Young people aren’t paying their car loans. We can help.
Episode
9 min
Read time
2 min
Topics
History, Books & Authors
AI-Generated Summary
Key Takeaways
- ✓True cost of car ownership: Monthly expenses for a financed vehicle extend well beyond the loan payment. A $30,000 loan at 6% over four years, plus insurance, gas, taxes, maintenance, and parking, totals roughly $1,000 per month for a new midsize SUV.
- ✓Delay purchase until employment is settled: Before committing to a car, confirm your job location and commute requirements first. Buying prematurely locks in major fixed costs before knowing whether the vehicle is even necessary, as alternatives like biking or transit may remain viable.
- ✓Used cars over new for financial leverage: A reliable used compact SUV can be purchased outright for under $20,000, eliminating loan interest entirely. Redirecting the $34,000 difference in cost and interest from a new car purchase into a retirement account compounds to roughly $1.47 million over 40 years.
- ✓New cars depreciate faster than used: New vehicles lose value rapidly after purchase, while used cars retain value comparatively better. Combined with higher loan costs and insurance premiums for new models, used cars deliver stronger long-term financial outcomes for young buyers with limited income history.
What It Covers
Former FDIC Chair Sheila Bair, author of *How Not to Lose a Million Dollars*, advises young adults on car buying decisions through a call-in format, addressing two real callers aged 21 and 23 facing different financial situations.
Key Questions Answered
- •True cost of car ownership: Monthly expenses for a financed vehicle extend well beyond the loan payment. A $30,000 loan at 6% over four years, plus insurance, gas, taxes, maintenance, and parking, totals roughly $1,000 per month for a new midsize SUV.
- •Delay purchase until employment is settled: Before committing to a car, confirm your job location and commute requirements first. Buying prematurely locks in major fixed costs before knowing whether the vehicle is even necessary, as alternatives like biking or transit may remain viable.
- •Used cars over new for financial leverage: A reliable used compact SUV can be purchased outright for under $20,000, eliminating loan interest entirely. Redirecting the $34,000 difference in cost and interest from a new car purchase into a retirement account compounds to roughly $1.47 million over 40 years.
- •New cars depreciate faster than used: New vehicles lose value rapidly after purchase, while used cars retain value comparatively better. Combined with higher loan costs and insurance premiums for new models, used cars deliver stronger long-term financial outcomes for young buyers with limited income history.
Notable Moment
Bair calculated that a 23-year-old choosing a used car over a new SUV and investing the $34,000 difference could accumulate nearly $1.5 million by retirement — reframing a car decision as a retirement planning choice.
Episode Transcript
NPR. This is The Indicator from Planet Money. I'm Darien Woods. Sheila Baer was the chair of the FDIC during the global financial crisis. The FDIC is the government institution that protects us when banks fail. And in that role, she saw firsthand what happens when people got into too much debt. I've just seen so many people make mistakes. So many people lack basic knowledge. And there's nothing that will make a household, more miserable than debt problems. So Sheila Baer decided to write a book to teach us how to think about money, and she focused specifically on young adults. I I wanna make sure they get off on the right start early on. Many of them don't. About one in 20 car loans made to young people is in serious delinquency right now, and that's a rate only exceeded in recent memory when Sheila was at the FDIC during the global financial crisis. So in her book, she has one chapter about how to think about buying a car. So we thought, what better way to help young people than a personal consultation with Sheila? And what better way to do it than with a call in show like NPR's classic Car Talk. Hello, and welcome to Car Talk on National Public Radio with us clicking clack with Abbott Brothers. Yeah. Car Talk, but just for young people and just for buying cars. Don't go anywhere. This message comes from Amazon Business. Procurement shouldn't be a guessing game. Whether you're running a small business or managing a large organization, Amazon Business offers smart purchasing experiences designed to meet your unique needs. Streamline your buying process, save time and money, and gain valuable insights to make smarter decisions. Empower your team to buy with confidence. Learn more at amazonbusiness.com. Support for this podcast and the following message come from Vanguard. Every day, shareholders meet to discuss important matters about the companies you invest in. Now you can make your voice heard too. Vanguard investor choice makes it easy to set your proxy voting preference for your eligible Vanguard index funds. Visit vanguard.com/investorchoice to learn more. Vanguard investors own shares of their index funds, and those funds own shares of the companies they invest in. Vanguard Marketing Corporation distributor. It's car buying talk from the indicator from Planet Money. We have Sheila Baer on the line, former chair of the FDIC. Give us a call at 888 talk. That number is fake. Hello. You're on car buying talk. Sheila Baer. Hi. I'm Alex or Alexander Kolev. I'm 21 years old, and I live in Costa Mesa, California. So what's your car buying conundrum? Right now, I've just been biking everywhere. And so far, that's worked out great. But as I finish up my senior year of college, I'm starting to realize that I might need to get a car to be able to drive around and, like, get a a a full time job. And I'm worried that that …
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“Former FDIC Chair Sheila Bair, author of *How Not to Lose a Million Dollars*, advises young adults on car buying decisions through a call-in format”
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