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Good money habits can help you build wealth, but a few bad ones can derail your progress. While it's easy to think of bad investments and impulsive spending as two factors that can kill wealth, financial guru Vincent Chan reveals the top wealth killer that affects most people.
“It's so normalized,” Chan stated when discussing this wealth killer.
Chan is talking about taking out an auto loan to buy your car. He offers concrete numbers and examples that demonstrate how much money you end up losing due to these loans. These are some of the reasons why a car loan is a bad idea.
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Chan starts the video by mentioning that one of his friends took out a $55,000 car loan and ended up paying $70,000 for the vehicle. The loan had a 5-year term, and now that the loan has been paid off, the car is only worth $25,000.
It's a $45,000 loss that will get worse over time. The car model will continue to get older, and it will need maintenance and repairs along the way. Many people fall for the trap of buying a new car with a loan, but for many people, it's also a necessary evil.
Not everyone has $55,000 available to buy a new car, and car prices may continue to go up due to inflation and tariffs. However, a car doesn't benefit from inflation. While your house will likely gain value over time, your car is actively losing value. The sharpest price decline takes place the moment you drive your new car out of the dealership.
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Chan also mentions that the average car payment for a new vehicle comes to $742 per month. That's a sizable percentage of most people's salaries since the real median household income was $80,610 in 2023, according to the U.S. Census Bureau.
That comes to $6,717.50 per month. The average car payment of $742 per month makes up 11% of the average American household's income. This average auto loan payment doesn't even represent the full cost of car ownership. You also have to pay for insurance, gas, maintenance, repairs, and other expenses.
