In this episode of the Good Cents podcast, Eric Rosenberg dives into the costs and factors that go into buying a car and how to save money during the process. Learn about common financial complications associated with owning a vehicle and how to make informed decisions from purchasing to maintenance. From the disadvantages of leasing to the benefits of buying reliable used cars, understand how to align car expenses with one’s long-term financial goals. By the end of this episode, you’ll feel empowered to take control of your automotive finances and make informed decisions about purchasing a car. 

Here’s the recap of today’s 15-minute episode: 

• What to prioritize when purchasing a used car
• How buying a car fits into your long term financial goals
• The pros and cons of leasing and buying a car
• How your budget, credit score, and savings impact your car buying experience

Listen below or read the transcript that follows. 

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Eric Rosenberg:

Hello everyone. Here’s a quick reminder that today’s episode is intended for education and entertainment purposes only and should not be considered financial or legal advice. Thank you.

Hello, my friends. Welcome back to the Good Cents by Payactiv podcast. As always, I am your host, Eric Rosenberg, and today I’m going to guide you through a topic that I think is incredibly important because it’s such a huge part of a lot of people’s finances, and that’s the cost of owning a car. Now, I have seen even good friends and family members do things related to cars that I think we’re a crazy waste of money, and that kind of breaks my heart a little because that’s money that they could’ve kept and had for something more important to them than the thing that drives them from point A to point B. So we’re going to look at all sorts of things you can do to save money when you’re owning a car, and that starts when you’re shopping for a car through the services and needs you have while you own that car.

We’re going to dive in right now on a journey through the costs of car ownership and how you can save. I am excited to host this one solo for you today to talk about something I’m really passionate about and that is getting the best value out of cars and not blowing your budget. I have a little story I want to tell you to start. My first job after college, I was a bank manager and I noticed that a lot of the hourly workers had fancier, nicer, newer, more expensive cars than some of the top managers, and I asked one of the managers why he thinks that might be, and he said it’s because bank managers had to go to business school and learn about how assets work, and most people don’t know that. So a little quick tip, cars become worth less and less over time for the most part, and there’s always a few exceptions, but in general a car will lose the most value right away when you drive it off the lot and it just keeps losing value.

Where something like real estate if you’re able to buy your own home, goes up in value over time. So when you’re deciding where your money goes and how you want to divide up your monthly payments, for me, I’d rather have my money go to a mortgage than a car loan or a car payment because I know my home will grow in value where my vehicle will go down in value. So that’s something really big to think about. Now I want to give you five important tips that help make car ownership more affordable. So number one is buy a car and buy a reliable used car. So I guess that’s kind of two tips wrapped into one there. Number one, buying a car means don’t lease a car. Even if you have to buy with a loan at the end of the loan, you’ll own your car outright.

You don’t have any more payments. It’s something you can keep and use as long as you have it. With a lease, you are instead renting the car at the end of your lease, even if the payments are lower every month, you have to give the car back or pay a heck of a lot more to get to keep it, that’s called a lease buyout. The way the finances of leasing work, you pay for the depreciation, that’s the decline in value of the car and a whole lot more in all of your fees. And again, you don’t get to keep it at the end. You’re left with a payment forever. So I don’t want car payments forever. I’d rather buy a car, pay it off and keep it as long as I can. On average, my family has kept our cars sometimes 10 years or longer because that means we get all these years without a payment.

And it doesn’t matter if you have the newest, best, fanciest car. Most people just need a car that’s safe and reliable to get them from point A to point B. One time I was talking with a friend who works in the construction industry and he said he had to get a new truck every two or three years so he could have the newest and best features and the other guys wouldn’t make fun of him on the construction site for having an older car. I said to him, why does that even matter? Why do you care if some people you work with make fun of you? And you don’t need the latest little thing for your radio or your built-in computer. What really matters most is your car works and it’s reliable. So for me, that has meant leaning towards brands like Toyota’s or Honda’s that are known for lasting a really long time, as long as you do regular maintenance.

So do your oil changes, rotate your tires, follow the standard maintenance that the manufacturer suggests. You don’t have to get your oil changed as often as the oil shop tells you by the way, I say, follow your car’s guidelines and it can last a really long time. Buying a used car usually costs a lot less than a new car. As we already mentioned, the biggest drop in value of a car happens the moment you drive it off with a lot. Then it is not a new car anymore, it’s a used car, so the value is down and things got a little wonky with used car prices, especially during the pandemic when used cars became really, really highly in demand and new cars were harder to find, but now things have leveled out a bit more and it still makes more sense most of the time to get a used car, look at your budget and find something that has maybe relatively low mileage if you’re able to afford that, something that will last a long time.

All right, number two, research and budget. So don’t rush to buy a car. One of the salesperson’s best tricks is to get you to buy a car the first time you walk in the dealership. Whether you’re looking at new or used cars, their goal is to sell a car that day. But if you take your time to research and understand your budget, you’ll find a car that’s realistic for you. Don’t just think about the purchase price, think about the insurance, maintenance, fuel costs. These days some electric cars are becoming more affordable than gas cars, which means you don’t have to buy gas, you just have to plug it in. But then you have to think about charging costs and what it might cost to charge at home if you have solar or don’t have solar or have to go use a charger somewhere else, but think a lot about what it’s going to cost every month.

There’s some great online calculators where you can estimate what a loan payment would be. I personally would never want a loan that’s more than five years for a car. If I can’t afford the payment for a car with a five year loan, I probably can’t afford that car and I should look for something cheaper. So be realistic about what you can get. Think about a car that’s affordable and safety is always very important, but then also think about those extra costs, insurance, maintenance, and so on. If you do that, then you’ll find that car that fits in your budget. And don’t rush, most of the time you don’t have to buy a new car or a new used car right away. You can research, you can negotiate. If you’re buying from a big dealership, you can negotiate maybe a trade-in or a car’s sale price.

If you’re buying it from someone else directly, you can absolutely negotiate. I actually just sold a car recently using Facebook marketplace and the person I sold it to pressed a hard bargain and I was also patient in selling and waited until I got a good offer and it felt like a win-win when the person came and picked up the car and paid me the cash for it. So take your time, don’t rush. It’s okay to shop around and wait till you find the car that’s perfect for your needs. Next, number three, work on improving your credit score. If you’re buying a car with a loan, having a better credit score can lead to better financing options. So like I said, I wouldn’t ever want a loan longer than five years, but the longer the loan period, the higher the interest rate typically is, but also a lower credit score leads to a higher interest rate and maybe even a struggle to get approved for a car loan at all.

Work ahead of time if you can. It’s never too late to start working on improving your credit score. Try to pay off your credit cards and keep those balances low if you have them, and always make sure you pay every loan account payment on time. That’ll help build your credit score over time. Loan accounts can mean car loans, home loans, student loans, credit cards, anything that’s borrowing. Making 100% on time payments by the due date is critical to build a great credit score. And if you walk into a dealership or a bank or a credit union, credit unions often have better rates than anywhere else. Financing through the dealer sometimes is cheaper, but sometimes it costs more. So you can even shop around for a car loan online and find the best rates and fees for your goals because remember, a higher interest rate means you’re paying more for the car.

So the more you can save on interest, the better, and if you can afford it, pay off that car loan early. My first car loan I got during my first job after college when I worked in that bank and I made a significant extra payment every month into my car loan because I knew it would go away faster and I paid it off in about two and a half years, even though it was scheduled for five years, I actually paid it off on my birthday. That was my birthday present to myself was no more car payments and I thought that was pretty cool. Next, think about maintenance and what you can do yourself. So first, regular maintenance can prevent costly repairs in the future. We talked about things like getting oil changes as scheduled, but learning basic car maintenance skills can help you save a ton of money when you need your car to be serviced.

A couple of things that I like to fix on my car myself where I don’t have to pay anyone else are my cabin air filter. That’s usually, in the cars I’ve had, behind the glove compartment. And all you have to do is pop it open, pull the old filter out and put the new one in. You can buy those filters at Walmart or any auto store, and you can do that, once you’ve done it once or twice, in less than five minutes. The last time I changed one I was on my wife’s car, it took me about two minutes. And if someone else did it, they would’ve charged me about 70, that’s seven zero dollars, to do it, and I just had to pay about eight, $12, something like that for the filter. It wasn’t that expensive. So you can buy those air filters that fit your car and change them yourself.

For most cars, you’ll also have an engine air filter. That’s one you can change yourself to. You pop the hood, find the spot where the air filter goes. It’s usually just a little latch to open it up, take the old filter out, put the new one in. Again, that could save you 50, $70 and it takes less than five minutes. So don’t pay someone else to do that stuff, you can do yourself. You can often change tail lights and headlights on your own instead of paying someone to do it. You can definitely refill your windshield wiper fluid. If you have any fluids that need to be topped off, you can check those and top them off yourself. Now I know how to do an oil change, but I find I can get a pretty good deal when I shop around and find someone else to do it, and they will do it better and faster and handle the disposal, which I don’t want to have to deal with.

So if you can find a good deal, it’s better to have someone else do it. But then when it comes to changing your windshield wipers out or your air filters, you can usually save money by doing it yourself. So number five, last but certainly not least, insurance savings. Insurance is a really big part of your cost of ownership when you own any kind of vehicle. So think about your insurance costs and your rates. And one thing insurance companies like to do, they like to raise your rates every year. It’s how they make more money. I like to shop around for insurance about every other year for my cars. Sometimes you find you have the best deal and maybe you have a bundle with your renter’s insurance or homeowner’s insurance, and that makes your car insurance cheaper. But sometimes you’ll find a cheaper deal elsewhere and that’s okay.

Also, think about if you have a really good driving record or your family has great driving records, you might want a higher deductible in exchange for lower premiums, and that means you have to pay more if something happens, but your monthly costs go down. You can also look for discounts like safe driving discounts, low mileage driver discounts. If you have kid’s on your car insurance, you can look for good student discounts. That is a good encouragement for them to have better grades too. There’s lots of different discounts, so make sure to ask around there. You can apply for insurance online or you can work with an agent. If you work with an agent, I like independent agents, that means they’re not tied to one specific insurance company because they can give you quotes for a whole bunch of different insurers at once. Again, helping you shop around a lot quicker and more efficiently.

Also, something that a lot of people don’t think about is pay-per-mile insurance. I actually use a pay-per-mile insurance myself. The one I use is called Metromile and there’s a little tracker in my car and I pay a base fee for each car every month and then a number of cents per mile that I drive. Now I work at home and the kid’s school’s really close to home. The grocery stores is close to home. We’re in a situation where my family doesn’t have to drive all that much, so we found that we save about 50%. That’s about half off compared to what we would pay with a traditional insurance company. So if you work close to home or don’t have a long commute or don’t drive that much in general, definitely consider pay-per-mile for your auto insurance because it saves you a ton of money. So those are the big tips I have for today.

It’s so important to think about your big wins in your finances. Of course, we all want to save money here and there, so cutting a trip to the coffee shop could save you 3, 4, 5 bucks. And if you do that all the time, it’ll add up. But if you can save $50, $100, $200, even more every month on your car, that’ll add up to a much bigger impact much quicker. And the last time I looked, the average car payment was around six to $700 a month, which is a huge amount of money. I mean, think about how that compares to your rent and your other bills. If you were able to save up a big down payment and get a loan with a good interest rate, you might only pay two or $300, $400 a month for your car payment, and that’s a lot easier to swallow.

And if you own a car or if you buy even with a loan to own your car rather than lease, eventually that car payment will go away, and that’s money you have every month that you can put into savings, other debt payments, you can help your kids go to college, you can put it away for retirement, you can start an investment account. There’s so much you can do if you could free up another 3, 4, 5, 6, or even $700 a month. So think really hard when you’re shopping for your next car and try to do everything you can to keep those costs as low as possible because that’s a big win for your finances for the long run.

Well, I hope you thought that was useful, everyone. Saving money on your car as a huge goal, I think a lot of people could take advantage of. And while you might not be able to save 100s of dollars a month right away, it’s important to keep all of these details in mind the next time you’re shopping around for a new used vehicle, hopefully. So definitely think about what you would rather do with that money than put it towards a car loan or even worse, a lease. And if you did change your car ownership and can save a little bit more every month, remember that with the Payactiv app, you can automatically save every month. So if you get a new car loan, let’s say, and it’s $200 a month less than your old one, you could set a $200 automatic savings every month through the Payactiv Visa card.

And that’s money you’re putting away from the future to help you not live paycheck to paycheck, to help you save up for any kind of financial goal, whether that’s a vacation or sending your kids to college or retirement or anything else. So think hard about where your money goes. And definitely if you’re not a member already, check out the Payactiv app because we’re here offering a financial wellness platform that is designed to help you make the most of all of your money and every dollar that comes in the door. So thank you so much for hanging out with us today and listening till the end now, get on out there and live the life you’ve earned.