Car payments are high. According to Experian’s 2024 Q2 Auto Finance Market Report, the average monthly payment is $734 for a new car and $525 for a used car.
Plus, when you factor in rising insurance costs, fuel prices, and maintenance, owning a car can put a serious dent in your household finances.
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Not having to spend hundreds of dollars (or more) every month can be financially advantageous. Here are some options for avoiding a car payment even if you make an average salary.
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Sean Maloney, founder of Retire Wise LLC and an experienced financial advisor, says that to live on an average salary and never make a car payment, upgrade your car gradually without going into debt. He said people should consider adopting a strategy similar to Dave Ramsey’s. .
“First, buy an old, reliable car for cash, ideally for less than $2,000, and drive it for about 10 months,” he said. “During this period, save the money you would have spent on your monthly car payment in a high-yield savings account.”
Maloney said he should sell his old car after 10 months, hopefully recoup most of his initial investment, and use the proceeds of the sale, combined with his savings, to buy a better car for cash.
“Continue this cycle and gradually increase the value of your car every 10 months,” he recommends. “Not only will this method help you avoid payments, but it will also help you set aside cash for your next car purchase.”
Consider this: 8 cars expected to see big price drops in November 2024
Dennis Silshkov, a finance professor at City University of New York and director of growth at Summer University, said a non-traditional way to avoid paying for a car is to use a car-sharing service like Turo or Zipcar. .
“These services give you access to your vehicle when you need it without incurring ownership, maintenance and insurance costs,” he explained.
“This is a good solution if you don’t need a car for your daily commute and want to avoid the ongoing financial responsibility of car ownership. In large cities, where the need for a private car is less important, this is Many find it a flexible and cost-effective alternative.”
According to Steven Kibbel, financial planner, entrepreneur, and chief editorial advisor at Gold IRA Companies, people often upgrade their cars when they don’t really need to.
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“If you maintain your car properly, it will last you many years. Spending the extra time without making a car payment gives you more room to save for your next car,” he explains. I did. “You’re essentially paying yourself to drive it longer, rather than paying a financier. It’s not glamorous, but you always have cash on hand to pay for a new car. is better than
“You can always stay ahead of the curve if you don’t factor in debt.”
Benson Varghese, a board-certified criminal attorney, criminal defense attorney, and founder and managing partner of Verghese Somerset, suggested the co-ownership option.
For example, if you and someone you trust pool your money to buy a car, neither of you will make the payments. However, Varghese said it was important to establish a thorough partnership agreement if going down this path.
“This document should specify each participant’s obligations, such as maintenance costs, insurance, and what happens if one of the participants decides to sell their shares,” he explained. “Having this agreement in writing can help avoid confusion and provide clarity in the event of disagreements.”
Varghese said if he had the option, he might consider signing up for a car loan with a friend or family member.
“If they agree to let you use the vehicle for free, it’s a good idea to formalize this arrangement with a written agreement that specifies usage rights and responsibilities,” he recommends. Ta. “This provides legal protection for both parties and clear ownership.”
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This article originally appeared on GOBankingRates.com: The secret to never making a car payment on an average salary
