Can I afford it? (new car that is)

[MKKShah]

I now have the following options to choose from:

- Brand new non luxury, but top of the line entry level SUV, $28000 tax.
- Brand new luxury SUV, $35000 tax.
- 2 year old used SUV (luxury, same as above), with 30,000 miles for $28,000 + tax.

Which one would you choose? I intend to keep the car for 10 (and maybe 15, depending on the condition at that time).

Do you think the "discount" on the luxury SUV (used) is substantial enough?

[disneysteve]

Do you think the "discount" on the luxury SUV (used) is substantial enough?

Sure. You're paying 20% less and the same price as the base model for what I'm sure is a much nicer vehicle. I have absolutely no issues with buying used cars. I just got mine with 26K. We bought my wife's over 10 years ago with 34K. My previous car was bought with 11K and I kept it for 14 years. Go with the used vehicle.

[MKKShah]

After test driving 12 cars, I have finally made a deal on an entry level luxury SUV. It's 3 years old, has under 30K miles, has all service records, and looks stunning inside out, and drives great. While this is not a certified pre-owned I have purchased it from a reputable dealer.. The SUV is also under the original manufacturer for at least a year on basic, and 4 more years on power train. The brand new car for the same model was selling for $37000. I paid $26,000 for mine, a savings for almost 30%. Timewise, I will have to own the car for almost 7 more years (i.e at that point I would have paid 70% of manufacturing and used the car for 70% of its life. The survival of car beyond this point will be a jackpot. Similarly, if I got 100K miles on this car, I will break even. I would have paid 70% pf the cost of the SUV to driving 70% of it's life. If the car goes on to drive another 100K miles, then wow...



I am financing right now at an ultra low rate of 1.99 for 48 months. Depending on my bonus for the upcoming year, I will most likely pay off the entire loan within a year.

I declined all dealer add ons except "gap" insurance.

So does this look good?

[Tree0164]

We bought our last car in cash and will hopefully do it again soon. The car was 4 years old then and have had it for 3 years now. I hope to drive it for another 7 years.

Before then the rule of thumb that I subscribed to was not to buy a car that I couldn't pay off in more than 3 years and then than a $250 car payment. This way I didn't buy too much car. We drive them into the ground probably 10-12 years since I bought them on average.

[disneysteve]

After test driving 12 cars, I have finally made a deal on an entry level luxury SUV. It's 3 years old, has under 30K miles

I paid $26,000

I am financing right now at an ultra low rate of 1.99 for 48 months. Depending on my bonus for the upcoming year, I will most likely pay off the entire loan within a year.

So does this look good?

I think that looks just fine. Congrats! Enjoy the "new" vehicle. It sounds like you got a good deal.

[YLTL_Dan]

The brand new car for the same model was selling for $37000. I paid $26,000 for mine...

So does this look good?

I think this was a very good decision. The rule I generally use is to not spend more than 20% of your gross annual income, which would put you around $22k plus any trade in or down payment. I only pay with cash too but it sounds like you'll be able to knock this out soon.

On another note, I just had a friend whose annual household income is 300k+ spend $16k cash on a 2006 Mercedes that he shopped around for over a year. He's rich and he'll stay rich... great example for me!

[siggy_freud]

I declined all dealer add ons except "gap" insurance.

So does this look good?

What prompted you to buy GAP insurance on a used car? Did you put nothing/little down as a down payment?

When I last leased a car, they still tried to sell me GAP insurance, despite it saying right there on the papers in front of us that GAP was included in the lease agreement.

[JoeP]

I don't have any debt. Not sure why folks are emphasizing so much on "cash".

Because you should not have a recurring payment commitment, which, if you default on for any reason, can result in financial ruin. If you lost your job, or had salary shrinkage, or some personal emergency, do you REALLY want to have a car payment every week?

It makes far more sense to save up cash in a separate account (savings, bonds, etc) until you have enough cash to pay for the car. It doesn't matter if the car is new or used, but I think you will find most people here prefer used cars because they are much less expensive due to the original buyer taking the depreciation hit.

Plus if you buy a car for cash, you get a clear title. If you ever choose to liquidate it, you can do it right away: no lien to satisfy before transferring.

Finally, 10 years is not a lot of time to keep a car on the roads. I'm driving a 2001 and we also have a 2003. I expect to get another 8-10 out of each.

[disneysteve]

Because you should not have a recurring payment commitment, which, if you default on for any reason, can result in financial ruin. If you lost your job, or had salary shrinkage, or some personal emergency, do you REALLY want to have a car payment every week?

That would be true if OP had no savings but he's got more than enough in the bank to pay off the loan at any time.

[MKKShah]

Finally, 10 years is not a lot of time to keep a car on the roads. I'm driving a 2001 and we also have a 2003. I expect to get another 8-10 out of each.

Appreciate this perspective. If I can hold on to my older car for five more years with just fluids and minor changes, I would consider myself to have hit the jackpot.

From what I have read, you can keep almost any car on the road for as long as you want, provided you are willing to throw money at it. What is an acceptable limit for maintenance expenses according to you?

[MKKShah]

What prompted you to buy GAP insurance on a used car? Did you put nothing/little down as a down payment?

That is correct. I did not put anything down on the loan (yet). I intend to cancel it shortly. I do intend to pay off the loan soon.

[MKKShah]

Dealer loses money on a 0% financing situation and they are going to make up that loss somewhere - probably in the cost of the car.

This is mostly true in the case of dealer incentives. In most cases dealers offer a 0% APR or cash back for cash payment (or financing elsewhere).

In some cases, the financing offer comes from the manufacturer, and has no incentives for the dealer. The 0% APR in this case is priced in the cost of the car (for all buyers), and does not result in a reduction in price.

The above is what a car salesman told me. So I would take it with a grain of salt.

[MKKShah]

This is one downside of buying used. You can't comparison shop or pit multiple dealers against each other. No two have the exact same vehicle.

Ironically, in my case it turnout out that the used car was the one that best suited my needs and tastes. Loving the purchase...

And thanks to folks here for keeping me grounded.

[JoeP]

Appreciate this perspective. If I can hold on to my older car for five more years with just fluids and minor changes, I would consider myself to have hit the jackpot.

From what I have read, you can keep almost any car on the road for as long as you want, provided you are willing to throw money at it. What is an acceptable limit for maintenance expenses according to you?

Consider the repairs in terms of car payments. If you operate your paid-for vehicle and incur a major repair, some people consider that to be the tipping point, and start looking for other cars.

Don't do that! Instead, think of that expense as months of would-be car payments. A $1200 repair may equate to 3 or 4 months of car payments, but it is only temporary instead of lasting 4 years.

Here are two helpful tips:

1. While you have car payments, squirrel away a little extra money per pay period for car repairs/maintenance that are outside the warranty. If you're lucky and end up not needing all of it, roll it into the next tip.

2. After you paid it off, continue to pay yourself those monthly payments, so that you have enough saved after another 4-5 (or more!) years to purchase your next car for cash. You can also dip into this for repairs to your paid-for car.

Regarding when to take it out behind the barn to do the humane thing, that is a personal decision. At some point, you'll need a replacement. For me, it is when one or more of the following is true: wrecked, totaled, enough parts stop working at the same time, safety features compromised, it won't pass inspection without major repairs, subframe rust, major transmission or engine problem, body rusted through so air and water gets in, unreliable (won't start, stalls too much, electrical shorts kills battery, etc).

[BudgetSurgeon]

I am looking at the possibility of adding a second car to our household. I am wondering what people think is a reasonable price that I can afford.

Financial background:

Age: 31
Income: 110K pa
Savings: 401k-120K, Investments+EF: 157K
Base monthly expenses (home, groceries, transportation, cable etc.), excludes discretionary spending like restaurants: $2700
Monthly income after 401K and automatic savings plan contribution: $4605. (So the $1900 excess/month will be for all discretionary expenses + new auto)
(annual savings target, including 401K = $35k).

Looking at a new car. Whatever I buy will be with me for 10 years (at least).

Low end of the spectrum, I am looking at $22K. At the high end, I am looking at $40K.

10 year monthly ownership cost differential is $150 for $22K ($4k resale) vs $275 for 40k (7k resale).

Looking at either 0% / 60months for 22K, or 1.99% 72months for 40K. (both are manufacturer incentives, and dealer made it clear that this has no bearing on price). I can also pay cash.

How much car can I afford? What will you do in the above scenario.

Here is my 2 cents - DON'T BUY A NEW CAR, UNLESS YOU ARE INDEPENDENTLY WEALTHY.

Cars are horrible investments, and most cars have pretty steep depreciating values. IMO, you are much better off looking into a pre-owned car, perhaps from a dealer, where you have a warranty option. Much more cost effective, again IMO.

Also, try to pay cash for your car, and not saddle yourself with additional debt.