Weekend Reading: Crushing Car Payment Edition

Weekend Reading: Crushing Car Payment Edition

I’ve written before about how buying new vehicles every few years can be a major wealth destroyer. Indeed, next to housing costs, a car payment (or two) can easily be your largest monthly expense. 

A recent Globe & Mail article (subs) by Rob Carrick caught my attention when he wrote the average monthly car payment (for all loan terms) hit a record $781, while the most popular loan term was for 84 months (7 years!).

Canadians are stretching payments out to the max so they can afford new vehicles. Think about it. At $710 per month for 84 months you’ll pay a total of $59,640 for a vehicle. And that’s just the average.

The problems get worse when you consider that 0% financing deals have disappeared. Rates today typically range between 3.9% and 4.9%.

And, while the most popular term for a car loan is seven years, the average age of a trade-in is six years. Around 20-25% of people trading in their vehicles still owed more than the value of the car.

I get the appeal of wanting to drive a new vehicle every 3-6 years. New cars are safer, more reliable, often more fuel efficient, and come with the latest technology. If you’re the kind of driver who enjoys those advantages, consider leasing rather than financing. The payments are lower and the terms are shorter.

For me, I couldn’t care less about owning a new vehicle. We sold our second vehicle (’07 Tucson) last summer and drive our remaining vehicle (’13 Sante Fe) sporadically. I’ll happily take the savings from not having a vehicle payment and put it into our travel budget.

Where families can get into trouble is when they’re in a constant cycle of having two financed car payments. Imagine two payments of $700 per month – that’s $16,800 per year going towards your vehicles.

If you can break or split-up that cycle so that you only have one car payment at a time, you can free-up $8,400 per year to allocate to savings or travel or other financial goals. Even for a year or two that can make a big difference.

And, finally, try to avoid getting way over your head like this with monthly car payments in the $1,000+ range:

This Week’s Recap:

I’m on the board at FAIR Canada and flew to Toronto this week for our first in-person meeting in several years. It was a great meeting, but the travel experience left a lot to be desired. It’s a reminder that it’s still incredibly challenging to fly within Canada without experiencing some sort of problem or delay.

My flight path home was Toronto to Calgary to Lethbridge, with the Lethbridge leg of the flight scheduled to leave at 11:10pm. I got a message from WestJet saying the Toronto to Calgary flight would be delayed by 90 minutes. Since that would cause me to miss my connection home, I quickly checked with Air Canada and booked a flight that would get me to Calgary on-time.

Or so I thought.

We boarded and sat on the runway for an hour waiting for the pilots to arrive. When they did, they needed another 30 minutes to get ready and in position for take-off. Crap! I missed that Lethbridge connection after all.

I booked the next available flight home (9:45am), booked a hotel room, and checked in at the in-terminal Marriott. An hour later I got a text from WestJet with a hotel voucher for one of three options (all off-site with no shuttle available). 

All-in-all the trip that should have cost about $1,300 ended up costing me $2,500, not to mention the lost time away from my family and work.

I’ll file the appropriate flight delay claims through WestJet and hopefully get reimbursed up to $1,000 for the “9 hours or more” delay. If that doesn’t work, I’ll go through my credit card’s trip interruption insurance process.

This past week I shared 5 retirement planning options to help you reach your retirement goals.

I also explained how to plan your own revenge travel year.

Next week, watch for a Q&A with CIBC’s vice-president of sustainable investments. I’ll also have a fun post to share about my investing journey had I made different choices along the way. Stay tuned for those!

Promo of the Week:

A shout-out to the American Express Aeroplan Reserve Card, and specifically the “other” perks that come with a premium card that often get overlooked.

I mentioned that I booked an Air Canada flight from Toronto to Calgary when WestJet informed me of the delay on my original ticket.

That meant being able to take advantage of perks like access to the Pearson Priority Security lane, where I breezed past the hundreds of people in line, access to the Maple Leaf Lounge to relax, eat, call my family, and finish making alternate travel arrangements, and priority boarding to ensure I had space for my carry-on luggage.

It’s those extras that make a stressful day of travelling more enjoyable. 

If you have a “revenge travel” year planned then you owe it to yourself to try one of these premium cards, at least for a year, and take advantage of perks often reserved for the super elite.

Weekend Reading:

One of the best business books I’ve ever read is Losing the Signal: The Spectacular Rise and Fall of Blackberry, by Jacquie McNish and Sean Silcoff.

That’s why I was excited to see that production has wrapped on a new film based on the events of the book. Can’t wait to see it.

Get ready for a new acronym. Details have been released on the proposed First Home Savings Account (FHSA). While there’s no specific date at this point, eligible Canadians can expect to be able to open and contribute to the new FHSA “at some point” in 2023.

Thanks to Tim Cestnick for quickly providing us with nine potential strategies for using a First Home Savings Account.

Dimensional Funds really puts out some terrific content. Here are four excellent articles worth your time:

One more Dimensional article deserves to stand out on its own and that’s this piece by professor Kenneth French on the five things he knows about investing.

A Harvard-trained economist says ‘early retirement is one of the worst money mistakes’.

A great piece by Nick Maggiulli on how retirees actually spend their money:

“For most retirees, spending money in retirement isn’t a financial issue, but a psychological one. It’s not about having the money, but convincing yourself to use it.”

Here’s why having enough money is just one piece of the retirement puzzle.

Now some advice for the younger generation:

Andrew Hallam says anyone who will be adding money to the markets for at least the next five years needs to try this test now.

And here’s why serious investors shouldn’t fall in love with growth stocks.

Here’s professor Meir Statman’s advice to young people on taking risks.

Finally, an interesting thought experiment by Ben Carlson on why people make dumb financial decisions on purpose.

Have a great weekend, everyone!

Print Friendly, PDF & Email


  1. Brad S on August 27, 2022 at 5:17 pm

    I bought a 2 year old used vehicle, low mileage, got a beautiful trade in price for 16 year old car. Financed 7 years at 4.69 only to get the lowest “mandatory” monthly payment and then I proceeded to try to pay off the loan in 12 months, and succeeded. I don’t drive much and intend to use this vehicle for about 15 years.

    • RBS on August 29, 2022 at 12:01 pm

      Brad, do you have to pay penalty for paying your loan early?

      • Brad S on August 29, 2022 at 1:42 pm


  2. Mike on August 27, 2022 at 5:59 pm

    I think you’re missing the point when it comes to crushing car payments. Your example of $710 per month at 3.9% for 84 months equates to financing a $52,200 vehicle. Same vehicle amount financed over 48 months would be $1,174 per month … Can’t afford to pay $1,174 per month – then you really can’t afford a $52,200 vehicle!!! There are lots of great cars in the $30,000 range – which would equate to payments of $676 per month for 48 months, then after that, you own the vehicle outright. …. I love the look of expensive cars – but the truth is I can not afford them – so get real!

    • Robb Engen on August 27, 2022 at 6:08 pm

      Hi Mike, you’re right – people are stretching out the car loan over 84 months so they can buy more car than they need or can afford. Sorry if that wasn’t made clear.

      The solution is to buy a cheaper car, not to extend the loan for a longer period. We’re on the same page there.

    • Don on August 28, 2022 at 11:13 pm

      When I started to drive back in the 80’s, you were expected to put down 20% of the car’s price and pay for it in 36 months. Although 7 year car loans did become available around that time few people would even think of getting one. I wonder what the roads would look like today if people still followed that rule.

  3. Vincent Benjamin on August 27, 2022 at 6:22 pm

    Here is my story, back 14 yrs ago I bought a new Jeep Wrangler when someone hit my 2000 Jeep Wrangler and it was written off by the insurance company. Because I was not working at the time I had to borrow the money off my Dad, he was not happy about that.

    Over these 14 yrs I have paid an average of $1,200 per year on repairs so that come to about $16,800. Over all that to me is not bad if each month I paid $100.

    So my plan is to keep my 2008 Wrangler until something major goes wrong where it is not worth the repair.

    So if the average person replaces their car/truck every 6 yrs then I am certainly way ahead of the game.

  4. Joe on August 27, 2022 at 9:26 pm

    That video is unbelievable!! What people fail to realize is that unlike real estate, cars are continuously depreciating in value. After 10-15 years, most vehicles are virtually worthless – a terrible investment!! Don’t even bother listing a vehicle on your asset sheet, in the end it will be worth nothing.

    But unfortunately, car ownership in Canada is a necessary evil – I generally buy 4-5 year old used cars and drive them 15 years or so until they die.

  5. Sam Thomas on August 27, 2022 at 9:32 pm

    Debt, debt everywhere debt.
    If someone can truly afford that payment – perhaps their house is paid of and their retirement savings are being funded – or if they need these vehicles for work.

    But to use a minimum down payment (lease or buy), and buy more car that they need, it is an easy way to some people to get way over their heads in debt.

    Sales people sell cars and I have never had one ask if I could live with the payments, just how much financing I qualified for. One sales person years ago even suggested I finance the car to the max and use the $ to leverage investing in the market. That was a few years ago as my current car is over 6 years old and has been paid off for a while. My last car lasted 12 years and I knew when the maintenance costs got to a certain level it was time.

    I like the book “Millionaire Next Door. Even if you have it, don’t flaunt it.

  6. Barry Cockerill on August 28, 2022 at 6:55 pm

    Hi Robb,

    You have an incorrect link for the great piece by Nick Maggiulli. It should be https://ofdollarsanddata.com/how-do-retirees-actually-spend-their-money/

    • Robb Engen on August 28, 2022 at 8:52 pm

      Hi Barry, thanks for catching that. I’ve fixed the link above.

  7. Don on August 28, 2022 at 11:24 pm

    Watching that video it, became clear why so many Americans say they can never afford to retire. They are clearly the type that spend money they don’t have, for things they don’t need, to impress people they don’t like. I really feel sorry for them.

  8. Maria Jenkins on August 29, 2022 at 2:30 pm

    I no longer buy new cars. It’s been over 10 years. My car is driven right to the ground. It’s been awesome. I pay cash for very very nice cars with low mileage. We were absolutely torn down finally with cars payments only to realize we would have enough to buy another car after 7 years of payments. We were on a roller coaster that never ended. I have a 2014 Camry that will last another 7 or more years. We just got rid of of 2010 Matrix that was awesome only because we were able to pick up a 2010 Camry sport with under 90,000 k for 3000. Yes that was this year. No payments great cars and freedom

  9. Pam on August 29, 2022 at 8:48 pm

    I bought my 2015 Venza new – paid it off in 4 years and am still driving it. I hope to drive it for at least another 5 years. I want my next car to be a plug in electric and for me to be able to easily visit my family so I need a bit more infrastructure on Highway 16!

    I got that loan with 0.5% interest so didn’t pay for much more than the car and the higher interest rates are the less I would borrow.

Leave a Comment

Join More Than 10,000 Subscribers!

Sign up now and get our free e-Book- Financial Management by the Decade - plus new financial tips and money stories delivered to your inbox every week.