My car payments are too much! What should I do?

By Andrea Karim on 29 July 2007 34 comments
Photo: Mazda3

I've been struggling with a big financial dilemma for the past few months: whether or not to sell my car. I decided to take my question to three of my favotire personal finance bloggers.

Last August, I decided to purchase my first new car ever. I had only ever owned used (and entirely paid-for) vehicles prior to this. I researched the type of car that I wanted and settled on a 2007 Mazda3. It's a sexy little hatchback. It's sporty, zippy, and has all the trimmings. Problem is, it's busting my budget.

I got a decent base price on the car, but I fell for all the extras that the salesmen throw in at the end. You know, the extended warranty, the LoJack system. They kept showing me my monthly total (and not the grand total), and before I realized it, I was paying $3000 more for my car than I should have. I should note that this is pre-Wise Bread, so I wasn't nearly as wise as I am now. Ahem.

My payments aren't horrendous, and I have an excellent interest rate on the loan. But all together (insurance, gas, payments, upkeep), the car cfosts me about $600 per month. Everyone keeps telling me that $600 a month in transportation costs isn't that bad. But I can't stop thinking about how I could use that money every month to pay down my debt or contribute to my IRA.

Also, my car contributes to my laziness. It's an enabler. Having a car allows me to go anywhere, any time. While flexibility is nice, it's rarely necessary. I drive to the supermarket instead of walking. Hell, I drive to the closest mailbox instead of walking. I go to Target on a whim, buying stuff I don't need.

I'm thinking that if I didn't have a car, I wouldn't be so prone to spur-of-the-moment shopping, or runs to Safeway for blueberry sorbet in the middle of the night. I'd have to bike and bus to work. I have a motorcycle, so I can use that to get around if I need to go farther than a couple of miles, or go somewhere that Metro Transit doesn't cover. Also, the Flexcar program is increasingly popular in my area, and there's a pick-up location not too far from where I live.

Now, I know that I would still have to pay for that transportation, so the full $600 won't be going directly into a new money market account. I figure that, without the car, I could spend about $150 a month in transportation costs, max (I have a free bus pass, and my motorcycle gets great gas mileage). So I'd really only be putting away $450 per month.

My remaining balance on my car loan is just under 19K. My car is valued at about 19.5K. I decided to put the car up for sale to see if anyone wanted it. So far, I've had three people try to lowball me ("Yo, man, I'll give you 15K cash – here's my digits") and sales people try to help me list it on eBay. But I'm not getting a lot of bites. I tried lowering the price to 1K below the Kelly Blue Book value, but I'm still not getting much in the way of responses.

My questions to my favorite PF bloggers:

Should I just suck it up and continue making the payments? At the end of five years, I'd have my own car and not have to make payments anymore, so that's good. But on the other hand, I'd be paying well over 25K for something that I don't technically NEED.

Which is worse? To sell the car for less than it's worth, and thereby losing a couple of grand in payments that I'd still have to make to pay off the loan? Or keeping the car and paying all this money that could otherwise be going to shore up my finances?

Below is the advice that some very busy bloggers graciously offered me in response.

Leo Babuta, Zen Habits

"It sounds to me like you definitely want to get rid of the car ... so I would do it, assuming you can afford to pay for the difference between the loan principal and the selling price. You might be losing a few thousand dollars, but you will lose even more than that in interest over the course of the loan. The important factor here isn't financial, though, it's psychological: you want to be free of this
debt, and using the $450 per month on improving your financial situation, rather than spending it on something you don't need. And that is perfectly legitimate, and admirable in my opinion. As for surviving without a car ... many people have done it, it's better for your health, and better for the environment. Positives all around!"

Nina Smith, Queercents

Six hundred dollars per month is a boatload of money. How much money do you make each month? How much do you pay in rent? I’m not expecting an answer… I only ask to emphasize that your car expense is probably more than half of what you’re spending on housing per month. If you really love the car, then you could consider living in it like this college kid did to recover from his financial sins. His vehicle is a truck and a bit more suitable for sleeping. So even though most of us have found frugal uses for the backseat at some point in our cash-strapped lives, it’s probably not an option for you.

So by all means, sell the car! A car is a depreciating asset so it should be treated as a liability (which means the money spent on it isn’t working for you – it’s working for someone else). Liabilities bad! I drive a Volvo that’s paid for and seven years old. I certainly think (at my age and income) that I deserve to be driving an E class Mercedes, but it’s tricky to build wealth and buy assets, when you’re paying for the privilege of driving a fancy car.

By selling the sporty Mazda and taking a loss, you’ll lose on the front-end but you’ll be better off in the long run. Plus, you’ll be uber cool by going car-free.

Trent Hamm, The Simple Dollar

I'd continue making the payments and sell it later when you can get closer to book value. You've already made payments through the period where the car really depreciates - selling now is the equivalent of selling a stock at its low point.


So, what do you readers think about this predicament? Should I just deal? Should I sell the car at a loss, because I'll come out ahead in the long run?

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Philip Brewer's picture

As a human being, my instinct is to sell if you can get a good price. My financial calculator, though, is more definite about it: Sell.

The net present value of $450 a month for 5 years is almost $24,000 (assuming a 5% discount rate), so just the amount you can spare after replacing the transportation is worth more than your car.

Andrea Karim's picture

I should have mentioned that. So that makes the case all the more clear, doesn't it? Thanks, Philip!

Guest's picture

Wow 600 dollars for a mazda? That is really expensive, we have a lexus Rx330 and the payment is 450 a month

Guest's picture

I bought the exact same car (with no add-ons) in January and my payments are $380/month... and that was with no down payment. (The loan interest rate was substantially lower than that of my savings account.)

$600/month seems really high to me, especially if you have easy access to public transportation. I'd sell, but don't be shocked if you have to take less than book value for it if you don't want to wait a while to get rid of it—you probably won't be reimbursed proportionately for the add-ons.

Andrea Karim's picture

Um. $600 is not the payment. That's with insurance and gas.

Guest's picture

Then as an update to my post, I'd say my total transportation costs are about $500/month.

Guest's picture

Have you thought about Carmax? They will sell the car or you at no cost to you. Actually, they buy it i they want it. Google it and see i one is near you. Just a thought.

Guest's picture

DONT GO TO CARMAX!! they will f you over ..they want to give you vertually nothing for your traid in..they offerd $50 for my kia..which was higher milage an some rust damage..but 50 bucks!? really!?  ive heard soo many terrible things about them on luck!

Guest's picture

I've made some very unwise car buys in the past, and from them I've learned some valuable lessons. Rather than make a long comment here I'll write some of them up for my own blog. If you like the car then keep it. I highly doubt you'll be able to sell it for anything close to what you owe. I've never been able to sell a car on my own; I just trade them in or drive them until they fall apart and donate them.

I've long since stopped thinking of a car as an asset, depreciating or otherwise. A car is nothing more than an appliance; a $20,000 toaster (actually, the most I have EVER financed a car for was $12,500 for a 1993 Mazda MX3 that I bought in 1995.) All of my cars have been used.

You might be able to save a little bit each month by shopping around for car insurance, which you mentioned was part of your monthly costs. Loyalty gets you nowhere when it comes to car insurance. When I was a "single male under 25", I paid State Farm through the nose for years before I got fed up and switched to Liberty Mutual for half the payment. When I moved to New Jersey, I found Allstate to offer me the best possible rate.

Myscha Theriault's picture

I'd sell Andrea, but right now with it so new to the loan start off, people are going to try to take advantage of you. Cars are always depreciating items, although there are some that hold their value a bit better.

I  know it can be frustrating when things start to go wrong with an extremely old vehicle. If you want to treat yourself next time, go with a newer, more gently used vehicle. Many times they are still under warranty. While one of our vehicles is quite a bit older with excellent mileage, another one we picked up last year is still under warranty. An elderly woman who had bought a brand new one could no longer drive. The darn thing still had the new smell to it and less than 30,000 miles.

600 bucks is a lot, but with gas as you said, that's not all the payment. Insurance on a newer one can jack up the cost, particularly on a sportier vehicle. Here's an idea . . . people often have extra cash to spend around tax refund time. If you can keep it in excellent condition and really watch the mileage, you may get a better price then. Just a thought. On the other hand, if it's really stressing you out, maybe you'll feel better if you're out from under it completely. The rising gas costs aren't going away, as Philip mentioned. So that will definitely impact what we are all able to spend on vehicles. Not having a car payment is part of what helps us roll with the rising fuel costs. We always pay cash for our vehicles. The other cool thing about waiting until tax time is not only will other people have more money to spend, you'll have a refund too. You might be able to get something fairly new for cash with those combined totals.

This strategy may not work for you, but it's something to think about.

Guest's picture

I would sell it and take the loss now. As Leo said, its not purely financial, its psychological even more so. If you were out from under that $600 per month, how much easier could you breathe? As for getting around, I don't know where you live, but I get around fine by bike, foot and public transportation. We sold one of our cars and my wife uses the only car, and so far it has been fine. Good luck!

Guest's picture

used car repairs? If you sell the car, go without a car, don't buy a piece of junk as a replacement.

Good luck!

Guest's picture

im in the same boat as you...kinda... i need to have a car, but the car i have right now is way out of my range, i got it 2 years ago when i was young and dumb and $415 a month sounded low for a car payment, throw in gas about $150 (it takes 93) and ins $100 and im up to a real "low" $665 a month... more then my share of rent... i have tried to sell on my own, i have tried to trade in... the most a dealer has offered me is 11k (the kbb value for trade in is 14k and the private sale is 17k and i see my car on dealers lots for close to 19k) anyway just so you know you are not alone and its a good thing that you realize your "mistake" i suggest getting rid of the car as soon as you can with out taking a financial hit that will hurt you... so maybe not selling the car at a loose more then 2k? im not sure what you are financially able to do... good luck

Guest's picture

I would sell the car and buy a used moped. Then take half the money your spending on it now and drop it into an investment account. By the time you are ready to retire, you'd have a nice sum to live off of. I bought a used car and did this and have a nice fat investment account to show for it. It's the car or freedom of early retirement... you choose!

My brother is in the same boat as you. He bought a 4x4 Ranger optioned to the nines because he says "he deserved" it. Now he can barely eat each month because of the insurance and loan payment. I am still mystified why people buy such expensive cars, only to have nothing in 10 years. Then they repeat the process all over again. such a waste.

Guest's picture

I feel like if you are paying $600.00 for a car plus the fuel and insurance you should keep that baby forever!!
I pay 769 a month just for the car, then 120 a month for the insurance and probably 300 for gas each month. I drive a 08 Maxima SE, it is really nice to say the least but the payments literally squeeze the tar out of me.
I live in San Antonio where everything is at least 25 miles apart one way. At any rate I say this, if you are not planning on ever using credit again or for a while at least I would just take the car in and voluntary repo the car. I know this seems terrible but keep in mind they are not losing one penny they will take that car and probably sell it for more then what you truly owed in the first place(minus interest). Of course be prepared for the voluntary repo P&L to hit your credit score hard but on the other hand if you are not planning on debt anyway then by all means who cares?? Also if you can secure an attorney for around one car payment $600 to $700 and prove they did not lose anything then you can make them remove the P&L from your credit report. After all trust me you did not profit anything and they certainly didnt lose anything, that has always been a dirty joke banks play on the little consumer.

Guest's picture

Dump the car, buy a cargo net for your motorcycle, and join the car share.

I started riding 3 years ago on a Buell Blast. I upgraded to a GS500 last October. In December, my brother needed reliable transportation to get from the college he was at to his internship, and I bit the bullet and sold him my car.

Having a motorcycle as primary transportation is the most frugal thing I've ever done. My car was paid off, so I didn't drop a car payment, but I saved on insurance and gas. More importantly, it almost totally stopped me from impulse buying. "That big screen TV? On sale? Today only? Wow, that's cheap. Oh, wait, it won't fit on the bike." Grocery shopping has gone from stopping at the store on the way home every few days and mostly buying junk (or just eating out), to me sitting down every other week, planning out a menu, and buying everything at once when I can borrow my boyfriend's truck. I can still stop at the store if I need a loaf of bread, but I can't get a loaf of bread and a bag of chips and a gallon of ice cream....

Even eating out has gotten cheaper, since I feel very strongly that motorcycles and alcohol don't mix.

Guest's picture
karen w

Even though you want to sell now, what if you utilized your free bus pass and motorcycle and minimized using the car? By driving fewer miles, as a pleasure vehicle only (remember, the bus/bike is your primary transportation now), your insurance premium would likely be smaller. Your fuel/maintenance bill would also decrease, you'd still have the car for bona-fide emergencies, if that is of concern.

Since the model year just rolled over, the value probably wouldn't change much in the next 6 months (remember, not very many more miles driven), and at that time you could reassess your situation.

During that time, of course, you would invest the savings (and/or pay down debt) and see if you still felt the same way about owning the car. Just my .02. Good Luck!

Guest's picture

I am a college student in the same situation with a 2011 Chrysler 300c st8.. I live in a college town with free transportation and I just have to say this was the smartest idea on the forum. Great easy advise with a safety net (by keeping the car for emergencies)

Guest's picture

Here's a thought no one else has mentioned: how can you turn your liability into an asset, or at least more of one? Can you figure out a way to make your car pay for itself? How about running a few extra errands for other people, for money? If you can come up with the time to do it, this might make you feel better about having the car, as well as offsetting some of the expense. There are a lot of people who would love to know that someone reliable will fetch their groceries or dry-cleaning when they're not able. Find some people who have run errands professionally (they're out there), and see if that might work for you.

Guest's picture

I am pretty much in the same position as you. I have great credit purchased a new car about a year ago, and now want out of the loan. I now feel as though i could def get a better car for the price that I am spending. I have a great plan, that was mentioned by only one other person on here. Currently I owe about 5 grand more than my car is worth. Once I have bridged this gap I will sell the car, its as simple as that.

Andrea Karim's picture

As it stands, I'm not sure that I'll be able to sell it just yet, but I will definitely use it less than I do now.

As to using it to earn money, that's a great idea, but I don't have the time. Between my full-time job, my part-time job, blogging, and volunteering, I don't have the spare minutes to run other people's errands. Hell, I can barely handle my own!

Guest's picture

I am in same boat. I purchased brand new 37k value car after "inspiring" from colleagues who drive Acuras, BMWs...I am paying 600+100(ins)+100(fuel) per month + 1000 (registration) per year as an operating cost, which is more than my apartment rent.....though I can afford it I feel very guilty when I make such hefty payments as I used to consider myself a frugal guy......I think selling the vehicle would be the best option for me as I like more savings and investments for future....

My suggestion is if you don't feel comfortable (psychologically + financially) just sell it off when you get good deal....

Guest's picture

Suck it up, pay it off early, treat it like a gem, and drive it for the next decade or more. My 8 year old BMW is long since paid for and still provides great service every single day. I still make 'fake' payments - right into my investments and money market. The money market is used for maintenance and repairs (even if needed rarely). It's a self supporting system but you must LOVE the car or it will not work.

Guest's picture

Sorry I messed that last comment up. will sell the car for you or if they do not want/need the car they will find a buyer. You may take a few thousand dollars loss but that can be paid in no time and you are out from under a loan that could go on for years. I made a mistake and purchased TWO cars at once!! What a dumb a@@. One payment for the Acura TL Type-S is $725.00 and a Dodge Charger RT is $499.00 a month. I know how you feel and that is minus insurance, gas, upkeep...

Guest's picture

You may decide to trade the car yourself and take out a personal loan to cover the difference in the amount you owe.

Guest's picture

I would like to know what your final decision was! Did you sell or keep?

Andrea Karim's picture

I sold. I had to come up with a couple thousand dollars to make up the difference. I'm actually now friends (well, on FB anyway) with the guy I sold it to, as well. :)

Guest's picture

Awesome! I am actually at the end of my 6 year payoff of my truck and I am glad! I have 1 year left. Although I do worry about how it will affect my credit. I've heard good standing LONG term accounts look better. Once this is paid off, most of my other credit history is short (1-2 years).
I actually want to pay off the final 6k with my income tax and be done with it. Im just hoping this payoff will put my score back into the 600's as I've made bad decisions in the past and will be in the market for a house soon with my new wife. Good luck to you!

P.S. How did selling and paying off the loan affect your credit? Positively or negatively?

Andrea Karim's picture

You know, oddly enough, I don't think it impacted my credit negatviely at all. I could be wrong, but I have never found paying off debts to do anything bad to my credit - it always seems to recover brilliantly once a debt is gone.

Guest's picture

if u can handle your transportation without the car that would be great. i live in LA n it's nearly impossible to live without a car here. i work, i go to school, i go for hiking, gym, nd blah blah. cuz the thing is everywhere you wanna go it's more than few miles away even in the city. but when your work,school,home is in three different city all around LA, u need a car. im 20, student, and i pay my rent and everything.i wait table for part time cuz im a student nd i make no more than 1800 per month. i've had used cars in last three years nd i was so over it. every few months u gotta throw few hundred bucks for repairs nd it's not worth i bought a car without telling my parents. 2008 honda accord EX sedan.i pay 400 per month,120 insurance, 200 gus per month. now add my rent, food,clothing, (60-80$ for cigarattes per month). i deal with it. because you get what you pay for. it's worth buying a car instead of repairing a car. I could complain like you, i could say i pay more than 600 wtf, but man! you get what you pay for. if the car is not your desired need you should sell it. but hey think bout it, you can go to beach, up to mountains whenever you feel like you need air, go everywhere, roadtrip,travel, you can have privacy in your car. i dont know where you live, i wouldnt drive if i were in NY for example, but i just wanted to say cheer up! you seems young like me, if you want the car work little harder u no what i mean :)

Guest's picture

I'm having the same delima myself I too have only purchased one new car and now am in over my head having purchased too much car that I just can't afford. Also, I splurged on all the extras the GAP the extra coverage I spent so much just getting the car paying taxes and tags now if I sell for a lesser car I will lose on loan interest and starting over as well because unlike you I don't have a motorcycle I gave a family member my old car that was on it's last leg there's really no way for me to get around without transportation/car

Guest's picture

You made an excellent decision in selling your vehicle.

I once leased a brand new BMW. Wow, its true what they say, "The Ultimate Driving Machine." However, my payments with insurance and gas were high. After a year and a half I went to, offered $1000 incentive and got rid of the vehicle without damaging my credit. That was one of the happiest days for me; not having to pay almost a mortgage for a vehicle. From now on I only purchase vehicles cash or with my credit card; usually at local public vehicle auctions and can get the vehicles significantly cheaper. Just do a lot of research on vehicle maintenance histories etc. and you could end up with a nice vehicle and no car payments. I now on a coupe and a pickup truck that I paid cash and my insurance is very low because I only have the minimum state requirements.

Guest's picture

I am in the same predicament, and I think the advice from the blogger is right on from the research I've done so far. Makes the most sense. The Blue Book value on mine is 9-10k, I owe almost 12k. I have been paying on it for 18 months (my first car on payments too btw) I think now is the time finally that I will see my payments start making a difference in the Balance owing over the next few months hopefully I will be where I can sell it and come out even. Like you, I have gone without a car before and it really isn't any worse than having this debt hanging over my head, if fact, I miss it compared to this situation!!! The less debt in my life the freer I am and I feel its for real!

Guest's picture

I have a Toyota Camry I am paying wat to much $ 559 per month and insurance 230 per month and gas 6 per months