Is it bad to have a car payment?

A car payment is not inherently bad, but it becomes a problem when it limits your ability to save, invest, or build financial stability. Many people normalize large monthly payments without realizing the long-term impact on their finances.

How much should you spend on a car?

A car should be a small portion of your net worth and monthly income. If a vehicle payment is stretching your budget or replacing savings contributions, it is likely too expensive for your financial situation.

Why do people keep buying expensive cars?

Many people underestimate the true cost of financing because the 'pain of paying' is reduced through monthly payments. This makes expensive vehicles feel affordable in the short term, even if they create long-term financial strain.

Are older cars a better financial decision?

Older cars that are reliable and paid off can significantly reduce expenses. This frees up money for savings, investing, and other financial goals, making them a strong choice for long-term financial stability.

What is the biggest mistake people make when buying a car?

The biggest mistake is focusing on the monthly payment instead of the total cost. Long loan terms and financing can hide the true expense of the vehicle, leading people to spend far more than they can realistically afford.

Is driving a paid-off car better than buying a new one?

Driving a paid-off car eliminates monthly payments and reduces financial stress. While a new car may offer comfort and features, a paid-off vehicle often provides greater financial freedom.

31 Mar 2026 5 min read Personal Finance Basics

Sometimes you need to make a financial mistake to learn a lesson

School buses were cancelled today so I drove my kids to school. I drove our 2004 RAV4 now that it is fully fixed and running. While waiting in line, I was shocked by the number of new $100k+ vehicles. The only older vehicle I saw was a 10-year-old minivan. If I was in this situation 10 years ago, I would have been a little ashamed of the 20-year-old car I was driving, but today I felt a sense of comfort and indifference.

Sometimes you need to buy that expensive car and get yourself into financial trouble to learn a lesson. That's how I learned my lesson about cars when I graduated. That lesson will stay with me for years. The difference between me and others is that I actually learned a lesson. It is not guaranteed that you will learn a lesson. Many people I have talked to over the years accept the fact that they need to continuously spend $1,000/month per car for their entire lives to have a "safe and new" car. They clearly do not learn any lessons.

The school parking lot as a financial mirror

That school pickup line told a story. New trucks, luxury SUVs, fresh off the lot. And there I was in a paid-off 2004 RAV4, feeling completely fine about it. Better than fine, actually. Because I know what it cost me, both financially and mentally, to get to this point of not caring.

According to a ratehub article from earlier this year, the average new vehicle payment in Canada has climbed to over $1000/month, and that's before insurance, fuel, and maintenance. Yet people keep signing those papers. Why? Because the pain of a bad financial decision fades faster than the lesson it should teach.

Pain is the best teacher — but only if you let it be

There's a concept in behavioural economics called the "pain of paying." Research by Drazen Prelec and Duncan Simester at MIT found that people feel genuine psychological discomfort when spending money, but that discomfort diminishes significantly when payments are delayed or abstracted, like through financing.

Car loans are the perfect trap for this. You sit in a dealership, sign for $1000/month, and drive away in something shiny. The pain is invisible. Until month 14, when you're skipping savings contributions, eating out less, and wondering where your money went. That is the tuition. And some people pay it their whole lives without ever getting the degree. For me that realization happened somewhere in the 2-3 year mark of having a new, expensive vehicle about 15 years ago. I paid the tuition once. I had to. And I'm glad I did.

Why some people never learn the lesson

Here's the uncomfortable truth: financial mistakes only teach you something if you're willing to be honest about what went wrong. Most people aren't. It's far easier to rationalize:

"I needed something reliable."
"It's a safety issue with the kids."
"Interest rates were low."
"I got a good deal."

And so the cycle continues. According to Equifax Canada, the average auto loan term in Canada has stretched past 84 months (seven years) for many new vehicle purchases. Seven years! That's not a car payment. That's a second mortgage on a depreciating asset.

People aren't making these choices because they're foolish. They're making them because they never sat with the discomfort of a previous mistake long enough to let it change their behaviour.

The badge of the paid-off car

There's a certain quiet confidence that comes from owning a vehicle outright, especially one that's "too old" by society's standards. You stop seeing the car as a reflection of your worth. You start seeing it as a tool. A reliable, paid-for tool that gets your kids to school just as well as a $100,000 truck does.

Personal finance author Thomas J. Stanley, in The Millionaire Next Door (one of my favorite books by the way), found that the majority of wealthy Americans drive used or older vehicles and avoid leasing. The image of wealth and the reality of wealth are often polar opposites.

My 2004 RAV4 isn't a symbol of struggle. It's a symbol of a lesson learned and applied.

The lesson isn't "never buy a nice car"

I want to be clear: this isn't about self-deprivation or shaming anyone for their choices. If you can genuinely afford a $100k vehicle, meaning it's a small fraction of your net worth and you're not sacrificing your financial future, go ahead. Enjoy it.

But most people in that school pickup line aren't in that position. And they never will be, partly because of that vehicle sitting in their driveway.

The lesson I learned is simple: a car is not an investment, it's an expense, and the less of that expense you carry, the more freedom you buy yourself in every other area of life.

I learned that the hard way. I wish everyone could learn it some other way. But for most of us, we have to feel the sting first. The only question is whether you're paying attention when it happens.

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