Car and Sales

No More Car Payments: How to Buy the Car of Your Dreams with All Cash

Let’s say that tomorrow morning you wake up to discover that overnight—gulp!—your car was destroyed beyond repair. You’re not covered and you’re devastated.

You can’t live without a car. But you have no money—not a nickel in savings. So what do you do? If you’re like most people in that situation, you head to the only dealer in town who’s offering $0 down financing and a monthly payment that somehow you’ll figure out how to afford.

Car and Sales

Realistically, what payment can you afford if you pull the plug on cable TV, stop eating out, and basically cut out all frivolous spending? $200? $300 $600? 

Okay, back to reality. Your car isn’t destroyed, and you’ll keep driving it for a while. But remember the amount you said you believe you could afford each month if you really put your mind to it? Let’s say it’s $300. Keep reading. 

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The Bank of You

Open a savings account somewhere convenient and begin immediately to make $300 monthly payments into that savings account. Just as if you were in that terrible scenario mentioned above. Every month. Make the sacrifices now, cut the spending now. Be strict with yourself—rigid and unbending! No late payments, no slacking. 

In the meantime, and as you are making these big new payments to yourself, continue driving the car you have now for at least one more year, even if it is a real clunker. You can endure anything for a short time when you have a plan for it to end.

Soon, you will begin earning interest — currently 2.20% APY—on the growing balance instead of paying interest on a conventional auto loan. 

At the end of one year—12 payments to yourself—you will have accumulated $3,600 cash plus interest. Not bad! 

Sell the clunker

Now sell your clunker. I don’t know what you have or what it might be worth but let’s say you can’t stand it for one more day and you can sell it for $2,000. Put that money with the $3,600 and best clunker you can find for $5,600 all cash. By now you’ve become used to making $300 payments to yourself, so don’t stop. It’s becoming a habit, and a very good one at that! 

At the end of another year, sell the current clunker for say $4,800 and put that money together with the $3,600 you have saved during the year by making payments to yourself. Now buy the best used car you can find for your $8,400. And continue making those $300 monthly savings deposits in the Bank of You.


The power of habit

At the end of year three, sell the current that car for say $7,800, and together with the new $3,600 from your savings, buy the best $11,400 car you can find. Notice: Your selection of good used cars is getting better each year. You have graduated from clunkers to much more respectable automobiles. 

In year four, sell the most recent car for say $11,000, add the $3,600 accumulation, and buy a $14,600 used car. 

Keep doing this and by year five, you have at least $17,000 cash to upgrade to an even better car. By year six, you should have at least $20,000 cash to buy a car. 

Annual routine

Keep repeating this once each year—upgrading, paying cash for a better car, and still a better car. As you become more adept, you will lose your fear of buying and selling cars. 

Keep this routine of saving first then upgrading once a year. Within five or six years you will have accumulated enough cash to buy a brand-new car—ALL CASH! You will have more than $20,000, plus all of the interest you have earned each year on your $300 monthly deposits. 

Cash and personal power

Imagine your confidence and personal power, knowing you are not at the mercy of any salesman, bank, or finance company as you look for a car. You can negotiate hard because you have cash!

Buying a brand-new car will certainly be an option. But I predict you won’t. By that time, you will be so good at buying late-model, domestic, low-mileage cars for a fraction of the price of a new one, you will scoff at the folly of buying new and feeling that big 20% depreciation hit on the front end. 

Still, you will have the option to do exactly as I promised: Buy a brand-new car—the car of your dreams, for all cash. And who knows? You just might.

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9 replies
  1. Dawn Annette Jorgensen says:

    Continue to save $300 and save towards your next car, and any repairs, tires, maintenance and, heaven forbid, if your in a crash a way to quickly be able to meet the deduction!

  2. Kate Kvas says:

    Where are the repairs & maintenance costs figured in to this cycle? Most cars, especially ones in the few thousand dollar category, will definitely need repairs along the way and all cars will need maintenance like brakes, tires, oil changes, etc.

  3. Angela Weaver says:

    Just shared this with my son! He is just starting out in the adult world of a job and finances and all that good stuff that comes with turning 18! I am so proud of him!

  4. Sue in MN says:

    It really works! The trick is to keep paying yourself every month, even once you have your “dream car”, because it too will eventually need replacement. Right now we have a 10 year old van with 100,000 miles, used mainly for trips with our camper and/or kids/ grandkids, and a 2 year old Prius with almost 50,00 miles. And $10,000 in the bank toward eventual replacement of one or the other. On the plus side, as the cars are newer and better, they need fewer repairs. As the account grows, we have the option of deciding to pay for any major repairs from it instead of replacing the car, and we still will have a reliable vehicle.

  5. Kathy says:

    This is similar to this chapter I just finished teaching my high school students in a personal finance class about buying a car. I’m personally saving $400 a month which is more than my last car payment was.

  6. Tammie says:

    My husband and I have been using this method for over 30 years. We have 3 cars and are debt free. As we have replaced vehicles, we have gifted all 3 of our children with “good” used cars which helps them out as they leave the nest. When we do replace a car, it’s never with a new car but rather one which has comes off of a lease. It’s only a year or so old with a factory warranty. With depreciation of new vehicles, we save a substantial amount in sales tax, property tax and insurance.

  7. x_ray_tech says:

    Remember to figure in the increased price of insurance and parts/repairs/maintenance with each upgrade. This is a great idea and should be used as “just what people do” – or as the norm. Do this all your life and pay cash for all that comes along (like in the “olden” days!) – that new roof, siding, windows, all upgrades and repairs on your house – which can easily cost like a new car also – and all else you need along your life journey. We have been so sold into taking on debt instead and this is an excellent way to “reprogram” our brain. Moms and dads, start your kids thinking the right way too, as early as possible.


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