NC woman makes $50K in car payments, barely reduces the $84K loan. How to avoid this…
Automobile sticker prices have soared to unprecedented heights, but the truly staggering figures lie in the monthly payments for leases and financing, which encompass all the interest and fees.
Blaisey Arnold, a mother of three, experienced this firsthand after three years of owning her Chevy Tahoe. In her viral TikTok video, she reveals that she financed the vehicle for $84,000 and has been making monthly payments of $1,400, totaling around $50,000 over three years. Despite this, she still owes at least $74,000 on the car loan.
“This is astonishing,” she says, echoing her audience, as one commenter advises her to understand interest rates. Auto loans strain budgets regardless of specifics, even without luxury SUV purchases.
Interest rates are on the rise. Arnold does not disclose the interest rate or annual percentage rate (APR) tied to her Tahoe loan. APR, which includes the interest rate and all additional fees, is influenced by various factors such as Federal Reserve interest rates, retailers’ borrowing terms, and notably, one’s credit score. A higher credit score typically results in a lower APR, and vice versa.
In another video, Arnold mentions that her husband is paying a 14% APR on his 2020 GMC AT4 Sierra 1500, with a monthly payment of $1,600, surpassing her own.
Experian reports that the average borrowing rate for new vehicles was 7.03% in Q3 2023, up from 5.26%, while for used vehicles, it was 11.35%, up from 9.38% the previous year.
Arnold bought the AT4 in 2022 but still owes $72,000 to $74,000 of its $78,000 price.
Arnold’s family’s car situation appears dire. She does not provide sufficient information to elucidate why only about 20% of her monthly payment is seemingly applied to the principal.
Unlike homes, cars depreciate immediately after leaving the dealership, a universal truth for all car buyers. Progressive estimates cars lose 20% in the first year and continue to depreciate by 15% yearly for about five years.
Consequently, auto loans often result in being “underwater,” where the outstanding principal surpasses the vehicle’s value.
Arnold has decided to part ways with her Tahoe, though it remains unclear if her husband plans to do the same with his truck.
“Do not overspend on something so insignificant,” she advises her followers.
Arnold opted to sell the Tahoe and purchase an Audi outright, eliminating future car payments. Her burgeoning TikTok career has facilitated this despite her substantial car debt.
Paying cash for a car is the optimal method to avoid interest, but it’s unfeasible for most Americans.
Nonetheless, for those in Arnold’s predicament without a flourishing TikTok career, personal finance expert Dave Ramsey suggests alternative solutions. Ramsey would endorse Arnold’s TikTok side hustle and advises securing an additional job to make extra payments on auto loans.
Ramsey also advocates for Arnold’s decision to rid herself of the Tahoe. He often advises listeners in similar situations to consolidate auto loans on multiple vehicles and sell some to settle the remaining balance.
Moreover, Ramsey emphasizes negotiating directly with lenders for better rates, emphasizing face-to-face interaction over phone calls or emails.
