The Secret to Never Having a Car Payment, Even on an Average Salary
Written by
Cynthia Measom
Edited by
Zuri Anderson
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Car payments are expensive. The Experian State of the Automotive Finance Market Report for Q2 of 2024 shows that average monthly payments are $734 for a new vehicle and $525 for a used one.
And when you add in rising insurance costs, fuel prices and maintenance, owning a vehicle can put a serious dent in your finances.
Not having to shell out hundreds of dollars (or more) each month could help you get ahead financially. Here are some options to avoid a car payment even while making an average salary.
Purchase a Very Cheap Car With Cash
Shawn Maloney, the founder of Retire Wise LLC and an experienced financial advisor, said that to never have a car payment while living on an average salary, you should consider adopting a strategy similar to Dave Ramsey’s method of gradually upgrading your vehicle without taking on debt.
“Start by purchasing an older, reliable car for cash, ideally under $2,000, and drive it for about 10 months,” he said. “During this time, save the amount you would have spent on monthly car payments into a high-yield savings account.”
Maloney said that after 10 months, you should sell the old car — hopefully recouping most of your initial investment — and combine the proceeds with your savings to purchase a better vehicle for cash.
“Continue this cycle, gradually increasing the value of your car every 10 months,” he recommended. “This method not only helps you avoid payments but also builds a cash reserve for your next vehicle purchase.”
Use a Car-Sharing Service
Dennis Shirshikov, finance professor at City University of New York and head of growth at Summer, said a non-traditional way to avoid car payments is to take advantage of car-sharing services like Turo or Zipcar.
“These services allow you to access vehicles when needed without the burden of ownership, maintenance or insurance costs,” he explained.
“It’s a solution that works well if you don’t need a car for daily commuting and want to avoid the ongoing financial responsibility of owning a car. In larger cities, many people have found this to be a flexible and cost-effective alternative, where the need for a personal car may not be as critical.”
Keep Your Current Car as Long as Possible
According to Steven Kibbel, financial planner, entrepreneur and chief editorial advisor at Gold IRA Companies, people often upgrade their car when they don’t really need to.
“If you maintain your vehicle properly, it’ll last years longer, and that extra time without a car payment gives you breathing room to save for the next one,” he explained. “You’re basically paying yourself to drive longer instead of paying a lender. It’s not glamorous, but a used car with cash in hand beats new car payments any day of the week.
“Keep the debt out of the equation, and you’ll always be ahead of the curve.”
Co-Own a Car
Benson Varghese, a board-certified criminal lawyer, criminal defense attorney and founder and managing partner of Varghese Summersett, suggested the option of co-owning.
For example, you and someone you trust would pool your funds to purchase a car outright so neither of you would have a payment. However, Varghese said if you go this route, it’s critical to establish a thorough partnership agreement.
“This document ought to specify the obligations of each participant, including upkeep, insurance and what would happen in the event that one of them decided to sell their shares,” he explained. “This agreement being in writing will help to avoid confusion and provide clarity in the event of disagreements.”
Ask Family or Friends To Loan You Their Vehicle
Varghese said that, if you have the option, you might explore vehicle loan agreements with friends or family.
“If they agree to let you use their vehicle without payment, you may want to formalize this arrangement with a written agreement that specifies usage rights and responsibilities,” he recommended. “This protects both parties legally and ensures clarity regarding ownership.”
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