New guest of financial guru Caleb Hammer TikTok show He started telling the details of how much money they had borrowed to buy the BMW.
“Always BMWs,” he sighed, addressing the financial implications.
The couple claims they own a 2020 BMW X1 with an outstanding financing balance of $56,000-$57,000 with a 15%-16% interest rate. “People in the scheme lend money on BMWs so you can be the worst drivers on the road,” Hammer said, appalled by the revelation that the couple was spending, by their own estimate, $1,140 a month to finance a car. “It’s probably worth half as much now.”
Hammer’s guests aren’t the only ones getting into debt for needlessly expensive cars. As of the second quarter of the year, more than 100 million Americans collectively owe $1.5 trillion in auto loan debt, according to Fed data. This is a record high and roughly equal to the size of the Mexican economy.
Simply put, Americans are risking their finances just to get from Point A to Point B. Fortunately, there are a few ways to buy a car without crippling debt.
Consider used cars
For a long time, it was correct to assume that used cars were a good deal and would be much cheaper than buying new. But supply shortages in recent years have complicated this. In 2021 and 2022, used car prices reached historic highs as COVID’s impact on supply chains spread through the economy. The situation is improving, but the average price of a used car in America (about $27,000, according to Consumer Reports) is still higher than before the pandemic.
Yet there are still some things Attractive opportunities in the second-hand marketespecially on models older than three years. Financial figures like Dave Ramsey and Suze Orman still strongly recommend buying as a cheaper alternative.
There may be some benefits to getting pre-approved for a car loan instead of signing up for a dealer’s offer. First, you can shop around lenders for the best deal. Plus, getting pre-approved means you know pretty well how much money you can afford for a car before you start listening to the dealer talk and get persuaded to buy too much.
Read more: Thanks to Jeff Bezos, now you can use $100 to make money on prime real estate – without the headache that comes with owning a home. Here’s how
Pay attention to long term
Some old-fashioned advice about buying a car was that your loan term should be no longer than four years. However, nowadays 60 months or 5 years is more commonly recommended. Longer terms — 72 or 84 months — means less flexibility. If you decide to sell or trade in a car midway through the long run, you may owe more on the car than it’s worth, as interest rates on car loans are typically high and cars depreciate quickly, and the newer the car. the faster it loses value.
buy with cash
The simplest case for buying a car with cash is that doing so means avoiding going into debt at a time when borrowing money is prohibitively expensive due to rising interest rates, as experts like Dave Ramsey have long argued.
Ramsey suggests that buying with cash can also give you an advantage when negotiating with a seller. If you have enough money to buy the car you want outright, you won’t be vulnerable to dealers’ pressure tactics or unfavorable deal terms.
What to read next?
This article provides information only and should not be construed as advice. It is provided without any warranty.