My Journey to Lower My Monthly Car Payment – Part 1

Since I gladly accepted the Dividend Diplomats 60% Savings Challenge, I have been brainstorming ways to increase my savings rate by both increasing income and reducing expenses.  Let me tell you, it is fun brainstorming all the different ways you can accomplish this.  A simple internet search will provide you with many creative, simple ways that you have probably never considered.   After reviewing my expenses the last couple of months, there is one elephant in the room for my expenses: my car.  Over the last month I have been working on reducing this expense.  This article will walk you through my current situation and what I have learned over the last month.

Car Payment



I used to drive an older Honda Civic that was a family car used to get me and my siblings through college.  My plan was to drive this car for as long as possible since it was paid off.  Yes it was older, was manual transmission, and didn’t have any bells and whistles, but it was paid off completely and was very fuel efficient.  My only recurring monthly expense was the insurance premiums, which was very low due to the lower value of the car.  One day, my sister needed a car as she was returning to the United Sates to pursue her MBA (Note: I am very proud of her and she will be a star one day!).  If you can see where this is going, she needed the family car and of course I gladly handed over the keys to her.

As I began my car search a few years ago, I determined that I wanted to own a car that I can drive to 200k.  Longevity and reliability were at the top of my list.  I envisioned several years where I can drive a reliable car without a car payment.  Man, imagine what my savings rate will be once I make my final payment?  My dividend income would definitely increase through way of additional purchases, as my capital will be of abundance!  Of course, I had several features that were must “haves”.  I wanted Bluetooth capabilities and an easy to use interface to control the radio.  Why did I insist on the features?  Because I was planning on buying a car that will last till 200k miles.  My assumption was that the features I desired were going to be base model features in the future, so if I was going to own the same car for the next 7+ years, I wanted the minimum features so I wasn’t driving too out dated of a car.  I know myself well enough to know that if I were driving a car without these features, I would eventually resent my vehicle and begin the purchasing process all over again.   It may not be the most frugal thought process, I know, but having these simple features will allow me to be happy with the vehicle until the car could no longer run.  A very fair compromise in my opinion.

My search led me to a new 2013 Toyota Camry.  I financed the car with a 0% interest rate through the dealer since I was a recent college graduate.  In total, my monthly can payment is $360/month.  I ultimately chose a Toyota because it had the minimum features I desired and Toyota’s are known for their long lives (Ask Lanny, he had a Toyota Celica with 200k+ miles).  I don’t think the car and insurance payments are out of hand.  In fact, I know many co-workers and friends that are saddled with higher payments.  However, I know I could do better.  I could find a cheaper car with the same features and better gas mileage for a cheaper monthly payment.

 The Search

As I began this search, I thought it was important to figure out exactly what I wanted from this process.  How could I make a quick decision on a car purchase if I don’t know what I need to make a switch? My main goal in this search is to increase my current cash flow because it would increase my savings rate and ultimately my portfolio.  If I found a car that had all the same features, has the reliability/reputation of my current care, better city gas mileage, and  would have a car payment of $330/month or lower (~10% decrease), I would pull the trigger on the transaction.  One other thing worth noting as I write this series is that I am a little nervous buying a non-certified used car since I am not a handy car owner.  If I have to make all repairs through a dealership, it will become very expensive (We have written before about how expensive a car can become).  I would prefer a new car or a certified used car for this reason.  My search will mainly focus on those two classes of cars.

Last week I took my car in for its last free service.  My new car reached 25,000 miles and the free Toyota care package officially expired.  From this point forward, all repairs and routine  maintenance are financed by my savings account.  While I was waiting, I spoke with the sales rep who sold me my car about my current situation and he ran two ideas by me.  First, consider the new Corolla.  The car has better bells and whistles in its base package, better city gas mileage, and had a cheaper base price than my current car so the insurance cost would decrease.  I loved the car and unfortunately, he crunched he numbers.  Due to the negative equity in my current car, the monthly car payments would actually increase $20/month.  So cross that idea off the board since the benefits of the gas mileage and decrease in insurance would not have been enough to negate the increased monthly payments.   I mentioned there was a second option, right?  He also showed me their one certified used Prius.  He flashed one number in my face, 51 mpg in the city.  Now that would reduce my monthly gas expense! I never considered a hybrid and I was skeptical of how the car would drive.  After my test drive, I was pleasantly surprised and was open to the idea of owning the hybrid..  However, this car was older and lacked many of the basic features I current have and want going forward.  Plus, I really was not a fan of the color schemes (It sounds ridiculous, but I do not want to own a car that I won’t enjoy owning and looking at every day for the next 7+ years).  Because of this, I ultimately passed on the vehicle.  So I left the dealer driving the same car that I entered with.


So what have I learned over the last month?  Be careful when you take out a loan for a car.  I underestimated how much faster the value of a car decreases compared to the value of your loan.  Trust me, I will always remember this going forward and make sure to consider this for every car I buy in the future.  Second, this is going to be a very long, difficult process.  My end goal is to have a car that is going to be reliable and will allow me to save over a long period of time.  Essentially, I am craving my current car with a lower car payment.  I could always refinance, but I don’t want to stretch my loan out any further and incur interest since my current loan is interest free.  For now, I will continue to make payments on my loan and ferociously search the ads to find a deal.  I am not making a change just to make a change.  In 3+ years, when my car payments are gone, I will be a very happy camper.  The question is, can I make it to that point or will I be driving a new vehicle before I make my final car payment?

Does anybody have any advice?  Have you gone through a similar situation?  What else should I be considering as I look to reduce my car payment?  Please share your ideas.  I would love to know if there is something else I should be considering.


16 thoughts on “My Journey to Lower My Monthly Car Payment – Part 1

  1. Bert,

    The happiest part of owning a car is when the payment becomes zero. It’s funny how people are more likely to trade into a new vehicle while they are still making payments on their current one. Most likely the thought process is “If I have to make a car payment, I may as well get something I like better and then stretch out the loan.” This cycle is disastrous for wealth creation. Trust me, I made several new car purchases in my twenties and never paid the loan down faster than the car depreciated. In 2003 I finally bit the bullet and have been driving $6 to $10k cars ever since with no regrets.

    Regardless of the interest rate, your car is depreciating faster than the loan balance is falling. I would focus on paying off your current car ASAP. I think once it is paid off you will be amazed how satisfactory the car really is. I also realize that you are trying to hit a 60% savings rate, but I would rather payoff the car within a year and have 20% savings rate for this year. Next year you can then focus on a 70% savings rate for the next 10 years.

    Finally you mentioned that you have negative equity in your current car. Buying a new car will only magnify the situation. If you are digging yourself a hole the first step to getting out is to put down the shovel….in other words don’t trade when you are in a upside down in your car.

    Best of luck in your decision!


    • MDP,

      Thanks for the advice. I think the fact that I am still making a car payment is clouding my judgement. You are right, my car is very satisfactory. I am happy with all aspects of the vehicle except for the car payment. Hypothetically, if I lowered or removed my the payment, I wouldn’t think twice about trading in cars because I would have a car that is built to last me for a long time. What I want in a new car is close to what I have (maybe with a little better gas mileage). If I saw my current car out on the market today for its value (or with the dealership mark up), I would buy it. It unfortunately comes down to the fact that I bought this car new instead of used. Mistakes happen and I know it going forward. I agree 100% with your last paragraph. The worst thing I could do is compound my mistake by digging an even deeper hole. That’s why I passed on the Corolla and I will continue to pass on cars that are too expensive. If I am going to make this switch, it will have to be for a car somewhere between $10k and $12k.

      Interest point about accelerating the payoff. My assumption has been that the since I am not paying any interest on my loan, I would not payoff the loan early and instead use the funds to purchase dividend stocks. Now if the loan had interest or were an amortizing loan as opposed to an installment loan, I would make an extra payment or two each year to reduce my interest expense. Hopefully that helps explain my thought process behind why I am not paying off the loan early.

      Again, thanks for stopping by and the advice. It is always nice to hear and learn from somebody that has gone through this process before. Hopefully I’ll hear your input at each step of the process as I continue to share this story!


      • Given that your loan is at 0%, and let’s assume whatever we would purchase with the funds that could pay off the car loan earn 3% in dividends. For every hundred extra you put against the loan you just cost yourself 3 bucks.

    • Henry,

      I’ve thought about it. My big fear is that abucket car would become expensive on the repair end because I am not a very handy person haha So while I owuld be saving on a payment and insurance, I could potentially end up paying a lot for one-time repairs. With Youtube and articles, I could definitely learn. Maybe one day it is something I should consider and establish as a lifetime goal!

      As always, thanks for stopping by.

  2. Good thing you didnt buy the prius. Sure it gets great gas mileage but did the dealer tell you that the hybrid battery can cost over $2k to repair. Usually after driver 100k-125k miles these repairs are necessary.

    • No the dealer conveniently left that detail out haha Go figure. Since the Prius was used, it was much closer to that repair than I would have liked. I don’t know if the gas savings would have covered the expense if the battery would have needed to be replaced in the next couple of years.

      Thanks for stopping by!

  3. Bert,

    What about not owning a car? I did that for a few years and loved it.

    If a car is a must, I’d try to avoid spending more than $2,500, unless absolutely necessary. Or maybe if you land an absolute killer deal. That’s the only reason I’m driving my 2006 Corolla.

    Best regards!

    • DM,

      Thanks for stopping by. Trust me, I wish I didn’t have to own a car. I would love to live in a city with great public transportation that would allow me to sell my money pit. Unfortunately, my city isn’t as well connected as it should be. We have a light rail line, but the routes are limited and the times are not as convenient as they could be. I could walk to the stores I need, but it would be very difficult to visit family and friends without a car. One option is I could move downtown where everything is centrally located; however, the increase in rent would definitely be larger than my car + insurance payment. I wish it were a more realistic option.

      After writing this article and reading everyones feedback, I think I have learned my lesson about buying a brand new car. While I still am weary of buying a non-certified used car, I should keep all options on the table if I could land that killer deal. In hindsight, I should have done a little more research and asked a few additional family/friends if they were looking to sell.

      Thanks for the advice and stopping by.

    • Tawcan,

      Thanks for stopping by. In hindsight, I should have given much more consideration to a used car. There are many great options available. Sadly, this is going to be the first of many cars I own, so I can make sure to check the used ads the next time around.


  4. Depreciation is a bitch. It’s amazing how fast a car loses it’s value in the first few years. I guess there are other options like trying to go car free for a time. See how you can adjust to that lifestyle. I bought my car new in 2009 but paid it off in about 3 1/2 years. Those monthly payments and interest bothered me so much that I made two or three payments in some months to finish with my loan asap. Try no car or go the quality bucket route.

    • Thanks for stoping by DivHut. As I mentioned in response to Mantra’s comment, I am in a city thank makes not owning a car very difficult. I just isn’t as connect as it could or should be. It is alarming how fast a car loses its value. If you buy the right car though, it should retain a nice chunk of value after your loan is completely paid off. And I have learned my lesson about not considering a cheaper/used car, that’s for sure. Are you still car payment free??


  5. First off, with three Priuses in the family, the worry about battery replacement is almost moot: two are over 300k with no issues. They can however leave you “stuck” if the wheels spin in deep snow more than twice ( no rocking to get free!) due to a drivetrain preservation program though. Second item: too many people get caught up by the ( supposed) 0% offers through dealers. Ignore the glossy signs and do your own math. On most consumer loans, lenders ( by law) can only take interest out of one payment monthly. Almost any Credit Union ( but VERY FEW banks) will allow you to make weekly payments on consumer loans. Since they operate on a “simple” interest as opposed to “rule of 78” that virtually all other lenders use, the built in costs of the loan ( yes, even that 0% special has hidden fees if you dig in) are considerably less. Even if your income pay schedule is bi-weekly or monthly, having a weekly transfer payment towards the simple loan will either pay off a house/car at least 10% faster *paying the exact same amount* or lower your payment over the full life of the loan. Plus many CU’s are either partners in “employee purchasing” or other bulk buyers agreements that will usually allow you pre negotiated lowball pricing before you even walk onto the lot and develops the ” deer in the shiny light syndrome”. Some agreements even include some measure of warranty extension, similar to the ones built into some credit cards that so many people overlook. Trust your calculator, NOT the shiny posters or the real friendly guy with the pen in his hand.

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