saving for a car

[crabbypatty]

Our cars are pretty old at 8 and 9 years respectively. We plan on driving them until they die but you never know what can happen (the last time I had this plan my car was totaled thorugh no fault of my own)

We've got an adequately funded EF and some extra that I've earmarked for new to us cars, although the amount I have set aside is not nearly enough to pay cash for a vehicle.

Like I mentioned in an earlier thread we got a larger than anticipated tax refund. Does it make sense to put some in the car savings fund or invest it? Given the age of our cars, it could be pretty soon that we'll need it.

I was thinking the answer would depend on the difference used car loan rates/what we could reasonably expect as a an investment return and whether there are other financing options we are not aware of.


Any ideas? Anyone know the going rate for used car loans? Although i don't know the exact score, a review of our credit reports leads me to believe that we've got very good credit.

Thanks

[disneysteve]

I think if you have the money and it isn't needed for more immediate needs, you should put it in your car fund. Your goal should always be to pay cash for vehicles. It generally doesn't make good financial sense to borrow money to finance the purchase of a depreciating asset.

According to bankrate.com, the average used car loan is 7.45%. You could earn more than that in an equity fund, but there's no guarantee of that and there are tax considerations when you sell shares. Much better to put the money in a high yield MMA at 5+ percent until you need that next car.

[LuxLiving]

I agree w/Steve - saving it is the better choice. Preferably somewhere it's available in 2-3 days w/o being so close that you feel it is okay to dip into it!

[jIM_Ohio]

Originally Posted by crabbypatty

Our cars are pretty old at 8 and 9 years respectively. We plan on driving them until they die but you never know what can happen (the last time I had this plan my car was totaled thorugh no fault of my own)

We've got an adequately funded EF and some extra that I've earmarked for new to us cars, although the amount I have set aside is not nearly enough to pay cash for a vehicle.

Like I mentioned in an earlier thread we got a larger than anticipated tax refund. Does it make sense to put some in the car savings fund or invest it? Given the age of our cars, it could be pretty soon that we'll need it.

I was thinking the answer would depend on the difference used car loan rates/what we could reasonably expect as a an investment return and whether there are other financing options we are not aware of.


Any ideas? Anyone know the going rate for used car loans? Although i don't know the exact score, a review of our credit reports leads me to believe that we've got very good credit.

Thanks

If life happened and you needed to get a car this weekend, could you afford the payment? $400 or $500/month range?

My suggestion is if you can afford the "payment", payyourself this amount. Within a year you'll have $4800-$6000 saved.

We have car payments... two of them... we drove our previous two into the ground. I shorten the financing period for each car.

My first car was a 66 month loan
My second car was 4 years
Third and Fourth were 4 years and 3 years. FYI- one of these payments is almost $700/mo. It does take some "sticker shock" to see a car payment that high. Nothing fancy, both cars are Honda's.

The next car will be financed for two years.
The next car will be financed for one year.

The car payment is "banked". We have a savings account we pay both cars out of. About 30-40% of my wife's paycheck goes to this account. When cars are paid off, 30-40% will still be going to this account. It will accumulate until we spend it. It's a Savings account and we generally use this account for savings purposes and mid term bills which go away over time.

[crabbypatty]

Thanks. Confirmation of what I was thinking.

I've been a lurker for a few months and have absorbed some good info from posts here so far.

[Ima saver]

I too have a car fund. when I do get a car paid off, I continue paying that amount into the car fund. Unfortunately, my husband has very expensive tastes in cars and that is his passion!! So I will probably always have a car payment. It is like paying the electric bill, it will always be there.

[bigsaver]

I have a nearly 20 year old car, but I keep $15k in a savings account which I could have within the next few days if I need to get another car. Thus, I would never have to take out a loan for a car. So each day my car works, that next car becomes a few bucks cheaper.

[Scanner]

I agree with the advice here but I'll offer an alternative advice, a second best advice if you don't want to go shell out cash for a $20,000 car:

Put down 10K, borrow the rest, and then retire the loan early.

I think there's something to be said for using other people's money to acheive your goals sometimes.

My only advice on this is to negotiate as if you are paying cash and get your loan elsewhere, like e-loan or something because the dealer will always screw you on the price if you finance through them or not.

[MoneyTard]

Just wanted to share my experience with "life happens" + cars.

Two years ago dh and I were saving for a minivan. We had baby #2 on the way and wanted to upgrade his Geo (tin can on wheels) to an Odyssey and keep my Accord. Both cars were already paid off.

We had 6k saved for the new car when a hurricane hit and a tree fell totalling both our cars. (we lost 16 trees with that hurricane). We ended up using the insurance money from both cars (yay for comprehensive insurance) and the 6k we had saved and put half down on the minivan and paid cash on a smaller pos 8 year old car to replace my accord and paid that one in full. Thankfully, the pos car turned out to be in pretty good shape. It's ugly but it runs well.. `

I had also wanted to keep my accord until it died. It probably had another 10 years of life left in it too.

[th_tan]

You should get an online savings, at about a 5% interest rate, and try and set a monthly goal, anywheres from $150-300 would be a good start until you reach atleast $5k to use as a down payment.