I’ve been able to pay cash for our last three cars and let me tell you, it is a whole different experience to walk in with $100 bills and make an offer than to worry with monthly payments, loan rates and all that mess. With new cars costing $32,000 on average these days and Bankrate concluding the average American can’t afford this price, how in the world should you go about buying a car…with cash!?!

Don’t Be Normal

If you purchase a $32,000 car and finance 100% of it for five years, you’re going to have a car payment of over $575! Let’s say you trade in your existing car and only have to borrow $20,000 – you’re still looking at a car payment of $360…or 60 of them to be more precise. Ouch. So unless you’ve got $20,000+ laying around somewhere to drop on a car, you can’t do the “normal” thing if you want to get out of the car payment cycle.

Don’t Buy New

First things first: recognize you probably aren’t going to be buying a new car if you’re going to pay cash. You work too hard to pay $32,000 for a new car when in 2-3 years it’ll be worth $20,000 or less. Don’t believe me? Use Kelley Blue Book and price a new car and a two year old model of the same thing. I did it as a test, using my current car. I drive a Ford Taurus. I priced a 2014 Limited and a 2012 Limited (same options, 25,000 miles on the used one). You know what?! A 2014 averages $33,000 with the options I chose. The trade-in on the two-year old model averaged $17,300. So…two years = $15,700 in depreciation loss. In other words, those first 2-3 years of depreciation are KILLER. Smart car buyers buy something at least 2-3 years old.

How to Break the Cycle

I’ve written and talked about this several other places (and even dedicated a chapter in my book to it), so let me summarize here:

Option 1: Keep Driving It

One major issue middle class Americans face is the “I need a new one” disease. In reality, the new one is shinier and prettier than your current car, but there’s nothing really wrong with what you’re driving now. I recently had to spend $900 on a relatively major repair for my car. But you know what – that $900 is a good investment compared to buying something else! If you’re paying car payments, the best thing to do is pay off your car and keep driving it. Instead of paying car payments, set up an autodraft to move money into a designated savings account each month. You won’t miss the money and it will start building up faster than you might expect. When you really do need a new ride, you can check the balance in that savings account and you’ll know what you have to work with as your cash budget to go buy a car.

Option 2: Be Embarrassed For a Little While

I assume when I offer option 1 that you have a decent car already and that it can hold up a while longer during a time for you to save. Maybe your car really is about to die and you really do need another ride immediately. For you I offer this advice – scrape together what cash you can and if it still isn’t enough, borrow as little as possible and dedicate yourself to paying it off quickly. In other words, buy super cheap, then drive it while you save up for a better one.

When I give this advice and mention the possibility of taking on a loan, I offer two clarifications:

1. Don’t finance for more than 1 year. This will keep you honest in paying it off quickly.
2. Commit to driving the car you buy for at least five years or until it literally must be replaced.

I could keep going, but I think you have the idea. If you want to read more, check out a similar article I wrote on Stacy Makes Cents and if you really want all the details, check out my book and get the full plan for never having another car payment…or any payment, for that matter!