Let’s be honest, your car is probably the biggest financial mistake sitting in your driveway. We get it, the allure of a shiny new ride is strong. From the Lexus “December to Remember” event to Ford’s “Truck Month,” America is car-obsessed. Especially in car-centric cities like Dallas and Los Angeles, we’re in love with these rapidly depreciating assets and defend them fiercely. If F-150 sales were a nation, its GDP would rival some of the world’s largest economies.
A Confession: Even Car Experts Make Mistakes
Even those who know better can fall into the car trap. When I bought my Audi, it felt like a personal failing. I consider myself financially savvy, yet there I was, choosing style over sense. Logically, a used Honda Accord would have been cheaper, more reliable, and easier to maintain. But the Audi won. Ignoring the repair warnings, I smugly thought, “Accidents? Not me.”
Fate, however, had a different plan. Just two weeks after getting my dream car, on March 15, 2020, pandemic stress led to a parking garage mishap. Crunch! The sound of financial naivety hitting reality. A dented door on an Audi? A cool $4,000 to fix. My response? Tears and a call to Dad. Ultimately, the dent stayed, and so did my $4,000. “Character,” I told myself.
Now, hypocrisy acknowledged, let’s talk about why you should seriously consider selling your car.
It’s Not About Judgment, It’s About Awareness
This isn’t about telling you what to do, but about encouraging critical thinking about your financial choices, especially big ones like car loans. Think about how your spending aligns with your values. If, after considering the facts and figures, your Hummer still feels right, go for it. Just be fully aware of the costs, the lost opportunities, and the long-term implications. It’s your money, spend it in a way that truly serves you.
Why Cars are Financial Black Holes
There are two main reasons why car ownership is a financial drain:
- The Long-Term Opportunity Cost of Car Payments: Money tied up in car payments could be working for you elsewhere.
- The Immediate Costs of Ownership: Beyond payments, there’s a constant stream of expenses.
America’s Car Obsession: A Recipe for Financial Trouble
Many Americans are driving cars they simply can’t afford. Financial guidelines exist for a reason. For housing, the rule of thumb is to keep costs below 33% of your take-home pay. Exceed that, and you’ll feel the squeeze. I always cringed when friends joked, “This is my rent paycheck!” Half their income gone to housing – leaving little room to save or breathe.
Lowering structural expenses is key to financial health. Cutting back on small luxuries can’t compensate for massive car payments.
So, what’s the sensible car guideline?
Your combined car payment and car insurance should ideally be no more than 10% of your take-home pay. This is a conservative figure, but in a world of financial “super-sizing,” conservative is smart. Don’t let consumerism dictate what makes sense for your bank account.
Looking at your own car expenses, you might be reacting with disbelief. Hence the title: I’m not just saying consider selling your car, but… yeah, maybe it’s time to Sell Your Car.
Even my “sensible” used Audi, bought for $19,500 (MSRP $35,800), costs $316 monthly, plus $111 for insurance. That’s $427 a month, nearly $15 daily, just to navigate the same few miles. While my 2.9% interest is low and car expenses are about 9% of my income, it still feels excessive.
A costly car repair bill serves as a harsh reminder of the financial burden of luxury car ownership. This image emphasizes the unexpected expenses that can arise, urging readers to consider selling their car to avoid such costs.
The Depreciating Asset: The True Cost of Your Car Over Time
A friend recently considered selling his car, with payments consuming 18% of his income and a 7% interest rate. His remaining loan: around $30,000. He’ll pay nearly $6,000 in interest for this vehicle, with $594 monthly payments.
“$6,000 in interest? Not terrible,” you might think, comparing it to student loans or mortgages.
But remember: this $36,000+ car (including down payment) will eventually be worth zero. Depreciation eats away at its value daily. Cars are a terrible financial deal! And we haven’t even factored in insurance, gas, maintenance, and repairs.
I get the appeal. I bought a red Audi! I understand the desire to project a sporty, fun image with your car.
The Overlooked Cost: Opportunity Cost
Beyond the immediate costs, there’s the opportunity cost. Most Americans have car payments, and after paying one off, they soon trade it in for another, restarting the cycle.
The average US car payment? A staggering $550.
Let’s imagine investing that $550 payment for 10 years after your current car is paid off, instead of buying a new one. Assuming a 7% return, you’d have $95,160.
Alternatively, you could buy a new car every five years, spending at least $66,000 (excluding down payments).
This is the opportunity cost of “keeping up with the Joneses.” Your financial relationship with yourself boils down to this:
Do you prioritize financial freedom, or impressing others with possessions?
Choosing both sometimes is okay. Want a car that impresses? Fine. Just drive it after it’s paid off. Otherwise, you’re throwing money down the drain.
Perhaps retirement savings aren’t your priority. If you plan to work forever, maybe this doesn’t matter. Your luxury SUV can take you to work in comfort. And if you earn enough to justify it, treat yourself. No one judges a high-earner driving a luxury car.
But most of us aren’t high-earners, and need to prioritize wisely.
A 10-Year Shift in Perspective
Imagine delaying a new car purchase for just 10 years after your current car is paid off. No driving a clunker forever – just delaying luxury for a decade.
Remember that $95,160 earned by resisting the urge for a new car? Even without adding another cent, in 30 years, it would grow to $724,000.
So, is impressing strangers for 10 years worth sacrificing an extra quarter-million dollars in your pocket by age 55?
To reiterate: drive your paid-off car for 10 years, invest the payment instead. Potentially gain $750,000 by 55. It seems like a clear choice when you look at the numbers.
I know this sounds preachy, but I feel strongly because I’ve seen young people delay retirement by years due to expensive car leases on modest salaries.
These are serious trade-offs. And (conspiracy theory alert!) we’re subtly manipulated into downplaying them by clever marketing and the normalization of expensive cars among peers. But a loan calculator and investment calculator reveal the truth: you might be getting taken for a ride by the auto industry.
Don’t let others profit excessively from your hard work. The great thing is, you can eventually buy that dream car – just delay it a bit. Consider selling your current car and driving something more affordable in the meantime to accelerate your savings.
Delaying the Dream Car Until 40: The Power of Patience
Let’s extend this. What if you commit to responsible car choices for 15 years after paying off your current vehicle? Drive it longer. Invest $550 monthly instead.
After 15 years, you decide, “Enough responsibility!” and buy that Porsche Cayenne. Great! You’ve earned it.
In those 15 years of responsible choices, you’d have invested $99,000, which grows to $172,000 with compound interest.
Now you enjoy your Cayenne, knowing your $172,000 “Responsible Decision Money” is still growing in the background. Responsibility break over.
Fine. That $172,000 will become roughly $500,000 in the next 15 years (assuming a 7-8% average return).
A chart illustrating car depreciation over time effectively visualizes the rapid loss of value associated with vehicle ownership. This image supports the argument for selling your car to avoid further financial losses due to depreciation.
See how impactful this is? Fancy cars for 15 years, or an extra half a million by age 55? These choices matter.
This isn’t opinion; it’s math. You can have your Cayenne and compound interest too. Just delay gratification. And maybe, just maybe, consider starting by selling your current car and making a financially smarter move today.