Last Updated on July 24, 2022 by The MediFi Guy
Debt in general – one could argue in the overwhelming number of cases – is a bad thing. Why? Because being in debt makes you a slave to the lender. And a slave can never be financially free. Not only do you become a slave, but you also pay an extra premium for the privilege of being a slave. That premium is called “interest”. The price you pay for borrowing money. If one intends to one day achieve financial independence, it naturally follows that one should aim to avoid debt slavery.
“But what does this have to do with a car?”
Not all debt is created equal. Certain types of debt are worse than others. On the “least bad” end of the spectrum is debt taken to purchase an asset (i.e. something that generates money, for example, a share in a successful business). On the “very bad” end of the spectrum is debt taken to purchase a liability (i.e. something that loses money over time, for example, debt taken out in the form of a high-interest credit card). On the “worst possible thing you could do” edge of the spectrum is debt taken to purchase a depreciating liability (ie a liability that not only costs you money over time but also loses value, for example – a car). This is why financing a car is so ill-advised.
The reason debt is the focus of the beginning of our discussion is because the average South African purchases a car via vehicle financing (going into debt). The reason is that the average person cannot afford to pay cash for the car they desire.
Hence, financing a car is the norm. It is what is done by the vast majority of people. The average South African selects to take on a 5-year car loan. This is common practice and will be the advice you are given by almost everyone you seek guidance from on the topic of buying your first car.
The average South African also has almost nothing in terms of savings and is unlikely to have enough money saved at retirement to live comfortably. Do you want to be average?
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