Car payment suggestions

[dawnwes]

Our 96 is just about dead. It needs more work financially than it is worth at this point so we are looking at a new or used vehicle.

In the past we have bought cars new. Dh has picked out the car he would like to get and they are more than difficult to even find used and if you do they are either close to retail price (very high resale value) or so used that they have over 100,000 miles on them.

So, we are thinking of buying new again and driving it for at least the next 15 years as we did the above car, or longer.

Financing is about 1.9% if we choose to finance the car.

We do have cash, but I am not all that comfortable draining that much of our savings account.

I know Dave Ramsey would say to drive a beater (we have one of those and no thanks) or buy a cheap car (again, btdt and ended up costing us MORE $$ in the long run!) or pay cash after everything else is fully funded.

However, we are not hard core DR followers.

I would still like advice/suggestions re: taking out a car loan. Is it never a good idea?

Said car will cost roughly $25K. We will trade in our other car and maybe get $2K if we are lucky. We are thinking of putting down $10K, so we would finance about $15K after taxes and fees.

Thoughts?

Dawn

[disneysteve]

Here's my 2 cents.

If you must take out a loan, it should be for no longer than 3 years with a payment of no more than 10% of your monthly take home pay.

My standard advice is to buy used, 2-3 years has always seemed to be the sweet spot of low mileage and nice discount off the new price. However, in the past couple of years, things have changed and used cars are in much higher demand. Prices on certain models have been strong and, as you've found, sometimes they are the same price as a new model which would make no sense at all. Still, I find it hard to believe that there aren't deals to be found in the used car market if you keep your options open. The problem is when you get your heart set on one particular car and aren't willing to consider anything else.

I'm not a fan of the "drive a beater" theory except for folks that are buried in debt (which sounds like it is not the case for you). Since you are comfortable putting down 10K and think you may get 2K for your car, I'd be out there shopping to see what 12K would buy me. I guarantee you can get yourself a very nice vehicle for that price. Just out of curiosity, I just did a search at carmax.com for sedans priced 10K-12K within 100 miles of my home. I got 16 hits for models ranging from 2001-2009 both foreign and domestic (including Hondas and Toyotas).

So I think borrowing 15K so you can spend 25K isn't necessary or a good idea in my opinion.

[dawnwes]

Thanks.

DH is actually being picky. He wants a diesel engine. He actually WANTS a $50K BMW, but since that is out of the cards for us, he is looking at other diesel engines.

So, are there cheaper cars out there? Sure there are. But this car would be a nice compromise between a hum drum Toyota sedan and a fancy BMW.

Dawn

Originally Posted by disneysteve

Here's my 2 cents.

If you must take out a loan, it should be for no longer than 3 years with a payment of no more than 10% of your monthly take home pay.

My standard advice is to buy used, 2-3 years has always seemed to be the sweet spot of low mileage and nice discount off the new price. However, in the past couple of years, things have changed and used cars are in much higher demand. Prices on certain models have been strong and, as you've found, sometimes they are the same price as a new model which would make no sense at all. Still, I find it hard to believe that there aren't deals to be found in the used car market if you keep your options open. The problem is when you get your heart set on one particular car and aren't willing to consider anything else.

I'm not a fan of the "drive a beater" theory except for folks that are buried in debt (which sounds like it is not the case for you). Since you are comfortable putting down 10K and think you may get 2K for your car, I'd be out there shopping to see what 12K would buy me. I guarantee you can get yourself a very nice vehicle for that price. Just out of curiosity, I just did a search at carmax.com for sedans priced 10K-12K within 100 miles of my home. I got 16 hits for models ranging from 2001-2009 both foreign and domestic (including Hondas and Toyotas).

So I think borrowing 15K so you can spend 25K isn't necessary or a good idea in my opinion.

[dawnwes]

BTW: Even with a 3 year loan, the payments would be far less than 10% of our take home pay.

[disneysteve]

Originally Posted by dawnwes

DH is actually being picky. He wants a diesel engine. He actually WANTS a $50K BMW, but since that is out of the cards for us, he is looking at other diesel engines.

So this really isn't about finances at all (isn't that often the case in our discussions). He wants what he wants and is willing to put you guys into 5-figure debt to get it.

Do I think that's a good idea? Do you really have to ask?

[dawnwes]

Well, I may be making him out to be more selfish than he is, so I need to be fair. He makes 6 figures and we have no debt other than mortgage which is within the 15 year/ 25% guidelines.

We are just starting our car shopping in more earnest because our 96 was declared not all that safe anymore by a mechanic.

Dawn

Originally Posted by disneysteve

So this really isn't about finances at all (isn't that often the case in our discussions). He wants what he wants and is willing to put you guys into 5-figure debt to get it.

Do I think that's a good idea? Do you really have to ask?

[disneysteve]

Originally Posted by dawnwes

Well, I may be making him out to be more selfish than he is, so I need to be fair. He makes 6 figures and we have no debt other than mortgage which is within the 15 year/ 25% guidelines.

We are just starting our car shopping in more earnest because our 96 was declared not all that safe anymore by a mechanic.

Dawn

I drive a 98 and DW has a 2000, we are also debt-free except our mortgage and earn 6-figures so I know where you're coming from.

Obviously, replacing a failing 96 is necessary. Replacing it with a 25K brand new car that requires borrowing 15K is not. I'm of the general opinion that luxury purchases should not be financed and this would qualify as a luxury in my book.

Of course, it also depends somewhat on the rest of your financial picture. Do you have a 6-month EF? Are you saving 15% for retirement? Are you saving for kids' education (if any)? If all of your other financial ducks are in line and buying this car with debt wouldn't impact any of that, you guys may decide you are willing to take on the debt. I still don't think it is a wise move financially but again, this really isn't a financial question.

[dawnwes]

Thanks. Yes, all of those items are in place, although we do have 3 kids, so we probably haven't saved enough, but that is a whole different topic depending on circumstances (which college, etc...)

I do realize the answer to my question about the car will depend on who I choose to ask!

Dawn

Originally Posted by disneysteve

I drive a 98 and DW has a 2000, we are also debt-free except our mortgage and earn 6-figures so I know where you're coming from.

Obviously, replacing a failing 96 is necessary. Replacing it with a 25K brand new car that requires borrowing 15K is not. I'm of the general opinion that luxury purchases should not be financed and this would qualify as a luxury in my book.

Of course, it also depends somewhat on the rest of your financial picture. Do you have a 6-month EF? Are you saving 15% for retirement? Are you saving for kids' education (if any)? If all of your other financial ducks are in line and buying this car with debt wouldn't impact any of that, you guys may decide you are willing to take on the debt. I still don't think it is a wise move financially but again, this really isn't a financial question.

[MonkeyMama]

PErsonally, we have always driven older cars. You certainly do not have to buy a brand new car for it to last 15 years. Our current 2 vehicles were bought 1-year-old. Which is not the sweet spot for popular cars, but is the sweet spot for less popular/cheaper/over-produced models. We paid $7888 for a compact car (is currently in 10th year) and $12,000 for a minivan. At worst, these cars will last one less year than their brand new counterparts (The minivan was easily $25,000 brand new).

Before that, I just bought older models. I had a car with about 15k miles, brand new car smell and immaculate, but was a 7-year-old-model. Mustang convertible - paid about $5,000.

My friends always tell me they could never buy a used car because they need safe/reliable transportation, and/or they want something that lasts 15 years. All I Can say is: Even the old clunkers I bought in my teens lasted years with no problems. (First car was a Toyota with a ton of miles, and I drove it into the ground over the course of 7 years. It had more repairs than any car I have owned, BUT I only paid $1,000 for it. The repairs were not significant).

Anyway, replacing the 96 is fair. But, if it were me I would only buy something I could afford to pay cash on. I wouldn't consider a $25k/$50k vehicle until I was mortgage free. (& that is with all my ducks in a row - a car payment should not come before retirement, etc., either). To me, it's just money down the drain that could have gone to the mortgage.

[photo]

One of our cars is a 96 and is showing her age, so I can sympathize.

Since you have 3 kids, and depending on their ages, it may get crowded with all 3 in the back, how often will you need a vehicle for all 5 of you together? Although people often immediately flock to mini-vans and larger cars with 2+ kids, I don't think it's always a necessity at all. It may be cheaper simply to drive two cars when you need the space -- if you don't have to do that often.

Personally, I wouldn't spend quite so much on a vehicle. I'm probably different from many here because we do buy new, but then we keep them forever. A little Toyota or Honda isn't sexy, but it's reliable and usually an excellent value.

Also, remember that the more expensive the vehicle, the more expensive your insurance will be. And when your children are old enough to drive, you may have to dig into retirement just to pay premiums for teenagers! (Just kidding, but it's definitely better to have an older car for that purpose)

A quick boast: we have no teenagers on the policy for my little car (not the 96), and I live far outside any metropolitan areas. My insurance premium is $160 for a year, no lie. Someday, I'll have to buy a new car, but it looks fine now and runs well, so I am highly satisfied.

[LivingAlmostLarge]

Depends on the car.

[maat55]

Originally Posted by dawnwes

Thanks.

DH is actually being picky. He wants a diesel engine. He actually WANTS a $50K BMW, but since that is out of the cards for us, he is looking at other diesel engines.

So, are there cheaper cars out there? Sure there are. But this car would be a nice compromise between a hum drum Toyota sedan and a fancy BMW.

Dawn

We bought a nice used BMW for 18k.

[dawnwes]

Thanks all.

We are talking more today. We may hold off a while on a car.

DH is getting another raise, which will help. But we may just save for a while and see how far we can get.

Dawn

[dawnwes]

I am sure some are to be had, but he has a specific idea/model/make/mileage/years in mind and use prices are around $30K or more.

Dawn

Originally Posted by maat55

We bought a nice used BMW for 18k.

[greenskeeper]

Originally Posted by dawnwes

Thanks.

DH is actually being picky. He wants a diesel engine. He actually WANTS a $50K BMW, but since that is out of the cards for us, he is looking at other diesel engines.

So, are there cheaper cars out there? Sure there are. But this car would be a nice compromise between a hum drum Toyota sedan and a fancy BMW.

Dawn

06-07 CDI (diesel) mercedes can be had for under $30k

They will run forever and go like hell (and get 30+mpgs in a full size sedan).

I have my eye out looking a CDI. I still drive a jetta tdi (diesel) but don't really want to part with 50+mpgs

[maat55]

Originally Posted by dawnwes

I am sure some are to be had, but he has a specific idea/model/make/mileage/years in mind and use prices are around $30K or more.

Dawn

What you want and what you can afford under a good financial plan may be two different things. You need to establish an auto budget and good means at which to pay for them, then decide what you can afford.

I can easily afford to buy a new BMW, but not under my financial plan.

[dawnwes]

Sounds like we would be back to the $25K range though on the mercedes.

How do you like your Jetta tdi?

Dawn

Originally Posted by greenskeeper

06-07 CDI (diesel) mercedes can be had for under $30k

They will run forever and go like hell (and get 30+mpgs in a full size sedan).

I have my eye out looking a CDI. I still drive a jetta tdi (diesel) but don't really want to part with 50+mpgs

[dawnwes]

Right, which is why I said we had already decided the BMW was out of the question.

Dawn

Originally Posted by maat55

What you want and what you can afford under a good financial plan may be two different things. You need to establish an auto budget and good means at which to pay for them, then decide what you can afford.

I can easily afford to buy a new BMW, but not under my financial plan.

[maat55]

Originally Posted by dawnwes

Right, which is why I said we had already decided the BMW was out of the question.

Dawn

You were saying that a 50k car was out of the question. Do you even have a financial formula that determines how much you will spend on cars?

There are many formulas like: no more than three years payments, no more than 50% of your income tied up in autos, boats etc. combined, cash only.

Your OP question suggests that you have no plan. You might want to make one. Many here have a system they use. Mine is the DR plan. IMO, cars are not as important as retirement and emergency savings.

I personally do not want to have a large amount of debt in case of jobloss or health emergency. You have to decide how much risk you decide you can bare. If I did not want to part with a large part of my savings, I would pay cash for much less car.

[dawnwes]

Well, we had a plan. Then he found the car he wants!

It is fine. We talked it out last night and have decided against the car. We will keep looking.

Job loss isn't a concern, but of course, health issues could always be an unforeseen problem. No amount of emergency fund could really help with that if it were bad, although I could go back to work. We have almost a full 12 months of EF saved. Our retirement is at 15% and has been for 20 years. We do follow a DR type plan, although the plan we have allows for more car/auto percentages. I don't even agree with their percentages. Editing to add: the car we want would even be within the "transportation" percentages on DR and we could still add in gas, upkeep, and tax and insurance and still be within DR recommended guidelines.

I know some say they wouldn't ever buy an expensive car, even if their house were paid off and they had years of savings in the bank and could pay cash. That is fine.

Others say not to spend more than 50% of your income on a car....in that case, we could get the BMW new. We would never go that far.

So, yes, there are many different "plans" and I was curious as to what plans most of you use.

Making a blanket, "I would never spend that much" isn't really helpful to me. Do you make 20K per year? Then yeah, I wouldn't buy much of anything if I were in your shoes either. Making a more concrete statement like, "I would not spend more than 10% of my income on a 3 year loan" is far more helpful.

Dawn