Dave Ramsey: Why You Shouldn’t Buy a New Car or Take Out an Auto Loan in 2025
Written by
Catherine Collins
Edited by
Chris Cluff
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If you think you’ll always have a car payment, Dave Ramsey says think again. The personal finance expert consistently encourages his followers to pay for their cars in cash.
Ramsey writes that we live in a society that accepts having a car payment as a way of life, “like filing your taxes and doing your laundry.” However, Ramsey doesn’t think this should be the case. He explains that buying a car is not an investment, and there are many different options consumers should consider before having a car note.
What’s the Average Car Payment?
The most recent Experian car payment data shows the average payment for a new car is $734 per month and the average used car note is $525. These shockingly high numbers show it’s getting harder for the average American to afford a car.
In addition, consumers are battling high inflation prices on everyday items such as groceries, gas and utilities, which can be overwhelming and stressful for families. That’s why Ramsey teaches his listeners how to manage their finances differently.
Why Are Car Payments a Bad Idea?
Consumers’ car payments aren’t their only car-related expenses. For example, there’s steadily rising interest compounding your monthly payments. That’s money consumers could be allocating to other expenses. Unlike appreciating assets that grow and value over time, like real estate, cars do the opposite. Over time, cars depreciate. As Ramsey explains in his article, using data from Carfax, cars depreciate 60% in value over five years.
That means that if you have a car note for several years, you’re paying monthly costs plus interest for a vehicle that’s going down in value. This leads to a situation where you can be underwater on your car, meaning you owe more than your car’s even worth.
Being underwater on your vehicle is financially risky because if you total your car, insurance might not cover what you owe.
What Are Some Alternatives to Car Payments?
If you don’t want large car payments and risk being underwater on your car, here are some alternatives to consider:
Keep Your Current Car
It’s tempting to upgrade your vehicle, especially if your friends, family and other parents in the pickup line drive newer vehicles. Maybe you feel embarrassed when someone gets in your car, or your radio or windows don’t work.
Either way, if your car reliably gets you from one place to the next, consider keeping and maintaining it. Take care of your vehicle, get regular oil changes and repair as needed. Find a reliable mechanic who can help your vehicle last as long as possible.
As long as your car’s reliability and maintenance remain relatively affordable, you can drive it longer than you realize. The best part is avoiding a car note that costs you hundreds monthly.
Buy Cheap Used Cars
If your car isn’t driveable, Ramsey recommends buying a cheap, used car. Sure, it won’t be your dream vehicle, but it helps you avoid going deeper into debt. While you drive a cheap car, keep saving up to buy the car you want in cash. New cars are expensive, but plenty of reliable vehicles are available for $10,000 or less.
Save and Pay Cash
Most people believe they can’t save and pay for a car in cash. However, Ramsey’s daily radio show features consumers who’ve done just that daily. It takes patience and discipline, but having no monthly payments gives you greater financial freedom and immense peace of mind.
Final Thoughts
Ramsey offers a unique perspective. Although having a car payment is the norm for most people, Ramsey encourages his listeners to save for a car payment in cash or pay off their cars early if they’ve financed one.
Ramsey’s main purpose is encouraging his listeners to build wealth over time, and having a paid-for car is just one aspect of his teachings. However, those who decide to live without car payments enjoy the freedom and increased cash flow that comes with that decision.
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