Sell the car or pay it off? Your Thoughts?

[jpenme]

Hey all
I am brand new to the community and thought I throw out a question to you all that I am struggling with.

So here is the situation, I just bought a car (used but expensive still). I now have the opportunity to pay that car off and be debt free, which is great but when I think about writing a check for that much it stops me cold. No matter how I look at it now the car just feels to expensive (I can afford it but it feels wrong now). I know it's stupid that I thought it was ok when paying at little at a time but I don't claim to be very smart.

When I bought the car I was going to be staying where I was (inexpensive house). Now I have sold my house and I'm moving to a more expensive one.

So if I paid the car off, I am let with very little profit from the house sale.
If I sell the car, I essentialy spent 6 grand to rent a car for 6 months but I keep most of the profit from the house.
I am not willing to continue to make payments, it is one or the other.

What would you do?
Thanks

[jpg7n16]

Your mind is debating over 2 different sunk costs.

If you keep the car, or sell it - it still fell in value by $6000. You've already lost $6k on the car - and there's nothing you can do about it.

Your other problem deals with money from the sale of your home - which you've already recieved. The house has been sold - you've already got the gain - it is what it is, and there's nothing you can do about it.

My point is, it doesn't matter what you paid for the car, and it doesn't matter where the money came from. The only thing that matters is what you do now, given where you are in life.

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So, the first question you need to ask is: 'since I now have this money, and it doesn't matter where it came from, what is the best use of the money I have in my account?'

and the second is, 'do I have too much of my net worth tied up in a car?'


For your first question: you have the money. What is in your best financial interest now?
-keep in cash?
-invest it for your future?
-pay off debt?

To help answer that question, we'd need to know the interest rate on the car, your time horizon until retirement, and your level of financial risk tolerance. What's the rate on the car loan? How long until you retire? Do you have anything saved up? And would you say you've got an aggressive risk tolerance??

If you have a low risk tolerance, pay off the car (unless at 0%). Only 3%, 4%? Doesn't matter- pay it off.
If you have a high risk tolerance, and the debt is over 5%, pay it off. If under 5%, invest the money instead and pay the min on the car.
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The second question, you need to ask: -how much is the car worth? and how much is that as a percentage of my annual salary? (a good answer would be around 30% or lower)

This is a decent guage, because if you make $40k/year and have a $35k car - you could sell the car, get a $10-15k one in it's place, and invest the difference. Because with your income, it's hard to come across 20-25k for retirement.

But if you make $100k/year and have a $35k car, that's not as big of a deal. A little high, but nothing to fret over, because with your income, it's much easier to save up 20-25k.

[disneysteve]

How much do you earn?
How much is the car worth?
How much do you owe on the car?

Your car payment should not exceed 10% of your monthly net income and the loan should be for no more than 3 years.

[jpenme]

Thanks for the responses, I've summerized the answers below. Thanks again
Owed 23K
Rate 3%
Term 60 months
Car Value 21-22K

Time to retire 24 yrs
Investing Yes - ~12% of income
Investment Risk Tolerance - High
Savings - Yes

Goal - Use the money wisely

[cypher1]

I'd recommend paying the car off, sell it asap, and buy something for 10-12k. Normally I'd say if you're happy with the car, and can easily afford, then keep it. But the fact that you're hesitant about it, then I say dump it for something less expensive. Otherwise paying 6k for 6months to "rent" a vehicle isn't that big of a deal IMO,for a loss. I know others who have done the same, but for longer period with their car payments. I'm a little bias, since I just don't like car payments.

[maat55]

Originally Posted by jpenme

Thanks for the responses, I've summerized the answers below. Thanks again
Owed 23K
Rate 3%
Term 60 months
Car Value 21-22K

Time to retire 24 yrs
Investing Yes - ~12% of income
Investment Risk Tolerance - High
Savings - Yes
Income - 120K

Goal - Use the money wisely

Personally, I would sell the car. If possible, I would pay the difference and buy with cash a 5k to 10k car and then establish a car fund to move up.

[couchrobt]

Just sell it and get the quick bucks. If you really need a car, find something that costs cheaper and get it. Saves you a little at least.

[snafu]

Is this a situation of buyer's remorse? Does the vehicle meet your transportation needs? Do you mostly plan major decisions? I suggest cutting back on other spending to expedite paying the car loan within 3 yrs. If you have a moderately high risk tolerance, and are willing to monitor your holdings you could invest your lump sum in ETFs split between USA & International stock exchanges [China/Brazil/ Australian/ Canadian] or wherever you see a healthy economy.

[jpg7n16]

Originally Posted by jpenme

Thanks for the responses, I've summerized the answers below. Thanks again
Owed 23K
Rate 3%
Term 60 months
Car Value 21-22K

Time to retire 24 yrs
Investing Yes - ~12% of income
Investment Risk Tolerance - High
Savings - Yes

Goal - Use the money wisely

Given this info, I continue to pay the minimums and instead invest the difference. Max out retirement plans, then put more cash into a normal brokerage. (You should be aiming to save 20% of your income for retirement, as a goal to shoot for over time)

I'd only sell the car if it doesn't meet your needs.

Your income is high enough to justify the car. The rate is low enough to justify investing instead. And your risk tolerance is high enough to justify investing in preference of paying down debt.

[Frugal]

I agree, it depends on how much you earn. If it were me, I would personally rather sell the car, if I felt it was too expensive, and I felt I was in over my head. You could save money by buying a cheaper car, perhaps one even with good gas mileage.

[shanecurran]

The money you lost on the car is a sunk cost. Don't think about it and sell the car to buy a cheaper one.

[cschin4]

I would keep the car and just pay it as you planned on the loan. Keep the care and then continue driving it for a long time after it is paid for. I would assume you need transportation of a car and i don't see how you are going to be any further ahead to sell the car and buy another one that might not be in as good condition,e tc.
I paid Cash once for a car. I never will again, that seems idiotic. Makes much more sense to pay off your house and finance your car. Put more on paying down your principal and you will save thousands upon thousands in interest versus your paltry interest you would save on prepaying a car.

[DebbieL]

I'd get rid of the car and buy something cheaper (with cash preferably).