The real cost of bi-weekly car payments - MoneySense

The real cost of bi-weekly car payments

The auto industry has time lease payments with typical payroll schedules for a reason.


I went for dinner with my friend Ian the other night. We’d just done a performance of Love Letters for a local church and I hadn’t eaten since breakfast. I saw the half-rack and the full rack of ribs on the menu and my eyes said, “Yes!” But my eyes were bigger than my stomach and I ended up leaving three or four ribs on the plate.

I’ve met more than a few young graduates for whom the “eyes are bigger than their wallet” syndrome apply. Having lived like poor students for a long time, they get their first jobs and decide to catch up on the spending they haven’t been doing.

The first big purchase is often a car. I once met a young graduate who had just been hired at a pretty decent salary ($65,000 right out of school, not bad eh?) She was contemplating a lease on her dream car. “I can get it for $350 bi-weekly; that’ll be no problem to manage,” she said. With all that money going into her bank account from her new job, she felt rich, and that bi-weekly payment was peanuts, right? Not so fast.

The bi-weekly payment is the newest trick in the automotive industry. Since most people are paid more than once a month, they’ve made it more “convenient” for people by splitting the monthly payment over two pay periods. Never mind the added bonus of a $350 payment seeming much more reasonable than a $700 payment.

This young professional lives in Manitoba so of her $65,000 in gross annual income, she’ll take home just $48,681 or $4,057 a month. Her car payment of $700 a month works out to more than 17% of her net income. And we haven’t added in gas, insurance or maintenance yet. Assuming just another $300 for those costs and she is spending a quarter of her income on her vehicle.

So here’s how I responded: “Seriously? You’ve got a life to build, savings to establish, student debt to pay off and you’re going to blow 25% (at least) of your income on a car! Girlfriend, give your head a shake.”

She was a little taken aback. “Twenty-five per cent of my income, what are you talking about? The payment is just $350.”

I rolled my eyes, showed her the math and watched as reality dawned. Her eyes widened. Her smile faltered. “Guess it’s not such a good idea, eh?”

No. I guess not.