How do you pay off a car?



Linda (my wife) was out with one of her friends this weekend and they were discussing cars and what kind each of them are interested in getting. The conversation progressed and Linda’s friend asked, “do you mind if I ask you how much your car payments are each month?”

Of course Linda replied $0, because they are all paid off. To that her friend was completely shocked and asked, “how do you pay off a car!?!” She was completely floored and truly didn’t think that anyone had a paid-off car – except the super-rich.

I have to admit that when Linda told me the story, I was almost as surprised by it as her friend was that our cars were paid off. I live and breath this stuff and as I have immersed myself in it that last five or so years it has become like second nature to me. This was a good reminder for me about how I used to think about money. I used to assume that a car payment was a fact of life and that it was pretty much unavoidable, so I understand where she is coming from. But having done it both ways, I must say driving paid off cars is a lot more fun!

So anyway, I figure I better answer the question – just in case her friend stops by to find out how we did it.

  1. Don’t pay too much for your car – I have done this in the past and it made it much more difficult to pay that car off.
  2. I always suggest checking out before making a car purchase. It costs about $5 for a month subscription and will steer you away from buying junk cars and will point you to the best ones.
  3. In most cases the best financial decision is to buy a used car about 2-3 years old. (Read more about saving money on car depreciation.)
  4. Never pay the minimum payment. Our last car loan we had we were paying double or triple payments each month. This would have been impossible for us had we not set up a budget.
  5. By shopping around for car insurance, we saved over $500 per year – which then could be applied to paying down our car loans.
  6. Say NO to your temptation to keep up with the Joneses by getting a new car every other year! Realizing how rich you really are helps!

The goal should be to find a car you like that you can drive for a long time! Then when you do reach that wonderful moment when the car is paid off, you can celebrate! And then start using the few hundred dollars you were using for the car loan and start putting it in a savings account. While you are driving the paid off car for a couple years, you will have money in the savings account to cover the maintenance and repairs, meanwhile you are saving to buy the next car with cash! And then you move on to the paid off mortgage!

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  1. Amy

    This is a great post! I just got the title of my car (Impala) mailed to me last week and it is very nice to be driving a car that I am no longer paying for. The satisfied feeling of driving a car that I fully own has been an accomplishment that I have been striving for and it was worth the wait!

  2. Pochax

    This post came with great timing for me as my wife and i are planning on buying a new car (yes, i read the part about buying used, but i think current times are uniquely situated to make new car buying somewhat comparable). We already have the money ready to buy (including the trade-in or sell of the car it will replace) but we are also open to 0% financing if available to accumulate the interest saved by not having the shell out the entire sum all at once.

    • bob

      I agree with you – generally I think buying a 2-3 year old car is the best idea, but like you we bought our last car new as well… I normally tell people (including myself) that when you buy new, just make sure you keep it for a long time – its the buy new every two people that get burned the worst…

  3. Mike D.

    Bob, I’m curious, what do you and your wife have for cars?

    • bob

      Mike, we have a 2007 Honda Fit, 2000 Ford Focus, and ’98 Taurus

  4. Matt Bell

    Another great site for making a wise choice when buying a car is Look for the True Cost to Own tool, which enables you to estimate various ongoing expenses associated with different cars — fuel, insurance, maintenance, repairs, etc.

  5. Brent

    We’ll have our van paid off within a month or two and then be saving to pay cash for a replacement to my car (’92 Ford Taurus with 210k without a working radio). I don’t plan to ever have any loans again except my mortgage.

    We’ll pay a car payment to us each month and play it by ear with my vehicle and just plan to move up in price little by little. I get made fun of but I could give a crap what poor people say.

  6. MLR

    I am currently getting the new car itch. I don’t have a problem with it because I am aware of this fact and have personal restraint.

    I figure my car has another 5 years or so, but I will probably get a 2 year old car in another year or two and keep this current one as a “beater.”

  7. Ken

    Well stated. I think not having car payments is a wonderful goal. I’m driving a paid for Camry and we still have a couple years payments on our minivan. I definitely hope to not have any car payments one day. Great advice.

  8. Resa

    driving paid off cars is one of the best feelings in the world! now to live in a paid off house 😉

  9. Jordan

    You simply have to be able say ‘no, thanks at that price’ at least once to the dealer. This gives them a strong message that you are serious about your research.

    You should also bring a piece of paper to the dealership and make sure you do all the math of the finance calculations yourself. The point is not that they will do the math wrong. The point is you will see exactly how the deal is structured. Do not be afraid to take the time to do this or look like a fool for mapping out your car deal in the dealership.

  10. hizmoney

    Thank you for the article, “How do you pay off A Car?”. It is excellent advice. Currently, I have no automobile payments and no payments for a long time now. Praise God! I did use when I purchased my vehicle and it was a great help. A friend told me about a book they used that helped with negotiations and purchase of their new automobile a few months ago. The book is entitled, “Car Buyer’s and Leaser’s Negotiating Bible” by W.J. Braggs (William James) and may be available at your local library.

  11. Julio

    My wife and I drive paid off cars, an 03 Galante and an 03 Murano. I keep track of our finances through Quicken and twice a year (once in Jan and again in June) I depreciate both cars against the current rates on KBB. When I checked the current values this month, I was surprised that instead of going down over the last 6 months, both cars actually went up in value. I wonder if the current state of the economy has somehow increased the value of used cars. Has anyone else experience something like this?

  12. Stacy

    Like another person above mentioned, I like using for doing research. I bought my Mazda 5 mini-van 3 years ago. It was listed as one of the “Lowest True Cost to Own” vehicles in 2009. I got some quotes using website. I never even set foot in a dealership until I found the exact car I wanted for the right price.

    Both my 2009 Mazda 5 and my wife’s 2006 Chevy HHR are paid off and we love not having car payments.