Debt Free – A car is not an asset: buy with your head, not your heart

Second to a house, a car is mostly likely the average person’s largest debt. Not all of us live within walking distance from work, or if we do, it might not be safe. In today’s society, a reliable car is a necessity. However, if you are already in debt, it makes financial sense (in fact, it’s crucial) that you honestly evaluate whether you can really afford that shiny new car, or should rather turn around to the Used Cars section.

We all want to drive a new car, but it is essential to remember that a car is never an asset. If you are already in debt, you cannot allow yourself to be fooled by the fact that you can afford the monthly payment on a new car. You will need to think long-term, and don’t forget the hidden costs.

Here are the main reasons why a car is not an asset:

• A car generates a number of expenses and liabilities over time. Ownership costs include maintenance, loan payments, petrol fees and insurance. These will have a significant impact on your month-to-month finances.
• A car depreciates in value. A new car loses about 20 to 25% of its value the instant you drive it out of the dealer’s store. Based on statistics, your car may lose about two-thirds or nearly 70% of its value after four years.

Buying a new car is not necessarily a good deal. Recent statistics show that one-third of car buyers sign up for a six-year loan at an average interest rate of 9.6%. Rather:

• Drive a dependable cash car for a year (or less) and save.
• If possible, consider using a lift club (car pool) or other modes of transport (bus, train, bicycle etc.).
• If possible, walk if you live near your workplace or a store.

Many people could buy property with what they spend on annual car maintenance. Imagine what you could do with the money you would have spent (monthly) on your new car. If you want to become debt free, rather opt for a reliable second hand car.

Are you struggling with debt and considering purchasing a new car? Remember, a car is not an asset and can significantly impact your finances. At Zero Debt, we believe in making informed financial decisions that lead to a debt-free life. Our expert debt counsellors can help you assess your financial situation and explore affordable alternatives. Don’t let the allure of a new car derail your financial goals. Contact us today for a free, no-obligation consultation. Together, we can develop a plan that suits your needs and helps you stay on track towards financial independence. Visit our Contact Us page now to get started!

FAQs and Answers

1. Is a car considered an asset?
   No, a car is not an asset because it depreciates in value over time and generates ongoing expenses such as maintenance, insurance, and loan payments.

2. Why does a car lose value over time?
   A new car loses 20-25% of its value immediately after purchase and can lose up to 70% of its value within four years due to depreciation.

3. What hidden costs should I consider when buying a car?
   Hidden costs include insurance, maintenance, loan interest, fuel, licensing, and potential depreciation, which can significantly impact your finances.

4. Is buying a new car a good financial decision if I have debt?
   No, if you are in debt, purchasing a new car adds financial strain. It is better to buy a reliable second-hand car or explore alternative transport options.

5. How can I save money instead of buying a new car?
   Consider driving a dependable cash car, joining a carpool, using public transport, or walking if you live near work to reduce transport costs.

6. What are the financial risks of financing a car?
   Many buyers commit to six-year loans with high-interest rates, increasing financial burdens and making it harder to achieve long-term financial goals.

7. How does car ownership impact long-term financial stability?
   The money spent on car payments and maintenance could be better used for savings, investments, or even buying property, improving overall financial security.

8. How can Zero Debt help me make better financial decisions?
   Zero Debt offers expert debt counselling to assess your financial situation and guide you towards debt-free living by making informed financial choices.