As a personal finance guy, I find two things to dislike about trends in car payments. One is the increasing preference for car loans with terms of eight years or more. The other is the average amount of the payments people are taking on.

A U.S. financial planner named Jeff Rose comes down hard on car payments in a recent article he wrote for Forbes. “These days, we blame everything but our car payments for our inability to get ahead,” he writes.

Mr. Rose quotes U.S. figures showing the average monthly car payment is US$523. The analytics firm J.D. Power says the average car loan payment in Canada is closer to $630. Can’t find money to save for retirement? How about buying a cheaper car and directing some of your car payment budget to savings?

The frugalistas of personal finance would tell you to buy a used vehicle, or to find a cheap, reliable new vehicle and drive it until it disintegrates. I’m not so militant. Here’s a picture of the odometer on one of our family cars as it approached the 200,000-kilometre mark. Driving a car that long is a first for us.

The odometer on Rob Carrick’s car as it approached the 200,000-kilometre mark.

Buying a new car often means getting better fuel economy, better safety features and spending less on maintenance. But based on your household budget, there should be limits on your car spending. Here are a few thoughts:

  1. One car debt at a time: Try to avoid being a two-car-payment family if possible.
  2. Maximum loan term: Five years used to be the longest you could stretch out a car loan – that’s a good rule for today as well.
  3. Maximum payment: Every family’s different on this, but a good rule is to take on a car payment that doesn’t crimp your ability to put money away for retirement and your children’s post-secondary education.

The Globe and Mail, October 4, 2018