How to Pay Cash for Your Next Car

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Its totally possible to avoid a car loan. This is the number one trick to pay cash for your car!

Last month, I told you all on Facebook that we had paid off our car! Woo hoo! This was a big feat for us, because we weren’t in the car buying business 2 years ago. Our little red Honda Fit was working just fine.

Then a flood hit our home, and the damage done to our less than 2 year old car, was completely irreversible. We simply had to buy another car.

We ended up spending a little bit more than we would have liked, but in the end we’re very happy with our 2012 VW Golf {I obviously have a thing for hatchbacks}, and it was purchased on the basis of quality, not price. We wanted that thing to last forever!

However, because we weren’t prepared for this inevitable purchase, we had to take out a 5 year loan on the car. Ick. The good news? We worked super hard to pay it off in 2.

So what to do with an extra $192.87 payment per month, that doesn’t exist anymore? It’s so rare to have extra money to work with!

Here’s an idea…

Although we can’t predict the future, we can prepare for it. <–{ Click to Tweet} Joseph and I survived day-to-day with a car payment, so it doesn’t make sense to spend that extra money as we please.

Here’s the mindset we’ve adopted, and I highly recommend you do to:

  1. Keep setting that money aside.
  2. Build up that car column in your spreadsheet.
  3. Pay cash for your next car. 

It’s not too difficult to do either.

Yes, you might be tempted to dig into that fund when it’s grown to $3,000-$7,000, but if you have the mentality that it’s completely allocated for a future purchase, it’s a lot easier to keep it growing, and keep your hands out of it.

Psst…if you still struggle with the temptation to spend, you might consider opening up an online account specifically used for that purchase. We have one at ING Direct {now Capital One 360}, that earns more than our regular savings account.

There’s always an exception

I love this method for paying cash for my next car, but I wouldn’t be fair to you if I said there weren’t exceptions to this rule. Each situation has to be looked over carefully to determine the best use of this “extra money”.

For instance:

  • If you have credit card debt, I’d encourage you to roll that no-longer-car-payment onto your next credit card, and get it paid off as soon as you can.
  • If you’d like to buy a house in the very near future, and your car has many years left, I’d put it towards a down payment.
  • If you haven’t gone on a family vacation in forever, or done something really nice for yourself, it’s OK to give yourself a reward. For some of us, that’s the encouragement we need to meet the next financial goal.

The same thought can be applied to money that you “stumble into”, or during a month with an extra paycheck in it. Rather than, “Hmmm…..where can I spend this?” your first thought should be, “Where could this money best be used?”

This will look different for everybody, but then again, there’s never a one solution fits all. We can talk about principles, but you need to determine how to best apply them.

In the meantime, keep working on reducing that debt – whether it’s credit card, house, or car.  And when you find yourself with some “extra money”, come back and visit this post.

If you plan it right, you can seriously pay cash for anything….even your car. 

Do you currently have a car payment?

Looking for more inspiration? Money Saving Mom has a “We Paid Cash” series on her blog. The stories are amazing!
Disclosure: Some of the links in the post above are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. Read my full disclosure policy here.

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  1. My BF and I just bought our first car together in March and we were able to put down almost the entire price of the car down for our downpayment! I think our downpayment was like $11,000. We ended up getting a 2013 civic will really low mileage and only walking away with less than $2,000 owed on a loan! I can’t wait to save up for the next car so we can just buy it outright.

    1. That is awesome, Lindsey! Our car is nearing 80,000 miles and even though we plan on reaching 200,000 miles with it, we have started out plans for saving for it’s replacement.

  2. Love your post! I was debt free and had to get a car. I ended up getting one that was pretty new with a not so pretty monthly payment. It is now paid off but next time around we will not be getting as new of a car or paying monthly payments!

    Setting aside a little money now each month will for sure save a lot of hassle later!

  3. great post, I am currently working on paying off an expensive car loan early-I am hoping to get 60 months down to 48(or less). I like the idea of setting up an online savings account afterwards.

  4. Great advice. Keep making the car payment, credit card payment, mortgage whatever after it has been paid off. I first did this 3 new cars, 1 used car and a camper ago. I had been making double payments on a 5 year car loan so we could pay it off early and as we were not struggling to make ends meet it was a no brainer to set that money aside. I really just wanted to save enough to have a really good down payment on a Ford F250 4 wheel drive and still be able to swing buying a camper to go with it. Well we procrastinated a year or so in our Ford shopping, so I was able to save enough to pay cash for the truck! That was such an awesome feeling because it was a lot of $$$. Then we couldn’t find a slide in camper in Louisiana and we didn’t make it out west for 9 months, so I was able to save almost enough to pay cash for the camper. I ended up “borrowing” the balance from our regular savings account. Then I kept making “car payments” to repay the savings account. When that was done we didn’t really have our sights set on wanting something so I just added the “car payment” to the regular savings account deposit for a few years. When it started looking like we were going to need to replace the old little pickup, I just set up a “pickup fund” and made my “car payments” to that. Paid cash for a used truck, and with what was left over I just changed the name to “beach bum bank” and made payments to that until it hit $10,000. It’s our own personal “bank” sitting in our savings account that I can borrow from guilt free for unexpected or just fun stuff. But if I do borrow from it, I have to repay it before going out and buying something that is not a necessity. By this time paying cash for a new car was just a given, so I just kept making the “car payment” to the “new car fund” and paid cash for my car 2 years ago, and will be paying cash for the hubby’s new car this month. And next month, I’ll make the “car payment” to the “??? fund”.

    Oh and obviously if you have credit card debit, pay that off first, then for goodness sake, if you can’t pay them off in full each month, you need to get serious and set a credit card limit that you can pay off each month. If it’s $100 or $500 or $1000, whenever you’ve charged as much as you can pay off in a month the card(s) are not used until the balance(s) are zero. If you can’t self monitor the balances, pay them off and stash the ones with the best rates/limits in a safe place out of sight out of mind. If that is more than 4 cards, I would cancel the rest. There are arguments pro and con to that and it’s effects on your FICA score which I am not well versed on. But whatever, if you have no control, get the credit cards out of your wallet and get a prepaid card. When it hits zero you are done for the month. With a good budget it should hit zero within 5 days of the first of the month. Then you only have to “suffer” five days, before you can go get another prepaid card. If you can’t make it all month with one card, divide the dollar amount into 4 cards. i.e. $500 into 4 $125 cards, so you are on a weekly budget of $125. And if you’ve just got to have that Louis Vuitton bag, just stash away one or two of those $125 cards a month and sometime next year you will have your bag free and clear. Let’s face it, if you have to pay credit card interest rates on it you do not need the bag.

    As I have never had student loans, I’m not sure what the rates are, but as I prefer the debit free life I would concentrate on paying them off as soon as possible. Maybe do half of the “car payment” towards the student loans if you think you can wait a little longer for a new car.

  5. Hi! Just found your blog. A few years ago, we used our tax refund to pay off my car a year early. Currently, we have no car payments and hope to pay cash for our next vehicles. Credit card debt is almost gone and then onto those pesky student loans!

      1. We have not had a car payment in almost two years. Our first vehicle hubby and I bought together was from an auto auction. We paid $1100 for a minivan. It immediately needed a transmission, but that was it.It got us through 5 years! Two years ago, we used our tax return to buy a second vehicle. We new the van was nearing the end and that we would need another vehicle large enough to fit our family. We found one on the back lot of a dealership. They quoted us the wrong price and then honored it. We got a fully loaded limited edition vehicle for thousands less than we should have. If you trust in God, He will lead you to right vehicle.

  6. I’m down to the last few payments on my car…. I looked for a zero percent interest deal– I ended up paying for my car in 5 years but not one penny went towards interest. I could have paid it off quicker if I really wanted to but I did not see any benefits.

    1. The only benefit I would see, would be getting out of debt sooner. Extra debt can affect you buying another car or a different home {because you still have payment obligations}. However, if money is tight, a zero interest deal is definitely awesome, and I can see why you would take it. I think you will feel so relieved when that payment is gone though and you can start putting that money towards something else! 🙂

  7. You mean to tell me that your repayments for an almost brand new car totalled less than (let’s go with) $6,000 (after interest)!?
    I am so jealous of how cheap things are in the US! Even after you convert that to AUD, that’s still over half what we’d pay for a new car. The brand new car we bought last year was $48,000 (with additions) 8^o Gobsmacked.

    1. The car we bought was around $21,000, but we had a really great value on the one that was flooded, so the insurance company gave us a nice check to go towards the new car. Plus, we had some extra to put down on it too.

      That’s crazy how expensive cars are in Australia!

      1. You can get brand new cars for a lot cheaper in Australia, there’s a couple of brands where you can get a small hatchback for under $10000. $48000 would be for a large car from a good brand or a mid size car from a prestige brand. My current car is a 2002 ford falcon (Aussie Mustang) with low mileage. I paid $2000 for it secondhand. It may be old with chipped paint, but the air con works, it’s reliable and I own it outright.

        1. That’s amazing, Tamara! I don’t think you could find a car that runs for $2000 in the US… one that runs at least!

  8. I love the “idea” of paying cash for a car. But unless I’m missing something I didn’t really see any advice for that unless you’ve ready got a working vehicle.

    My husband and I both work. I’d love to stay home or at least work closer to home but between our current car payment, gas and insurance we aren’t in any position to save up enough cash to get even a reasonable used car.

    If anyone has a clue how to pay off one car and/or purchase a new one with literally no disposable income outside of bills please let me know.

    1. The real crutch of the post is to keep saving when your current car is paid off. Instead of using those funds for something else, set aside that same payment and let it grow until it’s time to buy a new car.

      Everyone’s financial situation will be different, so ideally, it would be wonderful to personalize a plan for each situation. If you don’t have one already, I would really encourage you to have a working budget set in place, and I’m currently working through a beginner budgeting series to help others get started:

      It takes time and effort, but with a budget, you can see how much you are able to cut back and save, and how much you should be spending. You might be surprised how much disposable income you could have after tracking every penny!

    2. In order for me to stay home, we’ve had to really examine what bills are necessary. Gone is the $400 a month we used to spend on eating out 1-2 times a week, just recently my husband agreed to cut the cable, saving $60/month (and we still watch most of our shows online for free). I try to live by “waste nothing” which means everything from turning off the internet overnight (saves us about $8/month in electricity) to planning meals to make sure we eat all the food we buy to walking or biking rather than driving when we can. It takes some effort and we do without things that many families consider essential where we live (smart phones expensive summer camps) but I prefer this to the stress of rushing around all week just to eat, sleep and get everyone off to work or school/daycare, then rushing more on weekends to try to fit in time together, chores, kids’ activities.

      We do have debt to pay off, but we’re actually making more progress on one salary than we did on two because we examine our choices more closely rather than rationalizing that we would pay more when we got our next raises or this kid moved from daycare to school or some other future event, money that somehow always disappeared to another expense.

      1. Laura, it sounds like you are doing such a great job – way to go! It’s all those little things that can add up, and I totally agree with you about careful choices and not letting spending rise with your income. That’s super important!

  9. I don’t even have a car. And no, I don’t live in a big city with 24/7 public transportation.

    I live in a cold snowy place, with meh public transit and lots of hills. But I’ve made choices about my work and home that allow me to get around by bike. Yesterday, I brought a Christmas tree home on the back of my bike cart.

    I know it’s not possible for everyone. But I’d encourage more people to ask themselves if they need two cars per family or even one.

    It sure is nice not to have a car payment, fuel fill-ups, or insurance. 🙂

  10. Hi. Congrats and thanks for sharing your story. My husband and I are in the process of paying off student loans and (thankfully) have paid for cars. Once we are done with debt, we arent going back – including car loans!

  11. We do have a car payment. Our first car after we were married was bought with cash, then we had a flood and had to buy a new one. We paid that off in 2 years {vs the 5 year loan}. After that we were given my husband’s grandparents honda CRV {LOVED THAT CAR!}, and paid them a little a month on it. Then with triplets we HAD to buy a new car. I’m hoping we can make do on this car long enough to pay it off, before needing a bigger one. I hate car payments.

    1. I forgot that your car had been damaged in the flood too. I’m with you on the car payments. We would like to get a 2nd car for Joseph, but refuse to take out a loan for it. We will just save our pennies!

  12. We always pay cash! Of course, that’s resulted in buying lower than our ideal. But it gets us something reliable, that will last, and teaches us more about God’s faithful provision.

    Case in point: we bought a car last November. We’d been looking all summer, since our old minivan was on its last wheels. We don’t own any credit cards, and had no interest in getting a loan, so we saved our pennies and prayed that God would provide a reliable, spacious vehicle (for all our road trips and our dog!), with less than 80K, for less than $9000. The car salesman laughed in our faces when we told them what we were looking for. But God had provided something similar with our last vehicle, and we knew He could do it again. It finally came down to the last weekend before Thanksgiving, and we wouldn’t be able to go visit family if we didn’t get a better vehicle. We’d been searching online, and found a van about 3 hours away. It didn’t have all the bells & whistles we were used to (no 6-cd changer, automatic side doors, or extra storage spots) but it fit the mileage and money requirements. And it runs just fine!

    Anyway, all that to say – as a Christian, we try to use our money wisely and limit ourselves when we buy. We don’t get the top-of-the-line version. We temper our expectations. But God always provides something so we don’t have to go in debt for a car!

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