doable for an e-bike or e-scooter to get you to and from work. Admittedly, this option wouldn’t work for traveling with children or pets, but it might be an ideal solution for an individual or couple with no two legged or four legged dependents. Sure, you might need to find solutions for things like grocery shopping, but car service or food delivery services like Instacart might work well. Most challenges here could be mitigated with just some creativity. On top of that, it’s a great option for the environment, mental health, and even physical health.
Walk
That’s right, walking might also work very well. Seriously, a surprising number of people in urban and suburban areas can walk most places they need to go in their day-to-day lives. Also, like the prior solution, walking would be even better for your health, the environment, and at your mental health. If possible, walking might be the most ideal option if you can mange to ditch a car.
It’s worth mentioning one last cost-saving benefit of opting not to own a car at all is avoiding all the other car related expenses. The car payment itself is just one thing, but all the other expenses we often forget that go along with owning a car adds up as well. No more paying for gas, maintenance, parking, repairs, etc. Avoiding all these fees we often don’t factor into the cost of car ownership really adds up.
Okay, I get it though. Most of us will purchase a car for a multitude of completely valid reasons, whether that’s the freedom that comes with hopping in your own car and moving at your own time, something that’s not possible when relying on public transportation. Or you might just like to drive. Again, I get it. Let’s move on to the next point.
2. Keep the Car You Already Have
A surprising number of people want—and ultimately purchase—a new car simply because they’re bored of the car they already have. I can understand that, but there are a few options that might make you even happier than a new car would. Your best option just might be revitalizing and modernizing your current vehicle.
This option will work surprisingly well, particularly if you are eyeing many of the features of newer cars. Technology like Apple CarPlay and Android Auto can be available in older vehicles with a simple aftermarket stereo head unit replacement. These days even splurging on a top-of-the-line model with all the bells and whistles will cost about a thousand dollars, and that’s with labor included. You’ll end up with a deeply integrated computer more advanced than anything else on the market available native to most other car brands, luxury models included. Seriously, this upgrade alone is so good, after living with one of these aftermarket head unit upgrades, purchasing a brand-new car with its stock stereo unit would feel like a downgrade.
There are so many other really inexpensive upgrades that would make a big difference in the way your car looks and drives that you might be shocked. Adding an aftermarket backup camera would dramatically improve the safety of your vehicle and give it a more modern feel, all for a few hundred bucks, labor included. Switching your headlights from halogens to LEDs would make a dramatic difference in the look of your vehicle and your visibility while driving. The benefit is even more dramatic if you drive at night—all for less than a hundred dollars. Replacing wheels and tires could provide either a sportier or more aggressive look, depending on what you choose.
The sky is the limit when it comes to car modifications. These easy upgrades are very common and very cost effective. Seriously, do all these to a car even 15 years old and it would make a dramatic difference to the way the vehicle drives and feels inside it. You don’t have to be a car person, either. I’ve done all these modifications myself (along with a few others), and I’m certainly not what anyone would consider a car guy. And if the external body itself has become a bit stale to your eye, there are even options like Vinyl wraps that will change the color of your car so cleanly it would look like it came that way off the assembly line.
It’s cheaper to repair your current vehicle than buy a new car.
Maybe it’s not that your car is stale, but instead you’ve come to a costly repair cost that made you question whether you should just replace the car instead of repairing it. A surprising number of people will opt to trade in the vehicle in this scenario. People find it hard to pay for a $1,500 repair on their car when the current value is only $6,000. I never understood this. Even if you had to spend $2,000 every single year on repair costs to a vehicle that’s only worth, say, $5,000, that would still be more cost effective than buying a new car and taking on a car payment. We’ve seen the numbers earlier in this article. If repair costs are ever the issue, just fix it. That’s almost always the better move, unless the engine itself dies.
This transitions nicely to my next tip. Maybe you have to buy a vehicle. Or you might just want to get behind the wheel of a different car, no matter the numbers and despite the logic. I get that too. After all, humans are emotional creatures, not logic-based computers.
3. Find a Good Used Car, Preferably 10 Years Old or More
This is where your mind would automatically jump to the stigma of driving a beater. Get rid of that idea. Even though the car would be older, and because of that will likely have higher mileage, do not automatically dismiss this category of car. I wouldn’t drive a beater, and I would never recommend you subject yourself or your family to one either. You should still have every expectation that a vehicle in this category be reliable, safe, and even enjoyable to drive.
Here’s are a few tips to help weed through the options and find that diamond in the rough:
Start your search with a budget in mind.
Make this number a hard line. This will protect you from creeping up the costs when choosing that new vehicle.
Research the model car.
I don’t just mean shop for the best prices. Once you’ve found a car you like at a great price, look into the known issues of that car’s make, model, and model year. Check for any outstanding warranties. Look into online communities where you can see user feedback.
Do a pre-purchase inspection.
Either drive the car to a mechanic that performs this service, or hire a mechanic to check it out on the lot. DO NOT use a dealership or car lot’s in-house mechanic. Don’t even use a mechanic local to the dealership area. Try to find a mechanic at least 5 miles away to make sure they do not have any biased relationship with the dealership (either positive or negative).
Test drive the car.
Even if you’re not savvy with cars, test drive the vehicle. You’d be surprised just how many issues even an untrained person can spot, particularly if you’ve been driving for a while. You might not know what the issue is, but you could possibly get a feel for something not quite right. Oh, and don’t just stick to the local roads or a quick trip around the block. If at all possible, take that car on a couple of exits on the highway and back.
Be sure to check the service records.
Any vehicle without service records or long gaps between service entries should be avoided completely. Don’t eliminate a vehicle that’s had an accident, but be sure the service records have the details of what the damage was and be sure to point that out to your mechanic during the pre-purchase inspection. Never under any circumstance buy a car with a record of flood damage, salvaged, or has title issues.
There are plenty of more things that you can do to try and maximize your chances of finding that gem. And do any and all those things you can think of. But for the sake of brevity, I’ll just leave it at that for now. Those five tips I would consider the most important and would eliminate the vast majority of issues car buyers have after buying even a recently released car.
Now that you’ve found the car you like and did your due diligence, make sure you double check your numbers. No more than 50% of your annual income. And if you need to use financing, make sure you shop around to a few lenders and get pre-approval on an auto loan prior to showing up at the dealership. That’s the way to get the best rates, particularly since the dealership now knows they will have to beat your best rate to finance in-house. They will have every incentive to work out deals with you—and they will. Stick to no more than 24 months on any car note you go for, something that should be more than manageable if you stay within the parameters I’ve outlined.
Final little bonus for this section before we move on to my final tip: you can purchase an older car in great mechanical condition and do all those sweet upgrades to modernize the vehicle that I mentioned earlier in the article. By the time you’re done, you’ll feel like you got the old car at a steal. And it will absolutely not feel like you just bought a beater.
Lastly, if after the three tips I’ve laid out above, you are determined to buy a newer car, still, don’t spend above your means.
Never buy new. Three-year-old cards are the best deals in this category. Target them aggressively.
Seriously, these cars are in somewhat of a Goldilocks zone. That previous owner would have assumed the fastest depreciation that car would ever experience in that first three year period. No matter the brand or model, the value of any car plummets the first three years of ownership steeper than any other period in that vehicle’s life.
Most vehicles in this category were leased to a single original owner and just returned to the dealership. The odds of the car getting proper service intervals and repairs are much higher with leased vehicles because it’s part of the terms of the lease. Drivers of leased vehicles are financially penalized for neglecting the car, or even driving them excessively more miles than scheduled.
On top of all that, three-year-old vehicles would have modern looks, tech, and features. The biggest plus, though, is that the vehicle would still be under the original manufacturer warranty. Many dealerships also offer additional warranties on vehicles in this category often referred to as ‘Certified Pre-Owned’. Unlike many sales tactics out there, I happen to really like most CPO programs I’ve come across.
Follow these tips and I can guarantee you’ll find some of the best vehicles for the money available for purchase.
