Car Dilemma

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ARBear
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Car Dilemma

Post by ARBear » Mon Dec 23, 2013 12:17 pm

Hi Bogleheads:

We are a young couple having a car dilemma and thought the Bogleheads could help us.

My husband's car died on Friday. Its age, condition, and cost of the repairs is far too much to try to save it.

My car died in February, 2012, and it was too old and worn out to save. We replaced it with a new car that we plan on keeping until it too dies. We made double payments on my car until we bought a house this spring so we reduced our payments and only have $8800 left to pay off. We are actually a year ahead on the loan. The loan on my car is 3.99% because we made the mistake of buying it in a hurry and getting our loan through the dealer which we won't to do again. A good learning experience.

To replace my husband's car, we are thinking of getting a used 2010-2011 Honda CR-V or Toyota RAV-4 based on their reliability and the need for a four wheel drive vehicle. We only want to spend $16,000-18,900.

Knowing my husband's car was going to die, we had started saving for a car. We have $4400 saved up. My parents have offered us $5,000 because they pointed out it is easier to do that than us try to make two car payments and a mortgage payment on state government salaries.

Here is our dilemma:

Do we pay off my car with the $4400 we saved up combined with my mom's $5,000 gift?

Or, do we save the $4400 for a down payment on the used car we plan on buying to make the payment lower?



Any advice or recommendations you can provide about paying off my car or not paying off my car would be most appreciated.

If you have any comments about Honda CR-Vs or Toyota RAV4s we'd like to hear about that, too.

Thanks in advance for your help!

psteinx
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Re: Car Dilemma

Post by psteinx » Mon Dec 23, 2013 12:34 pm

1) Money is fungible

2) That said, if your parents expressed an intended use for their $5K gift, you should try to honor that.

3) 3.99% does not sound too terrible to me. I don't really know the standard going rates for this kind of thing, but keeping a 3.99% rate in place for a bit hardly seems catastrophic.

4) Make sure you have reasonable emergency funds. That said, 2 incomes, both from the state government, sounds safer than what many folks have.

psteinx
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Re: Car Dilemma

Post by psteinx » Mon Dec 23, 2013 12:35 pm

Oh, one more thing. $16-19K for a 3-4 year old smallish SUV/CUV sounds pricey to me. Perhaps expand your comfort zone beyond Toyota/Honda and you might open the door to cheaper vehicles?

bigspender
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Re: Car Dilemma

Post by bigspender » Mon Dec 23, 2013 12:36 pm

The thing with those two cars is they really don't depreciate that much over 3 years. Also, you can probably get 0% financing on the toyota rav4 with 4wd.

Figure you can get an otd rav4 for 30,000 with all taxes and fees, that would be 500 bucks a month. And I think you could probably do better as dec.31 is a great time to buy a car and that is only a few days away. And, you get a 3 year warranty with that new car.

Now, if you can get a used 3 year old rav4 for lets say 12-15k, which I doubt you will be able to do, then I would go for the used option.

It is a good thing you knew to budget. And that rav4 will easily give you 200,000 miles of worry free driving.

The think the crv's are a little more money and honda doesn't offer 0% financing.

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femur
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Re: Car Dilemma

Post by femur » Mon Dec 23, 2013 12:37 pm

1) Money is fungible

This means that the money in your right pocket is just the same as the money in your left pocket so what you do with it does not really matter in the grand scheme. Money is money. :)

2) That said, if your parents expressed an intended use for their $5K gift, you should try to honor that.


3) 3.99% does not sound too terrible to me. I don't really know the standard going rates for this kind of thing, but keeping a 3.99% rate in place for a bit hardly seems catastrophic.


4) Make sure you have reasonable emergency funds. That said, 2 incomes, both from the state government, sounds safer than what many folks have.


I agree 100% with these items.

Mingus
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Re: Car Dilemma

Post by Mingus » Mon Dec 23, 2013 12:43 pm

What I would do is:

Refinance your car loan to a more favorable rate.

And get the best loan interest rate possible on the second purchased car for your husband.

Your car is coming up on two years old. Not sure what kind of car it is, but generally tires that come from the factory don't last much longer than two or three years. So you need cash to replace those when they come due.

Do you have the cash flow every month to be comfortable with two car payments, and two full coverage insurance policies?

Others will disagree with me that your car should be paid off first before entertaining buying a second car. And I would have a hard time arguing against that....

psteinx
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Re: Car Dilemma

Post by psteinx » Mon Dec 23, 2013 12:51 pm

They have $8800 left on their first loan, at 3.99%. If we amortize the principal straight line over 30 months (a simplification, but probably not TOO far from reality), then their remaining interest over the course of the loan is somewhere in the neighborhood of $440. I doubt it is very worthwhile to refinance that loan.

They should focus on the 2nd vehicle issue in a way that both adequately satisfies their needs and is financially prudent.

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tadamsmar
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Re: Car Dilemma

Post by tadamsmar » Mon Dec 23, 2013 1:09 pm

I'd recommend a Chevy Malibu, new not classic design, 2008 or newer. Car of the Year in 2008.

You can get that for the $9400 you have, or thereabouts.

Get one that has stability control. The lowest trim in 2008 (the LS) did not have stability control. In general, you should consider electronic stability control (ESC) to be a must have feature, and confirm that any vehicle you buy has it.

With the loan, do whatever saves money over the life of the loan. We can help you do the math on a specific refinance offer, if you get one. Having your parents countersign on a loan might get you a lower rate.

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tyrion
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Re: Car Dilemma

Post by tyrion » Mon Dec 23, 2013 2:11 pm

Money is fungible but there is a difference in payments on having 2 loans vs 1 loan. If you pay down the 2nd car loan you will have 2 loans so higher monthly payments until the first is paid off. I don't know your actual numbers but it will probably look something like this-

Loan 1 - 350/month for 24 more months
Loan 2 - 220/month for 48 months (based on 19k - 9k)

or
Loan 2 400/month for 48 months

Really it's a preference on whether you want to have a consistent rate for x years, or a higher initial rate followed by a lower rate. Personally I would pay off #1 and look for better than 3.9% on #2. (try penfed.org)

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White Coat Investor
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Re: Car Dilemma

Post by White Coat Investor » Mon Dec 23, 2013 2:16 pm

tadamsmar wrote:Get one that has stability control. The lowest trim in 2008 (the LS) did not have stability control. In general, you should consider electronic stability control (ESC) to be a must have feature, and confirm that any vehicle you buy has it.


I hate ESC. Takes all the fun out of spinning donuts.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

nordlead
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Re: Car Dilemma

Post by nordlead » Mon Dec 23, 2013 2:22 pm

As noted above, ignore the first loan as the interest is chump change compared to what you decide with the second vehicle. FYI, KBB says a 2011 Accord LX runs ~$13k, while a CR-V LX runs ~$15.5k, a savings of $2.5k right there which dwarfs the interest you'll be paying on the first loan.

do you really need 4-wheel drive? I live in Syracuse where we get 10 feet of snow a year, and got by fine with front wheel drive in my Accord for years. Snow tires on a front wheel drive are probably all you need and will allow you to get a cheaper sedan. Unless you do off roading with both cars for the job or something like that.

If 4-wheel drive is really a must, have you considered a Subaru Impreza? I have an 05 Forester and bought it because it was cheaper than the 05ish Honda's and Toyota's. The AWD Impreza should be even less. My biggest complaint about the 05 Forester is wind noise. I have no clue what my second complaint would be, but maybe I'll remember on the ride home :P

Personally, I'd avoid the car payment all together and just get a ~7 year old sedan for ~$7k (will buy an Accord with traction control or an Impreza) or less and slap snow tires on it.

The Wizard
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Re: Car Dilemma

Post by The Wizard » Mon Dec 23, 2013 2:23 pm

EmergDoc wrote:
tadamsmar wrote:Get one that has stability control. The lowest trim in 2008 (the LS) did not have stability control. In general, you should consider electronic stability control (ESC) to be a must have feature, and confirm that any vehicle you buy has it.


I hate ESC. Takes all the fun out of spinning donuts.

I suspect ESC is switchable offable; my traction control is...
Attempted new signature...

bh
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Re: Car Dilemma

Post by bh » Mon Dec 23, 2013 9:20 pm

i would look to replace 2nd car in the 7k-8k neighborhood with something that has some age on it but reasonable miles.......autos last a long time now with the minimal upkeep and you can sometimes drive an older vehicle for many more years while allowing to get more established with savings/investments

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jeffyscott
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Re: Car Dilemma

Post by jeffyscott » Tue Dec 24, 2013 12:19 pm

nordlead wrote:do you really need 4-wheel drive? I live in Syracuse where we get 10 feet of snow a year, and got by fine with front wheel drive in my Accord for years. Snow tires on a front wheel drive are probably all you need and will allow you to get a cheaper sedan. Unless you do off roading with both cars for the job or something like that.


Agree, I can not imagine why anyone would "need" 4WD or AWD. Obviously the vast majority of people living in all places in the US do not have it and somehow manage to live.

I have lived where there is snow for over 50 years and never had it, never even had snow tires.

Anything from 2011 on is required to have ESC, that is far more worthwhile than AWD/4WD.
press on, regardless - John C. Bogle

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BigOil
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Re: Car Dilemma

Post by BigOil » Thu Dec 26, 2013 12:43 pm

ARBear wrote:Hi Bogleheads:

If you have any comments about Honda CR-Vs or Toyota RAV4s we'd like to hear about that, too.

Thanks in advance for your help!


The are really really good vehicles. Doh.
Everyone knows this = the are expensive used.

We found over the years, buying new is best "value" on the popular (foreign brand) models if one can afford it, and keep them a long time ~10 years. Assuming one can spend a bit more up-front.

Might get a used popular model at more reasonable price by buying direct on Craigslist etc...BUT you better know how to avoid being ripped off by curbstoners and cheats. Or more likely, a "payment buyer" underwater on the loan with a correspondingly unreal price after getting an unacceptable trade in value (Dealer's rarely overpay, and buy wholesale only...like $4-6K+ less that retail asking price). Reputable brand Dealers often are price rip-offs, but they rarely sell knowingly crap units...they don't need to or want unprofitable headaches.

The good "unloved" usually American cars can be good deals used relatively speaking (In general, most young, clean, used vehicles are spendy as inventories are low these days due to 2008-9 slow new sales). Aforementioned Chevy may well be one of those units. Check Consumer Reports. They would not fit-in socially if you lived in parts of Cali and Porlandia etc...

4WD is overrated perhaps for most day to day, but we have it on our cars...live near Lake Ontario/Erie...SNOW! My gas guzzlin' politically incorrect 10 year old Ford Expedition EATS bad weather for lunch! Plows, PLOWS ? ... ---we dont need no stinkin' snow plows! haha (our other car is more economic FWIW)

German Expat
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Re: Car Dilemma

Post by German Expat » Thu Dec 26, 2013 12:56 pm

We have a front wheel drive CRV (2006) and I prefer it to my all wheel drive BMW on really snowy days because of the ground clearance. We are in Colorado so there can be a lot of snow. I have dedicated snow tires for it though. We bought it new in 2005 because 3 year old cars were not that much cheaper. It holds the value very well though which is a disadvantage for you as a buyer. We bought it new for a bit more then 19k (base model, no extras at all) and it still shows a private party value of 8500$ (65k mileage).

Penfed has a 1.99% car loan for used and new cars (you could refinance your old car to have the cash to pay for a new car). Navy FCU is 1.49% (up to 36 month). I would get the financing worked out and personally I refuse to walk into a dealership without having a deal negotiated via email or phone.

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yatesd
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Re: Car Dilemma

Post by yatesd » Thu Dec 26, 2013 1:03 pm

I agree...although Honda & Toyota are good brands they hold their resale value too well. Especially when you factor the differences in quality between the best and worst brands keeps shrinking. Also, many GM vehicles that are just a few years old have a 100K transferable power train warranty.

http://www.gm.com/toolbar/faqs/warranty.html

Disclaimer: I own a Honda & a Cadillac and both seem comparable from a reliability perspective. The Caddy has cost me less out of pocket due to the warranty and lower maintenance requirements (no timing belt & extended service intervals).

btenny
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Re: Car Dilemma

Post by btenny » Thu Dec 26, 2013 2:14 pm

Here is used 2010 Subaru Forester with 30K miles for $20k asking price. I am sure you can buy a similar car for $18K or so in your neighborhood. These are great small SUVs that are wonderful in all kinds of good and bad road conditions and will easily last for 150K or more miles. They haul a ton of stuff and have a good size back seat. Plus they are fun to drive and easy on gas.
Good luck.

http://www.autotrader.com/cars-for-sale ... ex=3&Log=0

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tadamsmar
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Re: Car Dilemma

Post by tadamsmar » Thu Dec 26, 2013 2:22 pm

EmergDoc wrote:
tadamsmar wrote:Get one that has stability control. The lowest trim in 2008 (the LS) did not have stability control. In general, you should consider electronic stability control (ESC) to be a must have feature, and confirm that any vehicle you buy has it.


I hate ESC. Takes all the fun out of spinning donuts.


There is usually a off button. Some high performance cars have multiple levels of off.

PS: Off has limited legit uses that are specified in the owner's manual.

Dave76
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Re: Car Dilemma

Post by Dave76 » Thu Dec 26, 2013 2:31 pm

I'd buy an old wreck for $900-$1500 and use the $5k gift to pay down the car loan. Do you really want two car loans and more full comp. insurance coverage?

Twins Fan
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Re: Car Dilemma

Post by Twins Fan » Thu Dec 26, 2013 2:40 pm

ARBear wrote:Knowing my husband's car was going to die, we had started saving for a car. We have $4400 saved up. My parents have offered us $5,000 because they pointed out it is easier to do that than us try to make two car payments and a mortgage payment on state government salaries.

Here is our dilemma:

Do we pay off my car with the $4400 we saved up combined with my mom's $5,000 gift?

Or, do we save the $4400 for a down payment on the used car we plan on buying to make the payment lower?


Sounds like your parents mean for the gift $$ to go towards paying off your vehicle, along with the money you have in savings. I would honor their wishes there. Dilemma gone.. :D

As others have said, it really doesn't look like it makes much difference either way. Your car is at a low enough balance now that the interest rate is not that much of a concern. But, you could probably get a bit lower interest rate on the soon to be purchased car. Would you rather owe $16k on two cars with mixed interest rates, or owe $16k on one car with a fixed interest rate? Likely very little difference either way. Pay off your car, buy the new car, and then pay that off aggressively. A couple hundred bucks either way is not worth stressing over, in my opinion. Keep It Simple Silly. :D

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