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Americans are carrying over $1.6 trillion in auto loan debt right now, and it's gotten so bad, personal finance experts, including yours truly, have been calling auto loans America's number one wealth killer. And it's somehow getting worse because there's a growing trend in the car loan industry that's costing some consumers thousands of dollars. And in today's video, we'll talk about what's happening and how to avoid this increasingly common money trap. Okay, just to help paint the picture here, the average amount on a new car loan is now $42,388. And the average monthly payment is 734 bucks. That's a lot of money. And yet so many people act like car loans are just a normal part of life, as if they're a necessary part of owning a vehicle, but they're simply not. They may be common, but so is broccoli hair among young men, and that doesn't make it okay. Ashton, what is up with the broccoli hair and the white tall socks with the gray sweats and the slides? Try a little, guys. Be unique. Stand out. I'd rather you have the, like, Hot Topic belt at this point than all look like broccoli rabe out here. Golly, why am I standing up for the goth kids? You're my soda pop. My little soda pop. Let's crunch the numbers to see how bad this can really be. Let's say you financed a new car for around $40,000 because your 2010 PT Cruiser finally bit the dust after 15 years of reliability and. And embarrassment. You were probably so excited to drive your new whip that you weren't even thinking about how you'd lose roughly 10% of its value right off the bat thanks to our old pal depreciation. But here we are. So when you get a new car for 40k, it's almost like you're lighting $4,000 on fire and throwing it out the window on the drive home. And from there, your car's value is essentially headed for a crash landing. Here's what the depreciation looks like over the first five years of owning a new vehicle. Like I mentioned, after the first month, you're down about 10%. So you're down to 36 grand from 40 already. After a year, you're down about 20%. So now we're at 32 grand. Two years, we're down to 27 grand. After three years, it's only worth 23 grand. After four years, we're down under 20 grand. And finally, five years later, it's lost 60% of its value and it's only worth $16,000 now. That's the average. I know you're saying, bro, I have a 4Runner and it's actually like made money. I don't care. I'm just saying, on average for vehicles across the spectrum, they lose 60% of their value over five years. I understand your car may not fall into that category. Brandon, don't miss this. Your brand new car loses on average 60% of its value in the first five years. But don't worry, even though your car is plummeting in value, you'll still be shelling out the same monthly payment for the entire length of the loan term, which on average now is longer than five years. In fact, this year, close to one in five borrowers opted for 84 month loans. 84 months is. Get this, I can do the math. 84 divided by 12. Carry the seven years. We got seven year car loans before GTA, six guys. Now, this used to be virtually unheard of, but it's becoming increasingly common. The number of seven year car loans has nearly doubled from six years ago. And this is the trend that's making auto loans even worse. Lengthening loan terms. A longer term may lower your monthly payment, but it also buries you deeper in debt. Because the longer the term, the more interest you'll pay. And not just because you're paying longer, but because the interest rate itself will be higher. And by the way, you get an even deeper hit on depreciation the longer that loan gets dragged out. So let's crunch the numbers on our Ramsey auto loan calculator to see just how bad it gets. Car price. All right, we're gonna go $40,000 down payment. You probably put down close to nothing, maybe 1000 trade in value. Let's see. It didn't trade anything. 84 month loan term, 8.43% interest rate. Your car payment would be $616 for 84 months. What you'd actually pay for the car is 52765 dol. You dropped almost 13 grand in interest alone. And like I mentioned earlier, that $40,000 car is worth not 16 grand. Cause now it's been seven years, you're probably looking at closer to like 13 grand. That's pretty insane that you paid $53,000 almost for a car that's now worth 13 grand. I just can't. You can't convince me this was a smart decision or that you needed this car. That is insane. Let's play around with another number. Let's see if we made it a 60 month. So a five year, you're looking at an $800 a month payment. So you can see why dealerships try to go, hey, what kind of payment you looking forward today? We can get you that payment as low as you'd like it. And you go, well, I can afford 500 bucks. And they go, okay, well, hey, we can do an 84 month term to get you down to 16. All right, if you do a trade in, give me that car, I'll give you $6,000 for that car. Hey, we got you at a $521 payment. How's that sound? Just sign right here. Don't think about it. That's literally how car dealerships operate. And that's before they screw you with LoJack and the warranty and the appearance protection package and the dock fee of $1,000 and all the other ways dealerships screw you. Can you tell I don't like deal? We know. So as you can see, a car loan is a bad decision to begin with, and a longer term makes it even worse. Plus, in the beginning of the loan term, most of your payment typically goes to interest instead of the principal. So if you try to sell it or trade it in before the loan expires, you could owe more on the loan than the car is even worth. And that's called being upside down or underwater on your loan. And I don't know about you, but as a general rule, I try to spend as little time as possible upside down, underwater, or even down under. Rnr. Jk. Love Australia. And let me just tell you right now, Robert Irwin, Dancing with the Stars, you're a prince. Yeah, I watched the show against my will. I have a reminder on my TiVo, you were dancing through the lightning strikes. And remember, your vehicle has been depreciating this whole time. So at the end of that 5, 6, 7 year loan term, you've paid thousands more than the car was ever worth. And thanks to depreciation, it's worth less than ever before. And the worst part about this is you're gonna do this all over again when you finance your next car. And most Americans do this over and over and over again and keep taking on car loans up until the day your grown children take away your Buickies and declare you a danger to the public. This is straight up middle class Groundhog's Day and I will not stand for it. Which is why I'm seated right now. I'm doing exactly what I said I was gonna do. He is a man of his word. Think about it. This is the only type of debt you continually trade in. Keep around and think this is just a way of life. When the whole time you could have been using the money you spent on payments to your wealth instead. Or at least save up and pay for a car in cash and not have to worry about interest or depreciation killing your car and making it go underwater. And as prices keep going up, so have the payments. Now nearly 20% of new car loans have monthly payments exceeding $1,000. That is insane. Do you know how much 1,000 bucks a month could turn into if you invested for 30 years? I do. $2,260,487. You are leaving $2.2 million on the line so that you can drive the latest and greatest vehicle to make yourself feel better about your life. Now if you don't believe to the Ramsey Investing Calculator and plug in the numbers for yourself. I will link it in the description below. And even if you're not investing that thousand bucks a month, it's still a whole lot of money you could be using for other things. An extra thousand bucks every month could make a huge difference. So what exactly can we do about all of this? And more importantly, what can you do to avoid falling into this trap? Well, there's a simple two word solution. Pay cash. Now I know maybe the idea of buying a car with cash feels overwhelming and out of reach. And I get it. Saving up that much money can feel like the financial equivalent of folding a fitted sheet on the first try with perfect creases. Fear not though, because it's not as overwhelming as you might think. You just need to take a deep breath. I needed that. And follow a simple four step process which I'll explain in just one second. First though, let me explain why I'm really excited about my pants these days. Two words, Cozy Earth. Who happened to be a sponsor of today's video? Their Everywhere pants make you look put together without feeling put together, if that makes sense. They're structured, flexible and perfect for your work office, your home office or the Oval Office. And when the day's done, treat yourself with Cozy Earth's bamboo joggers, which are even more soft and breathable. And best of all, you can try them risk free with a 30 day return window. And right now you can get up to 40% off by using the promo code george@cozyearth.com george or use the link in the description below. Stay cozy. Okay, let's Talk about how to buy a car in cash. Step number one, set a savings goal. As Zig Ziglar once said, if you aim at nothing, you'll hit it every time. So before you even start looking at cars, set a realistic savings goal by deciding exactly how much you want to spend and how much you can actually save. And that number will largely depend on your income and your budget. But keep in mind that it doesn't take an outrageous pile of cash to buy a used car. Because you don't truly need that $60,000 SUV that parallel parks itself and looks like a spaceship. You can find plenty of reliable used cars for under 20, 15 or even 10 grand. Now, they won't have all the latest technology. Some of them may have six figure mileage. But unlike what some people would have you believe, driving a five or six year old car is not the equivalent of riding around in a metal death trap. And plenty of cars, especially Hondas and Toyotas, last way past 100,000 miles. So don't let that scare you off. And don't compromise your budget just because someone on Instagram told you that driving a car from the 2010s means you don't care about protecting your kids. Stick to your guns and set a reasonable goal. And if you want something nicer, just upgrade down the road. Pun very much intended. Step number two, save the money. Now, this part is easier said than done, and it may take a while, but the more margin you create in your budget, the faster it'll happen. And that may mean you need to cut back in some areas for a season. Fewer nights out, fewer Amazon purchases. Maybe even scale back on those Fortnite skin purchases. You don't need a renegade raider, Alex. You need better hobbies and a girlfriend who ideally is not also into Fortnite, because that's not gonna help. I do have a girlfriend. She just. She doesn't go here. She goes to another school. Nobody believes that, bro. Now you also might need to increase your income by picking up a side hustle, freelancing, or selling some stuff you don't use anymore. The point is, you gotta make this a priority. You don't want it to take a decade. And you can take plenty of steps to avoid that. Think of it this way. 500 bucks a month is 6 grand a year. After 2 years, you'll have 12 grand to put toward a new to you car. You want a nicer car. Save more or wait longer. That's the math. Step number three, pick a car. Now this is the fun part. Start looking For a car that fits the budget you set in step one. And listen, the wider your the more flexible you are with the color and the make and model and the features, the easier this is gonna be. And these days that's easier than ever. Thanks to online tools like Google, auto listings, Facebook marketplace, autotrader, carmax, you name it. All of those sites have great filters that can help you locate exactly what you're looking for. So today I'm gonna use one from Cars.com to help us see what cars are out there, no matter our budget. I'm looking for SUVs with CarPlay under $16,000. Let's see what for my budget within 100 miles. Would you look at that? Plenty of 286 matches. Let's see, I'm gonna go 100 here. Oh, that expanded my search. When I go 100 miles now, I got over a thousand matches. So now I can start to whittle it down. I'm gonna say deal rating. Let's look for a great deal mileage. I'm looking for 90,000 or less. I of course want a clean title, automatic transmission, drivetrain. I'm an all wheel drive guy. What can I say? It's got CarPlay. Of course, I don't really care about the exterior color, as much safety. All right, we can do, hey, let's get a little blind spot monitor. Let's get crazy. And as you can see, there's still plenty that are within my budget. I can even sort from lowest price. Looks like I'm going to be putting Kia Sorento or a Ford Edge. Maybe a Kia Sportage if I get crazy. A Hyundai Kona, Lincoln mkc. The options are endless, guys. So I hope that proves to you that there is a car for your budget. Now let's say you're like, hey man, 16 grand would be great. I don't have that kind of money. I got ten grand in cash that I was going to put down on a $60,000 car. Let me spare you that. Let's just buy you a $10,000 car that you can afford. So I'm going to go in here and change my max price to under 10k. Still not bad. Look at that. 2018 Nissan Rogue. 8100 bucks. 2015 GMC Terrain. 2017 Hyundai Santa Fe. 2018 Volkswagen Tiguan. I don't know how to say that I apologize for whatever language that is. My bad. Chevy Trax. Nissan Rogue. Nissan Rogue. So you can start to see, okay, here's the kind of cars I can afford for this budget. Now your Nissan Rogue, that may not be the dream car for you, but it's the kind of car that you can afford right now. And then maybe a year from now, two years from now, three years from now, you get out of debt, you get an emergency fund, you start saving up more, you can upgrade to a $15,000 car and then a $20,000 car. The point is, stay within your budget and don't get hypnotized by shiny rims and red leather seats. Why people like red leather, I don't know. Not for me. It's classy. Step number four is buy the car in cash. And no, this doesn't mean you need to walk into the dealership carrying a briefcase full of cash like you're in some kind of low budget heist movie. A cashier's check will do the trick. Plus these days, lots of used car independent dealerships will let you transfer money directly from your bank account or even write a personal check. And before buying any used car, I always recommend getting a pre purchase inspection from a mechanic of your choice. The 100, 150 bucks you spend on this could save you thousands down the road. So always do this so you don't come at me saying I bought a $10,000 car and it was a lemon. Get a pre purchase inspection and you can avoid a lot of that heartache down the road. Now I'm just scratching the surface on this car buying stuff. There's only so much I can cover in a 10 minute video. So if you want more on this, check out the Ramsey Car Guide. It's completely free and I'll drop a link in the description below. Now I mentioned earlier that you can find plenty of safe, reliable used cars for under $10,000. And if you've been sitting there wondering where exactly you can find one of these elusive four your vehicles, have I got news for you. I recently made this video breaking down a list of the best used cars you can find for less than ten grand from the fine folks at Motor Trend. So click here to check it out or use the link in the description. That's it for today. Be sure to like the video. Subscribe if you haven't already. Thanks for watching. We'll see you next time.