Why Selling Your Car to Get Rid of Your Loan Payment Might Be Worth It

If you're paying a lot of money on your car loan, you need to read this.

A car is a necessity for many people. Unfortunately, it comes at a huge cost. The average monthly car payment now tops $700, which means you could be devoting a huge percentage of your monthly income to paying for transportation.

The opportunity cost of these high car loan payments could be much higher than you think. In fact, it could be so high that you're missing out on millions of dollars over the course of your life just because of the car in your driveway.

Here's why selling your car to get rid of your loan payment may well be worth it once you do the math.

How much is your car really costing you?

If you can fit your car payment into your budget, then you might feel OK about paying it -- but the problem is, you need to consider the opportunity cost. Every dollar you are spending on a vehicle is money you cannot spend on something else like saving for a house or investing for your future.

Those dollars you are spending on a car don't help you to build your net worth in the long run. That's because a car is a depreciating asset. That means it goes down in value the longer you own it and you aren't going to be able to make a profit when you sell it (unlike, hopefully, stocks you invest in or a house you buy, which you can often sell for more than you spent).

The opportunity cost really adds up -- especially if you have a car payment for most of your life. Say, for example, you end up making a $700 monthly payment on your car every month for 30 years. At the end of that process, you'd be left only with the memory of the vehicles you drove. But if you instead invested $700 a month every month in a brokerage account for 30 years and you made an average annual return of 10%, you would have over $1.3 million.

If you have a choice between keeping your car and retiring a millionaire, it becomes easy to see why selling a car to get rid of a loan payment could be a smart financial move.

Is it actually possible to go without a car payment?

Now, you're probably thinking that this all sounds well and good -- but you need your car to get places. So, how can you sell it to skip your car loan?

The answer is, you can opt for a cheaper used car you pay cash for. Let's say you have a car worth $30,000 that you still owe $20,000 on. You could sell the car, buy a cheap used vehicle for $10,000, and get rid of your monthly loan payment.

Going forward, you can save a small amount of money each month towards paying for your next car in cash and can invest the difference. If you try to drive your cars for as long as possible, you should be able to easily save up to buy an inexpensive used one while still having plenty of money left over to invest.

You can also consider whether you really need to be a two-car household if you are one -- or whether you really need a car at all if it's possible (and cheaper) to move to a walkable area or work from home and rent cars on the rare occasions when you need them.

Ultimately, you shouldn't necessarily assume a car payment is a normal, non-negotiable part of life. If you can sell your vehicle to avoid a loan payment, you may end up a lot more financially secure in the future.