Auto: Pay cash for your car

In my opinion, it is a waste of money to pay interest on a car loan. I have taken out a car loan before, but luckily I did not have it long before I sold the car and paid off the loan. Save for a car and then buy a car you can afford. A brand new car will depreciate in value so quickly, you will probably owe more than it's worth within the first year or two of owning it. There is a special peace that comes with buying a car and owning it with no strings attached. You don't have to worry about making payments on it if you lose your job, and you just don't have to make payments, period.

A couple months ago, my husband's car stopped working properly. We decided that fixing the issue would cost more than the car was worth and sold the car. We needed a replacement for him, so we had to buy another car. We had not anticipated needing to buy a car, but we luckily had our savings started for buying our first home. We set a limit on how much we wanted to spend and set out to find a car.

We ended up getting a great deal on an '04 Pontiac Grand Prix GTP that my husband loves. The dealership even knocked off $500 for paying in cash. We got a great deal and owe nothing to the bank, which is amazing!

Let's look at a scenario. Let's say you buy a new car for $20,000. According to bankrate.com, for a new car, 60 month loan, interest is 4.03% on average right now. After five years, you will have paid $2,116.08 in interest for a total of $22,116.08 for a car that is now worth much less than the original $20,000. You take the hit of interest and depreciation!

Tip 1: Don't forget to account for tax, title, license, and any dealer fees when budgeting for a new (or new to you) car.
Tip 2: You can usually save some money by doing a private sale rather than buying from a dealership. Make sure the paperwork is properly done in a private sale.

Let me know your opinion in the comments. ;)

EDIT: Thank you Diego for finding the mistake in my calculation. ;) It has been fixed now.

Not our actual car, but it looks like this :)