This morning I was sipping my coffee and scrolling through my news feed when a headline from The  Wall Street Journal practically jumped off my screen. 

It read, “The Seven-Year Auto Loan: America’s Middle Class Can’t Afford Its Cars”. 

The gist of the article was that the price tag for even the most basic new vehicle has outpaced middle-class incomes. What was once seen as an icon of the middle-class, a new car in the driveway, is becoming harder and harder to attain. As new cars have gotten more expensive people are stretching out the financing for longer and longer periods. 

In 2019 alone, about a third of auto loans for new vehicles had terms longer than 6 years. Unheard of only a few years ago, now you can finance a new vehicle for 7, 8, even 9 years.
NINE YEARS!

So here’s the thing, and you might not like what I’m about to say, but it needs to be said. These stretched out loan terms are creating an illusion of affordability across our country.

 

The hard truth that we don’t want to face is this,

If you have to finance a new SUV for 9 years-  you can’t afford it.

While we’re on the subject, if you need 6  years to pay off a car- you can’t afford it. 

You ? Can’t ? Afford ? It

There, I said it, but seriously, someone had to. 

This sort of financing is bonkers, and a lot of people are going to get hurt when this scheme falls apart, which I’m predicting it will.

 

I know that you work hard and that you want to have a vehicle that isn’t a beater. And I know you think that a new car feels like a smart and practical choice. You’re probably justifying the cost using words like “reliable” or “dependable”. Or maybe your swooning over the new tech features, which you’re certain will make life a little easier. And maybe part of you is thinking this is just the thing that will make you feel like you finally “made it”. 

But I want you to know that used cars are just as reliable and dependable as new ones, you don’t really need any of those new features (no matter how cool they might be), and that the feeling of “making it” will never come from anything you can buy.

The truth is, you don’t need a new car, and you certainly don’t need to be paying for that new car for longer than you’ll probably have it. A new car is a want, not a need. And if you’re going to go into debt for a vehicle you should aim for something you can pay off in 3 years or less. That way it is unlikely that you’ll end up owing more than your vehicle is worth when you decide to trade it in. 

This is how we have purchased vehicles in our family when we couldn’t pay entirely in cash. Right now we’re driving an ‘09 Honda CRV and a ‘12 Toyota Sienna, both purchased used. We paid cash for the SUV and made payments on the van for about a year before paying it off. The money we’ve saved in car payments and by buying used has allowed us to take vacations, invest in our business, build savings, be less stressed about money, and so much more. 

You can buy the new car, and you can stretch out those payments to make it feel affordable, but I just want you to understand what it is truly costing you. It’s costing you joy when you stay in a job you hate because you can’t afford to quit. It’s costing you your health when you’re constantly stressed about making ends meet. It costs you freedom and time, two resources that can’t be renewed. 

 

I hope you’ll consider these costs the next time you find yourself at the dealership with a salesperson that is trying to squeeze you into a payment instead of the right car.