Car Loans by the Numbers
Let's take a closer look:
- More than one-third of Americans (that’s more than 113 million people) now have a car loan.1
- National auto loan debt now stands at $1.28 trillion—which is right behind student loan debt ($1.49 trillion).2
- Since 2009, the amount of money Americans owe on their cars has increased by 75%.3
- As of 2019, a record-high 7 million Americans are three months behind on their car payments.4
Houston, we have a problem! Whether you’re thinking about buying a new set of wheels with a car loan or if you already have one, you need to know how they work and why they’re always a bad idea.
Why You Don’t Want a Car Loan
First, let’s cover the basics. A car loan is made up of three main parts:
- Principal: This is the total amount of the loan (minus interest).
- Interest: This is your lender’s favorite word. Interest is the amount of money your bank or lender tacks onto your bill each month in exchange for giving you their money.
- Term: This is the amount of time you have to pay back the loan.
Today, the average new car loan is about $32,187 with a monthly payment of $554 (which includes the principal and interest) over an average loan term of 69 months.5
That means you’d be stuck with monthly payments of $500 for almost six years. That’s crazy! Not only that but, at the end of those six years, you’d end up paying about $38,000 for a $32,000 car that’s now worth much less than half of what you bought it for.
Did you know? Of Ramsey car owners surveyed, 43% acquired their primary vehicle without any financing!
How to Get Out of a Car Loan
- Pay off the loan. After all, you did sign your name on the dotted line. It’s time to get gazelle intense and work harder than you’ve ever worked before to pay off this sucker as fast as you can.
- Sell the car. When it comes to your car’s value, time is not on your side—especially if you bought it brand-new off the lot. And if you're upside down on the loan (which means you owe more on the loan than what your car is currently worth), you've got to pony up the difference.
If you don’t have the cash to pay off the loan and get the title from the lender, you may have to get an unsecured loan, pay off the difference, and then attack that loan with everything you’ve got.
Getting rid of your car loans once and for all is going to take a lot of work, but you can do this! For more help on getting out of debt, check out Financial Peace University. Our nine-week class has helped millions of people pay off debt, save money, and build wealth!
What About a Car Lease?
With a car lease, you’re basically renting the car—with the option to buy the car at the end of the lease. And anyone with some basic math skills and a calculator will tell you that leasing a car is the worst possible way to get a car. It’s 100% stupid, 100% of the time.
Remember how we mentioned that new cars drop in value the moment you drive them off the lot? Well, your car lease payment is designed to cover that loss in value and provide the dealer with a profit through the interest you pay. When they get the car back, you’ll have paid them more than the car has depreciated during that time.
How do you get a deal in that? Spoiler alert: You don’t. If you have a car “fleece,” you’ve been ripped off. Dealer-ships are like casinos—the house always wins.