Why We Have a Car Payment and How That Benefits Us

Over the last 20 years, my wife and I have owned a total of seven cars: two brand-new, three used, and two that were essentially free - one that didn’t run at all, and another that was old and clearly on its last legs. Out of all of them, we only ever had car payments on two vehicles, one of which was a "fun" car (entry-level trim, of course) that I bought on a whim in 2024.

On paper, that sounds like a lot of cars and a lot of money. In reality, every single one of those cars was the most basic version available. Three were manuals (aka stick shifts). One didn’t have air conditioning or a radio. Yes - no radio. Believe it or not, radios were still optional features on the cheapest trims in the early 2000s. I went with that one because for ~$100 I was able to add a radio and two cheap speakers.

We grew up as good kids who listened to our parents, and our parents drilled one rule into us: always pay cash. And for the first two cars, that’s exactly what we did. We saved up, stayed within our means, and bought simple, reliable vehicles.

Then, in the late 2000s and early 2010s, we started learning more about personal finance. That’s when our thinking began to shift - from rigid rules to understanding net outcomes. We stopped asking, “Is debt bad?” and started asking, “What’s the best overall financial result?”

Using cars as an example: if your savings are earning 3% and your car loan is 2%, mathematically it can make sense to keep your cash invested and take the loan, assuming your monthly cash flow can comfortably handle the payment. That mindset shaped how we approached the next few vehicles:

• Car #3: ~$300/month at 0.99%, while keeping ~$20,000 in savings earning 2.45%, which was later moved into a REIT ETF yielding ~5%.
  
• Car #4: Paid in cash. The net benefit of financing was negligible, and I valued the simplicity of having no monthly payment at that time.
  
• Car #5: ~$400/month at 6%, while keeping ~$18,000 invested in SmartCentres REIT at ~7.2%. (I’ll be honest - I’m still on the fence with this one. The spread is small, and the added risk may not fully justify it.)

One habit that’s been consistent through all of this: every time we buy a car, we immediately start saving for the next one. Small monthly contributions compound quietly in the background, and by the time a replacement is needed, we have options instead of pressure.

As of today, that money is going into a GIC ladder averaging roughly 3.65% - 4.2%. It’s not flashy, but it’s stable, predictable, and fits the role perfectly.

The bottom line: Save cash before you need a car. Buy entry-level vehicles. Avoid options if you can. Options = more things that can break. Then, at the time of purchase, evaluate whether paying cash or financing produces the better net result given the interest rates, risk, and your cash flow.

Rules are simple. Outcomes are what actually matter.