I had vowed never to take out a loan for a car, but I was surprised by how nicely my first auto loan fit into my entire financial plan

I had vowed never to take out a loan for a car, but I was surprised by how nicely my first auto loan fit into my entire financial plan
  • Depreciating assets, such as a vehicle, would never be the subject of my loan. My husband and I have never needed an auto loan since we always saved enough to purchase automobiles with cash.
  • We shopped around and found a loan with an APR of 4.05 percent to get a fair deal on a vehicle. I’ve learned a valuable lesson regarding financial adaptability.

Taking out a vehicle loan from Champion : gave us the security we needed while not depleting our emergency savings account, so it was the most excellent choice for us at the time.

Several regulations must be adhered to in the community of personal finance writers and professionals that I belong to. Never go above your monthly budget. Emergency funds are essential. Don’t ever take money out of your retirement account, period. Always contribute enough to your 401(k) to take advantage of your employer’s match (k). The list is endless.

How do you deal with situations when the rules no longer apply? That’s what my husband and I discovered when our car’s gearbox broke down before we could afford a new one.

Why do we make a promise never to take out a vehicle loan in the future?

My husband and I had never had a loan for a vehicle until last year. Parents ingrained the Dave Ramsey philosophy in me: Never take out a loan on a depreciating item, like a vehicle.

For many years, my spouse and I followed a similar approach to life. My only other obligation was our mortgage, which I had paid off since graduating. If someone had a good automobile and knew they had a loan to pay for it, I would look down on them.

Because I write about personal finance, I felt compelled to maintain the values I espouse in my articles. As a personal finance expert, you’d be doing a disservice by taking on debt you don’t need.

Our policy was to save money regularly and pay for all of our vehicles in cash. We bought a 2005 Toyota Corolla for $4,600 in 2017 and immediately began saving for our next car. This Toyota Corolla is still going strong five years after it was purchased.

In 2022, a technician informs us that our gearbox is beyond repair and that a replacement would set us back roughly $2,000.00. Repairing a vehicle that had previously logged more than 155,000 miles wasn’t worth it.

Our savings account wasn’t big enough to purchase a quality automobile outright, and we didn’t want to take out a loan.

We decided against utilizing our emergency fund to purchase a used automobile for $5,000 since we didn’t want to be in the same scenario as before when we bought an old car and had to replace it two years later due to a significant mechanical issue.

It didn’t make sense to take money out of our emergency savings account. Because my husband and I are both self-employed, our jobs are less secure than those of other people. When a customer goes on vacation or doesn’t assign work for a long, we may draw on our emergency money to keep us afloat. There have only been a handful of times that we’ve ever had to go into our emergency fund to cover unforeseen expenses, such as an unexpected medical cost or rent, when a freelancing client stopped paying us.

Why taking out a vehicle loan was a good idea.

I was relieved when my spouse recommended that we apply for a vehicle loan.

Going against my advice seemed blasphemy since I identified so strongly as a “financial guru.” A simple suggestion from my spouse made it simpler to let go of everything.

Our search for a gently used vehicle led us to a car we were interested in purchasing. Toyota Camry with just 45,000 kilometers and a price of $15,500 was the vehicle.

I made a few phone calls to other banks and credit unions to find out my options. To qualify for a 4.05 percent interest rate, my husband and I needed good credit ratings. Throughout the loan, we would pay around $1,000 in interest.

Paying $1,000 in interest is a pain, but it’s the best alternative we could use. This was a valuable lesson in adaptability. Even the most rigid of personal financial laws may be broken if it’s in the best interest of your scenario.

After we pay off the vehicle loan, we’ll put the remaining funds in a separate savings account. When the automobile is 12 years old, we should have enough money to purchase a new one. I’m convinced this vehicle will outlast our prior model by at least a decade with regular oil changes and maintenance.

As long as the gearbox or engine is still in good working order, we have no plans to part ways with the vehicle after it has reached a specific number of miles or years.

Kevin A. Perras