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Can I afford it? (new car that is)

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  • MKKShah
    replied
    Originally posted by siggy_freud View Post
    Insurance companies should be covering you for the replacement value of the car. If you can't replace the car for 22k, and the retail price is 26k, that is what they should cut a check for. GAP insurance is mainly suited for new car purchases, where people put 0 down, and take a 10% depreciation driving it off the lot.
    That's a good point. I have this doubt too. If my car is totaled, what am I supposed to get?

    Dealer retail price of the car? or KBB private party value?

    Leave a comment:


  • siggy_freud
    replied
    Insurance companies should be covering you for the replacement value of the car. If you can't replace the car for 22k, and the retail price is 26k, that is what they should cut a check for. GAP insurance is mainly suited for new car purchases, where people put 0 down, and take a 10% depreciation driving it off the lot.

    Leave a comment:


  • MKKShah
    replied
    Originally posted by bjl584 View Post
    This is usually good advice. But, I bought a new truck about a year and a half ago. The payment is more than manageable (in fact, I could pay off the loan right now if I wanted.)

    My point is, if you are disciplined about money and buy right, you can do it and not have it effect your finances in a negative way.
    Agreed. I generally buy cars to keep them for 10 years or so. In this case, my thinking is as follows:

    - How much lower is the used car compared to a new car?
    - Is the difference significant enough?
    - Maintenance costs on a new car, and an old car will almost be the same over a 10 year (or similar) period of time. You will be changing nearly as many tires, belts, hoses etc in both.
    - Is the savings in purchase price for the new car significant enough when compared to maintenance costs?


    In my case, I save almost $10,000. The used car and new car are almost the same for the model I looked at. And this savings is enough to take care of maintenance expenses over the expected lifetime of the car. So for the purchase price of a new car, I am able to own the used car for it's expected lifetime.

    Leave a comment:


  • MKKShah
    replied
    Originally posted by BudgetSurgeon View Post
    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.
    I think this is a bit extreme. Many new cars including Hondas and Toyotas simply don't depreciate nearly as much as they used to before. This is particularly true after the great recession of 2008-09. So I think there are definitely scenarios where a new car can make sense.

    A Toyota corolla is one such case. Right now, you are better off buying a brand new Corolla than a used one (if you can afford it).

    Leave a comment:


  • MKKShah
    replied
    Originally posted by snafu View Post
    MKKShah, could you explain your thinking for GAP Ins.?
    I will be paying off the loan in less than 12 months. I put $0 down on the loan. So in the event the vehicle is totaled, GAP will pay the difference between the cost of the vehicle and the loan amount.

    One way to calculate will be as follows:
    Vehicle purchase price: $26,000
    Wholesale price: $22,000
    Taxes: $2000
    Insurance company payout in the event of total loss: $22,000. I am on the hook for the remaining $6000. I can either self insure this $6000, or spend around $70 (that is the value of GAP if I payoff the loan in under 12 months) to insure it.

    Leave a comment:


  • UnknownXV
    replied
    Originally posted by kaleida View Post
    I think the part in caps is unnecessarily restrictive. I am not independently wealthy. I bought a brand-new Honda in 2007. That purchase has not prevented me from saving $200,000 for retirement so far, which I think is pretty good considering I'm only 31.
    It would depend on your mindset and how good your income is though. I mean, if you're saving $30,000 a year, buying a new car wouldn't even surpass that savings for one year. So it doesn't set you back that much at all. Versus me, I'm not even saving $10,000 a year yet, so it would set me back much further.

    But it's all relative. Even if you save a lot, if you get back into the routine of always buying a lot of new stuff that depreciates in value, it will hurt you in the long run.

    It's almost like buying an expensive new toy is a gateway action that could lead to more intensive purchases and mindsets like it.

    Leave a comment:


  • snafu
    replied
    MKKShah, could you explain your thinking for GAP Ins.?

    Auto repair for older, 2nd cars: It helps to understand the particular car. Lemon Aid lists the weak points of specific year makes and models as well as recalls. You can look for less expensive ways to cope with anticipated repairs. Having to have repairs in an emergency situation can be more expensive as they have you over a barrel! There are several sites where posters discuss car issues. It can be cost effective to spend a major amount if it keeps the car operational and trouble free for another 8-12 months but it depends on your family's particular needs.

    In my experience following the manual's recommendations for servicing extends trouble free operations significantly. If you can keep it garaged and out of the elements it helps particularly if you live in a sleet climate.

    Leave a comment:


  • kaleida
    replied
    Originally posted by BudgetSurgeon View Post
    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.
    I think the part in caps is unnecessarily restrictive. I am not independently wealthy. I bought a brand-new Honda in 2007. That purchase has not prevented me from saving $200,000 for retirement so far, which I think is pretty good considering I'm only 31.

    Leave a comment:


  • bjl584
    replied
    Originally posted by BudgetSurgeon View Post
    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.
    This is usually good advice. But, I bought a new truck about a year and a half ago. The payment is more than manageable (in fact, I could pay off the loan right now if I wanted.)

    My point is, if you are disciplined about money and buy right, you can do it and not have it effect your finances in a negative way.

    Leave a comment:


  • BudgetSurgeon
    replied
    Originally posted by MKKShah View Post
    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.

    Leave a comment:


  • JoeP
    replied
    Originally posted by MKKShah View Post
    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).

    Leave a comment:


  • MKKShah
    replied
    Originally posted by disneysteve View Post
    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.

    Leave a comment:


  • MKKShah
    replied
    Originally posted by jaine View Post
    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.

    Leave a comment:


  • MKKShah
    replied
    Originally posted by siggy_freud View Post
    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.

    Leave a comment:


  • MKKShah
    replied
    Originally posted by JoeP View Post
    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?

    Leave a comment:

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