Downgrading automobile

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cachemoney
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Joined: Fri Jul 08, 2016 9:57 am

Downgrading automobile

Post by cachemoney » Tue Oct 10, 2017 3:25 pm

I am looking to sell my current car (financed) and buy a used car. I am wondering if which option you would choose (or another option not listed).

A: Sell current car and buy *new* car with what's leftover after loan payoff (guessing around 10-11k)
B: Use savings and most emergency fund to payoff loan. Sell current car, then buy *new* car and replenish emergency fund.

Automobile KBB = 25k
Auto loan = 13k (payment = $550)
Emergency fund = 15k
New Car savings = 3k

Note: No other debt except mortgage.

Thanks Bogleheads!

bloom2708
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Re: Downgrading automobile

Post by bloom2708 » Tue Oct 10, 2017 3:42 pm

If your current car sells, do you have a car to get you through so you aren't rushed on the next car purchase?

From my experience, you won't quite get what your current car is worth and the new/used car will be a bit more than you expect and it might have some items to fix/update/replace.

I have great luck selling cars on Craigslist. With the lien/loan and higher value, that might be trickier. Certainly doable, it just depends on how flexible the buyer is dealing with titles and loans on their end.

What is your reasoning for "down car-ing"? To get rid of the loan? Not a good fit?

If you like the car, the best course is to keep it and pay it off as quickly as possible.

Sell your car and search your area for a one owner, used Lexus LS 430 (2001 to 2006) that has the maintenance records. One of the nicest driving cars, values are down low and you can still find them around. Just one strategy idea.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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dm200
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Location: Washington DC area

Re: Downgrading automobile

Post by dm200 » Tue Oct 10, 2017 3:47 pm

cachemoney wrote:
Tue Oct 10, 2017 3:25 pm
I am looking to sell my current car (financed) and buy a used car. I am wondering if which option you would choose (or another option not listed).
A: Sell current car and buy *new* car with what's leftover after loan payoff (guessing around 10-11k)
B: Use savings and most emergency fund to payoff loan. Sell current car, then buy *new* car and replenish emergency fund.
Automobile KBB = 25k
Auto loan = 13k (payment = $550)
Emergency fund = 15k
New Car savings = 3k
Note: No other debt except mortgage.
Thanks Bogleheads!
If you like the current car and it is the type of car that meets your needs, perhaps keep it and plan to keep it for a long time. I suspect there will be a "transaction" cost penalty of several thousand dollars in moving from one car to another. Consider also that probably an older car will cost more in repairs and maintenance.

Nate79
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Location: Portland, OR

Re: Downgrading automobile

Post by Nate79 » Tue Oct 10, 2017 4:53 pm

Owning a new car is more expensive than owning a used car of the same type as the most expensive line item for a new car in the first few years is depreciation. If you sell your new car and downgrade to older you can bank the difference in value. You may also downgrade the car in terms of type/options/etc such that you downgrade to a less expensive car.

Whether you should depends on your personal finance situation which you don't mention. For all we know you may be a billionaire in which case no, I would not do this.....

cachemoney
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Joined: Fri Jul 08, 2016 9:57 am

Re: Downgrading automobile

Post by cachemoney » Tue Oct 10, 2017 4:57 pm

I do have a second car that I can drive until about first week of December. My reasons for selling 2015 Wrangler are gas costs (20mpg) and I'd like something more comfortable to commute (1h 40m daily). I don't want to drive it for the next few years.

I was thinking of sedan/hatchback 2012-2014 around 10k.

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FIREchief
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Re: Downgrading automobile

Post by FIREchief » Tue Oct 10, 2017 8:16 pm

The bid/ask spreads on cars are awful. Often thousands of dollars. For this reason, I only buy new cars (modest, reliable, safe) and drive them until they are no longer safe or reliable. Also, the best way I've ever found to optimize car finances is to have as few cars as possible. It baffles me why retired couples sometimes own two or three cars.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Sandtrap
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Re: Downgrading automobile

Post by Sandtrap » Tue Oct 10, 2017 8:46 pm

Sell current car, payoff loan. Buy a used car without tapping into emergency funds. Assume no new loans.
New "used" car: Toyota, Honda.

Katietsu
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Re: Downgrading automobile

Post by Katietsu » Wed Oct 11, 2017 12:48 am

Do you have an understanding of the logistics of selling your current car? In other words, who is the car financed with? Can the loan be paid off and the title signed over locally?

In order to get the best price, you will want to sell the car yourself. A Wrangler is a good vehicle for that. You will turn off many buyers if you can not provide a title at the same time they provide the payment. So, if the title and loan payment can not occur at the lending institution then you will likely benefit by paying off the vehicle first.

denovo
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Re: Downgrading automobile

Post by denovo » Wed Oct 11, 2017 4:34 am

Do you have any experience selling a used vehicle?

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dm200
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Location: Washington DC area

Re: Downgrading automobile

Post by dm200 » Thu Oct 12, 2017 9:01 am

Because of the existing loan and the logistics involved, I might investigate going to a dealer of CarMax and do this in one "transaction".

koozie
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Location: Colorado

Re: Downgrading automobile

Post by koozie » Thu Oct 12, 2017 9:12 am

I just did a similar exercise in downgrading from a car worth $10k to a car worth less than $5k. My only reason was that I wanted something different, and I enjoy tinkering with cars. Keep in mind that the recent hurricanes in TX and FL have damaged a lot of cars, and that $10k value is likely to creep toward something more like $12k for the same car. Your Jeep Wrangler will likely sell easily enough since they have a strong following, but before you commit, make sure you really know the current market for vehicles you'll be shopping for.
Good luck.

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