As a member of Gen Z, you’re entering the workforce at an exciting time. You’ve likely heard about the importance of financial independence and wealth-building. But while you’re focused on starting your career, you’re also bombarded with messages pushing you to buy the latest, most expensive cars with tempting financing offers. However, taking on a car note (monthly payments on an auto loan) might not be the best decision when you’re just starting out.
In this post, we’ll dive into why a car note is a waste of money, discuss how buying a reliable used car like a Honda or Toyota can help you save, and explore how redirecting those savings can build your emergency fund and help you get closer to owning your first home.
Why a Car Note is a Trap You Don’t Need
What is a Car Note? A car note is essentially a loan you take out to buy a car, where you make monthly payments for several years—usually between three to six years. While this seems like an easy solution for owning a new car, it comes with many hidden costs and risks.
Depreciation: The minute you drive a new car off the lot, its value plummets. In fact, cars lose around 20-30% of their value in the first year alone! Over the typical loan term, you’ll be paying much more than the car is actually worth as it continues to lose value. Depreciation means you’re throwing money at something that’s actively losing value, which is the opposite of an investment.
Interest Costs: Most people finance their car through loans, and these loans have interest rates. The longer you take to pay off the loan, the more interest you’ll pay. A car that costs $25,000 could easily cost you $30,000 or more once you factor in interest. That’s thousands of dollars you could have saved for something that appreciates in value, like a house or your future.
Insurance and Other Costs: When you finance a car, you’ll typically need full coverage insurance, which is much more expensive than liability coverage required for older or used cars. Also, new cars often come with higher registration fees, taxes, and maintenance costs.
By avoiding the trap of a car note, you’re saving money not only on the car itself but on these long-term hidden costs as well.
The Smarter Option: Buy a Used Car
Instead of getting stuck in the cycle of debt with a car note, a much better option is to buy a used car. Specifically, cars known for their reliability, like Honda and Toyota, are great options for Gen Zers looking to maximize their resources.
Why Buy a Used Car?
1. Less Depreciation: A used car has already gone through the bulk of its depreciation, meaning the value doesn’t drop nearly as fast as a new car. A Honda or Toyota that’s a few years old will hold its value longer, so you won’t be losing money in depreciation every time you drive it.
2. Lower Upfront Cost: Used cars can cost 50% less than new cars. For example, instead of paying $30,000 for a new car, you could find a great used Honda Civic or Toyota Corolla for under $10,000, depending on the model year and mileage.
3. Lower Insurance Costs: Used cars typically have lower insurance premiums because they aren’t as expensive to replace as new cars. This means you’ll save hundreds, if not thousands, every year on insurance alone.
4. Proven Reliability: Honda and Toyota are known for making cars that can last well beyond 200,000 miles. With proper maintenance, these cars can give you many years of reliable service, allowing you to stretch your dollar much further.
How to Buy a Used Honda or Toyota with Maximum Mileage and Use
Now that you know why a used car is a smarter financial decision, let’s talk about how to find one that offers the best value.
1. Do Your Research: Before buying a used car, spend time researching models that have a reputation for longevity. Websites like Edmunds and Kelley Blue Book offer detailed reviews on the reliability of specific cars. Honda Civics, Accords, and Toyota Corollas or Camrys are all known for lasting well over 200,000 miles with routine maintenance.
2. Buy from a Private Seller: While dealerships are convenient, private sellers often offer better deals on used cars. Websites like Craigslist or Facebook Marketplace can be great places to find reliable used cars at lower prices than at dealerships.
3. Get a Pre-Purchase Inspection: Always have a trusted mechanic inspect any used car before you buy. A mechanic can point out any potential issues that could cost you down the line, ensuring you get the best deal for your money.
4. Focus on Mileage and Condition: Look for cars with mileage between 50,000 and 100,000 miles, which tend to be in the sweet spot for balancing price with longevity. Make sure the car has a clean service record and hasn’t been involved in any major accidents.
The Power of Savings: How a Used Car Can Help Build Your Financial Future
Now that you’ve bought a reliable used car, the money you’re saving on car payments can be redirected to more important financial goals. Let’s explore how these savings can supercharge your emergency fund and help you build a down payment for your first home.
Build an Emergency Fund
An emergency fund is a crucial safety net that every young professional should have. It’s recommended that you have at least 3-6 months’ worth of living expenses saved in an easily accessible account for emergencies, like unexpected medical bills, car repairs, or job loss.
How Much Can You Save? Let’s say you avoided a $400 monthly car payment by purchasing a used car. Over one year, that’s an extra $4,800 you can put directly into your emergency fund. By the end of two years, you’ll have saved $9,600 just by avoiding a car note. This buffer gives you peace of mind and financial freedom that many of your peers won’t have.
Save for a Down Payment on Your First Home
Owning a home is one of the most effective ways to build long-term wealth. By saving money on a car note, you can start saving for a down payment on your first home—a much more valuable asset than a car that loses value over time.
How Much Do You Need for a Down Payment? Most financial experts recommend aiming for a 20% down payment to avoid paying private mortgage insurance (PMI). Let’s say you’re looking at buying a home for $200,000. You would need $40,000 for a 20% down payment. While that sounds like a lot, consider this:
- If you save $400 a month by not having a car note, that adds up to $4,800 per year.
- In five years, that’s $24,000 saved, over halfway to your down payment goal. If you couple this with other savings, side gigs, or tax refunds, you could easily reach your goal within a few years.
Owning a home not only gives you a place to live but also an appreciating asset. Unlike a car, which loses value the second you drive it off the lot, a home typically gains value over time, increasing your net worth.
Why a Home is a Better Investment than a Car
When you buy a car, you’re committing to a product that loses value every year, with no chance of it ever appreciating or contributing to your long-term wealth. A house, on the other hand, is one of the best investments you can make. Over time, property values tend to rise, and every mortgage payment builds equity—an asset you can borrow against, sell, or rent out.
By forgoing a car note and saving for a down payment on a house, you’re setting yourself up for financial success in ways that owning a new car simply can’t provide.
Conclusion: The Smart Choice for Gen Z
As a member of Gen Z, you have the unique opportunity to make financial decisions that can impact your life for decades to come. Avoiding a car note is one of the smartest choices you can make when starting out in your career. Instead of throwing money away on a depreciating asset, opt for a reliable used car like a Honda or Toyota. Take the savings you would have spent on a car payment and build an emergency fund and down payment for your first home. By investing in yourself and your future, you’ll be miles ahead of your peers when it comes to financial security and freedom.