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I’m hanging onto my 16-year-old car for a reason. Read on to learn what that is.
Image source: Getty Images
Owning a car is hardly an inexpensive prospect, between auto insurance, loan payments, and maintenance. But I haven’t had an auto loan payment in a long time because I bought my car in 2014 and paid it off three years later.
While there are things I like about my car, it’s far from perfect. I drive a minivan, which means I have plenty of room for both passengers and storage. And certain features, like seat warmers, make it a nice car to drive in the cold.
On the other hand, minivan doors are a nightmare. I find myself constantly fighting to get my sliding doors to close, and that’s just plain annoying — especially when you’re in a rush.
Still, I plan to drive my car for as long as possible. For every month I don’t have an auto loan payment, I have more money available to invest in my brokerage account. And those investments could go a long way over time.
An opportunity I won’t pass up
There are times when I’d really like to replace my minivan with a different model. But in doing so, I know I’ll be taking on a huge car payment due to the fact that vehicle prices and auto loan rates are up right now.
In fact, the average monthly payment for new vehicles hit a record high of $730 during the first quarter of 2023, according to Edmunds. So not having to pay something in that vicinity each month saves me a lot of money.
Now this doesn’t mean that I don’t spend any money to own my car. I still have to insure and maintain it. But by not having a car payment, I get more wiggle room in my budget. And that makes it easier to find cash to invest with.
In fact, let’s say you have an older car that’s running just fine but you’d like a newer one. Imagine that replacing it will leave you with a monthly car payment of $730. (We won’t factor in maintenance and insurance costs, because those will apply as long as you have a car, period.) If you were to continue driving your car for one more year, all the while putting $730 a month into your brokerage account, you’d have $8,706 in investable cash.
Meanwhile, the stock market, over the past 50 years, has generated an average annual 10% return before inflation, as measured by the S&P 500 index’s performance. If you were to invest your $8,706 in S&P 500 stocks or ETFs, sit back, and do nothing, in 30 years, you’d have about $152,000, assuming that same 10% return.
That’s why I’m not looking to replace my car with a newer one anytime soon. And you may want to seize the opportunity to invest the money you don’t have to spend on a car payment, either.
It’s not a great time to finance a car
Not only does continuing to drive my older car give me money to invest with, but it spares me from having to finance a new car right now, when borrowing rates are way up. Besides, while I may not be totally in love with my car, at least I’m used to driving it and am aware of its various quirks. And there’s a value in that, too.
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