What are “Payments”?
If you can’t pay cash, you can’t afford it.
“If you can’t pay cash, you can’t afford it.”
That’s my philosophy too. And it’s especially true with a money-sucking, depreciating asset like a car. Taking out a loan to buy a vehicle for personal use is one of the dumbest financial choices out there. I’m sorry, if the only functional car out there that you can afford for cash is a 2008 Corolla then that’s what you should be driving.
Did you buy your first house with cash?
I agree that that you should not finance a used car but there is nothing inherently wrong with getting a new car loan so long as you maintain a decent debt/income ratio (generally 36% or less). A new car should easily last you 7-10 years so if you get a four or five year loan, you will be in position to have a few years without a car payment in which you can save for your next car.
However, there are smart and dumb ways to finance a new car. I would recommend at least a 30% down-payment, so that you are never upside down on your car. That way, the resale value of your car always exceeds your loan, so you can unload the car and pay down the loan if you ever get yourself in a pinch. Also never go past a five year loan. A four year loan is ideal.
I've used that approach for years. The result is I was able to put over 50% down on my last car and the car payment is just under $400/mo. My company gives me a $700/mo car stipend so I'm actually coming out ahead of the game.
I know some that are paying almost $1,000/mo on their car loan - now that is just crazy. If you are paying that much on a car loan, you definitely cannot afford the car you are driving.
Financially savvy, you are not.