As spring warms up, car dealerships are rolling out the red carpet to lure you in. In addition to special sales and dealer incentives, they’ve got new models to hawk and an array of tricks up their sleeves. If you’re not careful, a quick look around the lot can lead to a signed sales contract and a several year’s worth of car payments in a hurry.
Obviously, the best way to avoid this mess is to dodge the dealership altogether. In the meantime, it also helps to find ways to appreciate the car you already have – especially if it’s paid off. Sure, she might have a few dings and scratches, a slight rattle, or maybe a cup of crunched up Cheerios in the back. But she’s all yours, and she’s free.
Five Reasons to Love Your Paid-Off Car
Got a paid-off car you merely tolerate? Before you hit the dealership in search of something new, consider these reasons you might want to fall back in love with your old, paid-off car instead.
Reason No. 1: You might retire with a lot more money socked away.
The average monthly payment on a new car surged to $493 during the last quarter of 2015, according to a report by the credit agency Experian. That works out to a cool $5,916 per year, or $33,031 over the average length of a car loan, which is now 67 months.
If you forgo the new car and stash that money away in your retirement account instead, you could easily get a whole lot richer over time. Even if you spent $1,000 a year on car repairs to keep your old clunker on the road — meaning you only stashed away $4,916 a year — you’d have an extra $29,375 saved up after five years, assuming a modest 6% return per year.
And after that even if you stopped adding to the balance and simply let it grow for another 25 years, you’d retire with an additional $126,072, assuming 6% growth. That’s worth stretching a few more years out of your old ride, wouldn’t you say?
Reason No. 2: Save extra $$$ in your emergency fund.
If you’re already on track for retirement — or too overwhelmed by it — consider how your life might change if you opted out of a new car payment and simply saved that money instead.
Let’s say you held onto your old car and saved the $300 a month that you would have spent on a new one. After one year of saving, you’d have $3,600, not including any interest. And after five years, you’d be sitting on $18,000!
Whether or not you end up needing that money for an emergency along the way, that’s a lot of cash — enough to pay for nearly anything life throws your way. And trust us, you’ll need it eventually.
What’s more, that’s also enough to buy a decent new or good used car in cash. Keep it up, and you may never have to make a car payment again.
Reason No. 3: When it gets hit with a shopping cart, you don’t have to care.
Money aside, the best part about driving an old, paid-off car is that you don’t have to care when something minor happens to it. Let’s face it; birds can and do use your car as a bathroom at times, and careless people will scratch and ding your car without thinking much of it at all.
When you still owe money on your car, it’s tempting to freak out over every nick and bump. But when it’s paid off, sheesh… who cares?
We can do our best to take care of our vehicles, but there is little we can do about bad drivers, careless parallel parkers, and birds that need to do their business. With a paid-off car, you can shrug your shoulders and move on with your day knowing that it doesn’t matter – and that you owe zilch on your car anyway.
Reason No. 4: Sleep well at night knowing you can live on less.
When the economy is good and you’re earning a steady income, that car payment might be a piece of cake. But, what happens when you lose your job, your income tanks, or other surprise expenses or bills push your finances out of whack?
No matter what, there is something to be said about living well below your means. When your income far surpasses your monthly bills, you can save for the future, take care of unexpected expenses and bills, and avoid debt like the plague. But when you live at the edge of your means, any emergency — like a job loss or health scare — can cause you to fall behind.
Without a car payment, you can sleep easy at night knowing that you don’t owe a single cent for the car you need to get to work and take care of your responsibilities. I don’t know about you, but nothing lulls me to sleep at night quite as much as the relief I feel from no longer being in debt, or carrying around the stress that comes with it.
Reason No. 5: Insurance on older cars is generally cheaper.
As a newer car ages, the cost of insuring it goes down considerably. That’s especially true once you’re able to drop collision coverage and switch to liability coverage only – that is, if you want to.
- Related: Best Cheap Car Insurance in 2016
And depending on your home state and its insurance requirements, you could save a lot of money on your plates and tags by driving used as well. In my state of Indiana, for example, our vehicle registration process is based on a sliding scale with pricing based on vehicle value and age. The older your car, the cheaper your license plate renewal and registration will be. The same goes for local excise taxes, where applicable.
The Bottom Line
Your paid-off car may no longer have that new car smell, but that doesn’t mean it isn’t worth keeping. The longer you drive it – and the longer you can avoid trading it in – the richer you’ll become.
Do you love your paid-off car? Why or why not?