🚗💸 5 Reasons Why Car Payments Can Derail Your Financial Goals: Home Ownership & Investing 🏠📈
The average monthly car payment in BC is $957 a month… Like what…. That can hurt your purchasing power when qualifying for a home upwards of $150,000… Look up on your favourite real estate websites, how BIG a $150,000 difference can make when purchasing a home.
If that's not enough reason to keep rolling in your shitty car that you have fully paid off… here are 5 more…
1️⃣ High-Interest Costs: Car loans often come with high-interest rates, meaning you're not just paying for the car, but also for the cost of borrowing. This extra money could be used for a home down payment or invested for future gains. For used vehicles this can be well beyond 7%... and if you watched my last video, you can see how much of an impact 7% makes on payments of just $500… 📊💰
2️⃣ Depreciating Asset: Unlike homes or investments that can grow in value, cars lose value the moment you drive off the lot, keep driving it, bang it up, scratch it, and so on. Monthly payments for a depreciating asset means your money is not working towards building your wealth but derailing it. 📉🚙
Now don’t get me wrong. People need vehicles… duh. But we are just saying pick wisely, and live within your means. Don’t fall for the keeping up with the jones crap of that dumb sales pitch where they “will lower your monthly payments by stretching it over a longer course of time…” $60K is still $60k… No matter how to stretch it. Want some more clarity, don’t hesitate to reach out. I used to sell cars and helped several people live within their financial means instead of over selling them!
3️⃣ Budget Strain: Car payments can consume a significant portion of your monthly budget, limiting your ability to save for a home or contribute to investment accounts. Every dollar towards a car payment is a dollar not growing in your investment portfolio & hurting your ability to buy assets like a home. 🏦🔗
Reliability in a vehicle is key. Stick to a car maintenance schedule and treat it right. It will significantly stretch the life of your vehicle!
4️⃣ Credit Impact: Large car loans may affect your credit score and debt-to-income ratio, making it harder to qualify for a mortgage or get favourable terms. Your ability to finance a home can be directly impacted by your car loan. HOWEVER, car loans are also a GREAT tool I completely support, when you can pay them off in full after two to three years. This shows lenders you OWN an “asset” fully & were able to fulfill the terms of the loan, building your credit. 📝🏡
With clients trying to buy homes with poor credit, we work on a credit rebuilding plan witch includes tricks like this! Do you have goals of owning a home with poor credit, reach out, we are always happy to help show you the ways to build that credit and be a one day home owner!
5️⃣ Opportunity Cost: The concept of opportunity cost is crucial here. Money spent on car payments could be invested in the stock market or other assets, potentially yielding higher returns. Over time, these missed investment opportunities can amount to significant financial loss. 📈🚫
Check out this compound interest calculator. Enter the total cost of your vehicle down payment in the initial investment spot, then enter the monthly payment in the monthly contribution slot. Insert all other actual values according to your vehicle and life, and wait for the holy shit moment… Let’s do the example on my vehicle…
Paid for Vehicle $15,000 in 2020
Down Payment $5,000 (Initial Investment)
Time to Grow 3 years
Rate of Return 5% (Interest on Financing Plan)
Additional Contributions $500/month (Monthly Payments)
(Uncheck Increase with Inflation)
And holy shit… Had I taken that $15K and invested it for 3 years instead of used it to finance a vehicle I would have in 3 years, my savings will have been $23,198. Crazy.
Shall we check out what a new vehicle would have cost in opportunity coast…
Lets do the same plug ins down payment $5k, monthly payments of less say $700, financed over 7 years at 5% interest and let the sale price of the vehicle be $54,932. In 7 years, your projected savings would been $66,326. And it would also decrease your total purchasing power by over $100k…
Simply nuts…
While having a car is often necessary, it's important to consider the long-term financial implications of a car payment. Opting for a more affordable vehicle can free up substantial funds for home buying and investing, paving the way for greater financial stability and growth. 🌟🔑
Personally, you’ll always find me rolling up in an older, well-maintained vehicle. I can’t wrap my head around paying for something that depreciates as quickly as a vehicle, even if it's poor in my industry for public perception. I have better assets to use for write-offs.
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