Is it ever okay to borrow money for a car ?

[disneysteve]

This is tough. It sounds like you guys are in great shape - no debt including no mortgage at 38 and 44 years old. I do wonder what % of income is going into retirement savings.

Without seeing your budget, just owning 7 vehicles seems excessive to me and spending 60K on a car seems equally excessive. However, if you guys are well off and frugal in other areas and this is where you choose to splurge, that's probably not a problem, though again without seeing numbers it's hard to say for sure.

All of that said, I think if you are in such great shape, you probably should be able to pay for your toys, not finance them. Do you know what the rate would be on the car loan?

[disneysteve]

I just realized that you are the same person who posted that your daughter's car needs a new transmission that will be nearly $3,000. Wouldn't it make more sense to get her a newer car (hers is 10 years old with 130K miles after all) instead of buying a $60,000 car for yourselves?

[Barclay]

Retirement savings...well, we both put 17.5k into our 401ks and another 40k or so into investment accounts and backdoor Roths.

And I will not be buying my daughter a new car. I have some money put away for her. She is a sophomore in college and when she graduates, I will give her some money to buy a car or down payment on a house or something. But, she got a newer car when she turned 16 and tore it up rather quickly. She also just recently got her very first job and she is almost 19 years old. She needs to start being more financially independent. I pay for her college, her car insurance, cell phone, gas, food, clothing, hell I pay everything. Buying her a new car will give her no incentive to work at all. I dearly love my child, but I cannot continue to give her everything. That isn't teaching her a thing.

And despite having 130k miles on this car, it is a very nice car. It is a 2 door Accord, all leather and all the options. It really looks immaculate for being 10 years old. The previous owner bought it new and took great care of it. It is not a beater. After the transmission is fixed, it should last at least another 50-75k or more miles. I think it is just fine. But, maybe it does seem a bit unfair that we buy a toy before buying her a new car.

[disneysteve]

maybe it does seem a bit unfair that we buy a toy before buying her a new car.

No, not at all when you explain it all. Nothing wrong at all with making her start taking more responsibility for her own needs.

As for her car, though, being someone who keeps cars a long time, I've found that 150K seems to be the point when cars start costing more than they're worth. I replaced my 1998 Camry last June with 157K and we're currently searching for a replacement for our 2000 Sienna with 154K.

I would hate to spend 3K for a transmission only to have something else costly go wrong soon after.

[~bs]

^

I think it's your money and you should do what you want with it. Having to work menial jobs just to afford a $3k car (and all the other expenses that comes along with it) builds character. Current generation of kids are growing up soft IMO. Need to learn totake responsibility for yourself. Not learning that lesson is how kids are ending up graduating college with 100k in debt and saying "i didn't know"

[Barclay]

Ew I hate to hear that. I hope it at least gets her thru college. I guess I shall wait and see and keep up the routine maintenance. I appreciate your advice.

[disneysteve]

Ew I hate to hear that. I hope it at least gets her thru college. I guess I shall wait and see and keep up the routine maintenance. I appreciate your advice.

Didn't mean to be a downer. I know many people who have had different experience getting 200K and more out of their cars. That just hasn't been my experience, not that 150K is anything to be disappointed about.

[scfr]

Yea, we probably couldn't live in it as seniors.

I would never dream of taking the money from our retirement accounts to buy the car. It is a depreciating asset.
So maybe just put down 30% or so?

We could rent a car but not quite the same as leisurely putting around in it. I am certainly willing to save up more and wait to buy it.

My suggestion is to not finance any more than what you could pay off in full without touching money earmarked for other purposes whether it's emergency fund, retirement (both tax-deferred accounts and investment accounts you plan to use in retirement), kids' college savings, etc. Unlike Dave Ramsey, I think it's OK to finance if you have the money but want to take advantage of a super low financing rate.

If you don't have that much money, then yes, I would wait and hold off until the money is saved up, since this is not a "must have" vehicle.

I may be reading too much in to things, but it sounds like your husband is much more eager to get the car than you. If it were my husband, I'd come up with some sort of compromise that would be acceptable to both of us. For example, I might ask my husband if he were willing to eliminate gifts & vacations & some other non-necessary expenditures (like wine, in my husband's case) for a year or two in order to save up for the car. If his answer was "No," then I'd question him about how much he really wanted the car. Much of personal finance is about setting priorities, trade-offs, and compromise.

[disneysteve]

Unlike Dave Ramsey, I think it's OK to finance if you have the money but want to take advantage of a super low financing rate.

I agree. I bought my car last June with a loan for 2.9%. I did it more for cashflow reasons than anything else. I don't intend to keep the loan the full 3 years. In just one year, I've paid it down from 13K to 5K so it should be gone within the next year.

[cschin4]

Here is my advice:

1. Pay off your home (or continue prepaying your mortgage)

2. Finance your car

Yeah, i know that seems contrary. But, think about it. Doesn't it make MORE sense to OWN the thing of value? Your home? Aggressively prepay your home and it will paid off in full much sooner than you think.
\\

On the other hand, a car rapidly depreciates. Like renting, it won't be worth diddly in the end. So, finance it like 'rent' instead at a low interest rate.

[Liopleurodon]

Of course its OK to borrow money for a car, especially if you can secure 0% financing. What's not OK is taking on more debt than you can comfortably afford. The only rule I affix to buying cars is that the down payment must be large enough that you will never be upside down on the vehicle. I also personally like to borrow for 36-48 months, but that's up to your discretion. The longer the payment term the bigger the down payment you'll need to ensure you have positive equity.

I will second the idea that if you have the cash to buy a car outright, don't. Finance the car and either put the money directly towards principle on your mortgage, or renovate some part of your home.

[JoeP]

Insurance is a valid point. I hadn't really thought of that. This would be our 7th vehicle. My husband just bought a new ZX14 and I made him pay for a year's insurance upfront because of the ridiculous cost of it. This may be a good time to bring up the idea of his selling his old ZX12 before buying the new car. I don't know why he wants to keep it anyway, with his new bike.

If you're married, then technically you both bought a new ZX14 and you both paid the ridiculous insurance cost. How is your communication?

[coreyclark315]

It will be better if you will pay off the entire loan in cash. But if you are willing to borrow a loan and you are getting it at low interest rates then you can take it.
The only thing that you have to understand is that the maintenance charges after purchasing the car. As buying a car is not the only point you have also needed to maintain it properly and it will be costlier. So if you can manage it then get the finance.

[Wino]

You are quite right to buy the car on a loan, provided that you "set aside" that much money in your retirement accounts (some index fund would be my choice) and NEVER touch it. You would be then trading the loan interest for the opportunity costs of the investment. If you ever touch the investment prior to retirement, then you're just borrowing the money and paying unnecessary interest.

[cschin4]

I paid cash for my last new car. But, now i would not do so. I don't see the point. Just buy with low financing and go with that. I see NO advantage to having paid for the car up front in cash.