Car loan or cash

[Permanent Temp]

So I discovered the Dave Ramsey car loan video and it sounded pretty neat to me. Myself being in the job situation I'm in it seems dumb to have a car payment especially since I still have a 18K student loan noose around my neck. I am 2.5K away from paying off my current loan and my car has at best 2 years left in her. I was planning on keeping to pay myself the car payment after I don't owe to the bank. The warranty is expiring in April of next year. I was thinking of getting rid of her only if she required a repair that is really costly to me (meaning close to the cars value.)

My husband argued that not having a car loan is bad for my credit or that not having one in a while could affect my credit should I need to have another car loan.

What is the general consensus here? I buy used not new so a seriously low interest rate is not an option and I'm weary of a lease because I don't want to worry about keeping a spotless car or having mileage restrictions.

[disneysteve]

I am 2.5K away from paying off my current loan and my car has at best 2 years left in her.

The warranty is expiring in April of next year.

I'm confused. You have a car that is still under warranty for another year but that you don't think will last more than 2 years. How is that possible? What year car is it and how many miles do you have?

My husband argued that not having a car loan is bad for my credit or that not having one in a while could affect my credit should I need to have another car loan.

I say this with the deepest respect but your husband is insane. This is absolutely nonsense. You should never, ever borrow money and pay interest just out of concern over your credit score.

I'm weary of a lease

DON'T LEASE - EVER! It is by far the most expensive way to drive. You consign yourself to eternal payments. It is just renting instead of buying and makes no sense at all. Buy a car that you can afford. Pay cash if you can. If not, take a loan for no more than 36 months with a payment of no more than 10% of your monthly take home pay.

[MonkeyMama]

My husband argued that not having a car loan is bad for my credit or that not having one in a while could affect my credit should I need to have another car loan.

This is a myth perpetuated by bankers.

I have never had a car loan and have always had an excellent credit score.

People tell me this all the time when I say we pay cash for our vehicles. "But you can't have a good credit score!" It has never been a problem.

P.S. Good credit stays on your credit report for a decade and will factor into your score. So your score will have the benefit of past car loans, for a while. If you have had other loans, too. We have mostly built up our credit with "paid off every month" credit cards. So, it drives me crazy when people say you have to actually "borrow money and pay interest" to have a good credit score.

[disneysteve]

it drives me crazy when people say you have to actually "borrow money and pay interest" to have a good credit score.

This is one thing I hate about Dave Ramsey. He calls the FICO the "I love debt" score which is totally false. Pay your bills on time. Use your credit card responsibly and pay the bill in full every month and your credit score will be just fine.

In the interest of full disclosure, I have had car loans. I bought my car in July 2012 and paid it off over the next 14 months. I didn't need to borrow but the rate was low and it helped cash flow. We bought my wife's car last year and also took a small low-rate loan that we are paying way ahead of schedule. I just happen to prefer that to raiding the savings.

For the record, my FICO is 847 out of 850 and my wife's is 846 so I think we're doing okay.

[doingitallwrong]

For the record, my FICO is 847 out of 850 and my wife's is 846 so I think we're doing okay.

Totally OT but just out of curiosity, have you been able to determine what accounts for the 1-point difference in your scores?

[disneysteve]

Totally OT but just out of curiosity, have you been able to determine what accounts for the 1-point difference in your scores?

I have no idea. Those are the scores reported on our Discover card statements last month.

[Permanent Temp]

I'm confused. You have a car that is still under warranty for another year but that you don't think will last more than 2 years. How is that possible? What year car is it and how many miles do you have?


I say this with the deepest respect but your husband is insane. This is absolutely nonsense. You should never, ever borrow money and pay interest just out of concern over your credit score.


DON'T LEASE - EVER! It is by far the most expensive way to drive. You consign yourself to eternal payments. It is just renting instead of buying and makes no sense at all. Buy a car that you can afford. Pay cash if you can. If not, take a loan for no more than 36 months with a payment of no more than 10% of your monthly take home pay.

Lol Steve all you did was confirm my suspicions. I think he is just saying that because he currently works at a dealership and has always paid for a car loan on a new car and is currently leasing. He also though has just paid off all his old debt and has no student loans. I'm in your camp.

I purchased a this used car and I got a loan because I was fresh out of school (with no cash to speak of) and in a state were a commute to a good job was a given since living where the good jobs are is too costly. Also there were no viable public transportation options. Here again I have the same issue. I was hoping my getting a reasonable car loan payment on a car with low miles would mean the car would last a while and I would still be able to make progress on my student loans. This was important because my student loans are cumulatively about the cost of a nicer car themselves.

What I didn't figure for was: a) being screwed over and getting a higher interest rate loan for a longer term and b) being a temp for 3 years and having to put the car payment as the priority and the student loans in deferment while unemployed. This time around I want to have no car payment at all so I can expedite payments to the student loans.

I have a Chevy Cobalt that 6 years old. It has 83Kish miles. I has a lot of new parts due to things going wrong while under the warranty but these cars were not built to last. I have taken good care of it. Rotate tires, change filters, oil changes, repaired anything that required it, etc. If I have to commute to a far away job again it would go past 100K miles within the year. In my experience and told by those around me these cars tend to start falling apart around that point. If it things went wrong under the warranty it would be covered and there would be no issue. The warranty is til April of next year or 100,000 miles. Once the warranty is gone is when I'll have to base each repair on a case by case basis. There are a lot of unknowns in my situation and I'll have a better idea in May whether or not I will have to start looking for a whole new job or not. As of right now I'm going to estimate that the car will last me at least this year and the next. Which is why I say two years.

Best case scenario I am able to pay off my car before my assignment ends (which is looking more and more likely), my job will pick me up for another assignment and I can keep saving my current car payment toward a down payment on a new one until my current car just can't putt-putt anymore. If not then I will have to decide what to do based on the financial situation I'm in.

As far as credit I have several credit cards (all paid off as of November of last year) that have rewards and I use one on a regular basis for things I'm already purchasing (groceries etc) and pay if off every month. And of course the student loans which will be on there for a little while yet. If that is sufficient for the credit score then I am all for it.

[greenskeeper]

83k miles and you think the car is going to just start falling apart even after you have kept up with the maintenance?

Personally I wouldn't even consider getting rid of a car until it hit 200k. Sure the transmission may go around 120k if you have an autotragic, but even so the cost to maintain the car will almost always be cheaper than a car payment.

If the car is paid for you should bank all or some of the payment into a savings fund for when repairs are needed. Chances are you won't have to tap that fund all too often and you can build a stash to pay CASH for the next car once yours rolls over 200k miles.

[ua_guy]

83k miles and you think the car is going to just start falling apart even after you have kept up with the maintenance?

Personally I wouldn't even consider getting rid of a car until it hit 200k. Sure the transmission may go around 120k if you have an autotragic, but even so the cost to maintain the car will almost always be cheaper than a car payment.

If the car is paid for you should bank all or some of the payment into a savings fund for when repairs are needed. Chances are you won't have to tap that fund all too often and you can build a stash to pay CASH for the next car once yours rolls over 200k miles.

I'm with this guy.

Also, there was a gal on here a few weeks ago wondering if she should unload her Cobalt (I think it was a 2006 model year). It had 180,000 miles and was still a runner. There's currently a recall for the ignition switch. Make sure you get that fixed (should be free).

Your car should last well beyond 100k if you have indeed kept up on maintenance and aren't abusing it.

[Permanent Temp]

If you guys think so then that is great news. I would absolutely love it if I could put off having a car payment for that long and bank the payments while I am gainfully employed. The only reason I'm scared is because its needed crazy repairs and I'm afraid that could happen again. But then again that means it has some relatively new parts which might work in my favor.

I got it at around 38k miles in 2010 (its an 08). I found out later it had been a rental car. At 42k miles it need a new I want to say a ball bearing. It had 52k miles by the end of the year. In 2011 it drove across the country for a move and then had a 60 mile round trip commute for a year. It had a broken sway bar link, a leaking axle and a replacement of the steering column around 73k miles I think. The guy was super surprised to hear the thing was still taking me on that long commute. A few months after that I was laid off and since then it hasn't moved that much. But it still has this weird sound that drives me nuts as it is the same sound it made before when it was having issues. Every time I take it to the mechanic for tire rotation etc the sound never replicates. The other recall for the power steering has been replaced at least twice and I think maybe a third time but I'm not sure I'd have to look through the paper work. The ignition recall doesn't apply I believe as my car is a 2008.

So I just worry about it because its needed such wacky things. The next thing to typically go I am told are the shocks but that is not a terribly expensive repair.

My job situation is variable so if I need to do another long commute I'm afraid other things will go wrong and it won't be worth it do repair if its still not under warranty (as in if the repair is more than 4K.) I'm in no hurry to get a new car at all. I'd much rather hold on to this one, I love my car and it has done everything I have ever asked it to and more. So knowing that it might be around til 200k is a happy thought indeed.

[dawnwes]

These are very similar to ours as well. Mine was around 845 and Dh's was about 839.

We have no idea why they were a bit different. But it really doesn't matter, they are plenty high enough.

Dawn

For the record, my FICO is 847 out of 850 and my wife's is 846 so I think we're doing okay.

[disneysteve]

These are very similar to ours as well. Mine was around 845 and Dh's was about 839.

We have no idea why they were a bit different. But it really doesn't matter, they are plenty high enough.

Dawn

My wife's Discover statement came today. Her score went up to 849!

[JoeP]

Deciding when to give up on your current car is not always scientific, but you can at least document a few conditions that would have to be true. For example, you can say that you'll start the process once a repair bill comes in that exceeds a certain dollar amount, or the frequency of repairs exceeds a certain rate (e.g., > 2 a month), or a safety issue comes into play.

Every car has residual value, even if it is scrap metal. Sounds like your car may be a good "project" car for someone in high school who is taking automotive repair. In the right hands, and with virtually free labor and access to tools, your car might make someone very happy.

In any case, I'd start looking for a non-rental car that has a good reputation for reliability and has a decent amount of parts available.