Car loans are not long term strategies. They are short term solutions to your transport problems. But they can be part of a longer term strategy. Especially if you have dreams of owning a luxury or performance car that you cannot afford right now.
Unless you opt for an 84 month auto loan, the typical car loan will be for 48 or 60 months. While that may seem like forever, it’s a short time in financial terms.
A friend of mine shared a longer term strategy for how he went from a 13 year old Chevrolet to a 2 year old Ford Mustang V8 in just five years. When he shared it with me, I was surprised to say the least.
Not at the huge jump in cars but in how easy the strategy was.
Afford your dream car
If you have dreams of driving something out of your price range, try this strategy. It takes willpower but it can work.
- Buy a cheap used car that will last at least a year.
- Save the equivalent of a car loan payment each month for that year. Let’s say $500.
- At the end of the year, decide whether the car can last another year or whether you should replace it.
- If you replace it, you have $6,000 plus what your existing car is worth to spend. Say the car is worth $1,500, you have $7,500 to spend.
- Repeat for another year, saving your $500 per month.
- Sell the car at the end of the second year. If you replaced the car, you should have a car value of around $6,000 or more and savings of another $6,000.
- Decide whether to keep the car or replace it.
- Repeat for another year.
- At the end of the third year, you should decide whether to sell or keep. If you sell, you should have a car worth around $10,000-$11,000 if you bought one before. You should also have another $6,000 to add to that to buy a nice car.
- Repeat for another year.
- Depending on what you’re driving now, you could be driving something nice worth around $14-15k. You should also have another $6,000 to add.
- Now you’re getting into nice used car country. You could buy a very nice used car for $20,000 or use the cash as a down payment on something more expensive.
- Stick it out for a final year and you have plenty enough for a great quality car!
Dream cars and auto loans
A $25-26k down payment is a significant amount for any auto loan. As long as your credit score is good and you have sufficient income, you should be able to afford the car of your dreams.
If your dream car is accessible, you should buy it. If your dreams are more exotic, you can either keep going until the car is in reach or buy a used version.
Either way, use your cash as a down payment and top it up with a competitive auto loan. You have been saving the equivalent of that loan payment for years now so are used to living without it!
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!