Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car is Wo

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
Diplomat
Posts: 1
Joined: Sat Jan 21, 2023 10:49 pm

Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car is Wo

Post by Diplomat »

Need to get a new car after my previous car died and repairs cost more than the car is worth. Looking for advice on whether I should get an auto loan or a private loan instead and also use some of the loan money to pay off high interest rate credit card debt?

First of all, I want to say thank you in advance for any advice on my situation. I am having a very hard time deciding what to do. I will try and keep it as short and to the point as I can. My current car is a 2011 Lincoln MKZ 3.5L V6 with 267,920 miles on it and is undrivable, it needs a new water pump and also needs the head gasket replaced as well as other minor repairs but those are the two that make it unreasonable to pay to get it fixed.

Kelly Blue Book values the car in "fair" condition as such : Trade In Value - $663-$1,763 (avg- $1,200) and
Private Party - $2,690-$4,841 (avg- $3,766) which obviously is not accurate considering the needed repairs.

The question I have been trying to figure out is whether I should get an auto loan for a cheap used car or if I should opt to take out a personal loan instead and also use some of the loan money to pay off some high interest credit card debt I have as well?

My current take home pay after taxes and health insurance is taken out is $763 weekly and my credit score is in the mid 700's. I have only two credit cards, the first has a balance of $3,432.64 @ 26.74% APR and the second has a balance of $4,097.63 @ 26.74% APR.

I was planning on looking for a new vehicle at the maximum cost of $6,000. I was wondering if it would be better to get a personal loan to pay for the car and also the full balance of the two credit card balances or if it would be better for my credit score to only pay for a portion of the credit card balances and leave some of the balance still on them?

Once again, thank you for any suggestions, I really appreciate it and if there is any other information that is needed that might be a deciding factor I can provide that as well.
ClaycordJCA
Moderator
Posts: 1027
Joined: Sun Aug 09, 2015 11:19 pm
Location: SF Bay Area

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by ClaycordJCA »

Since the focus of OP’s post is financing and potential uses for the loan proceeds, this topic is now in the Personal Finance (Not Investing) forum.
tibbitts
Posts: 18758
Joined: Tue Feb 27, 2007 5:50 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by tibbitts »

My guess is that just the water pump replacement on that specific car would cost in the $1500-$2000 range, and then more for the cylinder heads (although it should cost less to do both at the same time vs. separately.) Your car has a lot of miles on it and you've gotten your money's worth out of it; it's probably worth at most only a few hundred dollars for scrap.

I'm usually not a fan of buying a $6k vs. a nearly or entirely new car unless you can d-i-y any required repairs. You'd have to get very lucky with a $6k car to have it not cost you a lot more than $6k. But you have credit card debt at an extremely high interest rate so a somewhat unusual-for-Bogleheads situation. I suggest finding out what alternatives in terms of loans etc. are actually available to you and coming back with that information.

I don't see a reason to leave a balance on any card, other than a zero-rate card.
novelbogle
Posts: 61
Joined: Sat Jul 30, 2022 7:28 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by novelbogle »

Diplomat wrote: Sat Jan 21, 2023 11:03 pm Need to get a new car after my previous car died and repairs cost more than the car is worth. Looking for advice on whether I should get an auto loan or a private loan instead and also use some of the loan money to pay off high interest rate credit card debt?

First of all, I want to say thank you in advance for any advice on my situation. I am having a very hard time deciding what to do. I will try and keep it as short and to the point as I can. My current car is a 2011 Lincoln MKZ 3.5L V6 with 267,920 miles on it and is undrivable, it needs a new water pump and also needs the head gasket replaced as well as other minor repairs but those are the two that make it unreasonable to pay to get it fixed.

Kelly Blue Book values the car in "fair" condition as such : Trade In Value - $663-$1,763 (avg- $1,200) and
Private Party - $2,690-$4,841 (avg- $3,766) which obviously is not accurate considering the needed repairs.

The question I have been trying to figure out is whether I should get an auto loan for a cheap used car or if I should opt to take out a personal loan instead and also use some of the loan money to pay off some high interest credit card debt I have as well?

My current take home pay after taxes and health insurance is taken out is $763 weekly and my credit score is in the mid 700's. I have only two credit cards, the first has a balance of $3,432.64 @ 26.74% APR and the second has a balance of $4,097.63 @ 26.74% APR.

I was planning on looking for a new vehicle at the maximum cost of $6,000. I was wondering if it would be better to get a personal loan to pay for the car and also the full balance of the two credit card balances or if it would be better for my credit score to only pay for a portion of the credit card balances and leave some of the balance still on them?

Once again, thank you for any suggestions, I really appreciate it and if there is any other information that is needed that might be a deciding factor I can provide that as well.
Good evening,

My sympathies -- you're in a tough spot, but you can handle it.

You have a good credit score but you shouldn't be asking how to keep your credit score up. You should be focusing on your two problems--getting a new car and getting out of debt. The credit score is not an end in itself but a way to get credit, and now you need credit. Do not worry about the credit hit too much.

You should consider both a car loan and a personal loan to reduce the CC debt. You have to buy a new car, and the auto loan should have a lower rate than a personal loan; consider locking that auto loan in first. Then consider applying for a personal loan to consolidate that CC debt. You might also consider a low introductory rate on a new card for a balance transfer. The rates on your credit cards are really high, and you need to get that debt down. If your credit takes a small hit in the interim, that's ok. (By the way, even if you pay off those CCs, don't close the accounts; that will really cause your credit to take a hit.)

A final matter is unpleasant to mention because I do not know anything about you except what's in your post, but you should evaluate how you got into credit card debt and how you can prevent it from happening again. It's a huge drain on your finances. After you get out of debt, build up an emergency fund so you're not forced to go into debt in situations like the present one.

I wish you the best.
"Exemplary persons cherish their excellence; petty persons cherish their land." - Analects 4.11.
User avatar
Watty
Posts: 26569
Joined: Wed Oct 10, 2007 3:55 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by Watty »

Diplomat wrote: Sat Jan 21, 2023 11:03 pm I have only two credit cards, the first has a balance of $3,432.64 @ 26.74% APR and the second has a balance of $4,097.63 @ 26.74% APR.
It is worth calling up the credit card companies to ask is they will lower your interest rates. If you have been making the payments on time and and have a 700+ credit they may very well be willing to reduce the rate. It will only take a few minutes to call and the worst they can do is to say "no".
Diplomat wrote: Sat Jan 21, 2023 11:03 pm I was wondering if it would be better to get a personal loan to pay....
What are the terms of the personal loan?

What is the best interest rate that you could get on a $6K car loan and what would the payments be?
Diplomat wrote: Sat Jan 21, 2023 11:03 pm My current take home pay after taxes and health insurance is taken out is $763 weekly..
What does the rest of your budget look like as far as rent and other expenses?

One concern that I would have would be that you might buy a $6,000 car that ends up having expensive problems that might cause you to need to put more repairs on the credit cards. Can you do most car repairs yourself?
User avatar
enad
Posts: 1125
Joined: Fri Aug 12, 2022 2:50 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by enad »

If you like your current car then you could repair it and continue to drive it. Your insurance will be cheaper than if you bought something else and not sure what you can get for $6K, but for that kind of money you could also be buying more problem. KBB is only a reference if you want to sell the car i.e. I wouldn't use it to determine if a car is worth repairing. Do you own a home? If so, you can look at a Home Equity Line of Credit (HELOC) to help finance the repairs.

FYI: I tend to keep cars a long time i.e. the current car is 13 model years old and the one before was 22 model years old.
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
CaptainT
Posts: 289
Joined: Tue Feb 15, 2022 7:20 am

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by CaptainT »

Do you live where taking the bus , bike, or subway to work is an option? If so consider that. Going a while without car , gas, insurance payments while you aggressively pay off cc debt with the savings might be fabulous for your budget
So let's assume no and a car is a need. I'm not a car person but the question isn't Kelly blue book value it is what is the most inexpensive way to get enough to get to work to get paid? Not sure if that is repair or replacing.

Re debt you should do the following
1. Find a part time source of extra income -all of extra income goes to cc pay down.
2. Call cc see if they can lower rates might might not but worth the call. (Repeat call every 3 months see if can lower again)
3. Look where else in your budget you can cut. 7530 in credit card high interest debt is huge for your income.
4. I would make a budget (I like ynab) and a debt paydown plan. I would cut expenses to the bone and start working tons of extra hours ( which also cuts fun money by virtue of no time for fun)
5. Since cc are both at the same high interest rate put everything above the minimum payment on the smaller of the two balances. Goal is to pay one off. Then take everything you were paying at 1st one and put that at 2nd one in addition to what you were already paying. This is called debt snowball ( smallest debt to largest) or debt avalanche ( largest interest rate to smallest) .
6. Once in about 1 year you have gotten yourself out of debt keep at it for a few months and build yourself a few thousand dollar emergency fund.

You can do this but it's hard and you really need to get out under that cc debt. An extra job will help a ton.
michaeljc70
Posts: 9580
Joined: Thu Oct 15, 2015 3:53 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by michaeljc70 »

It is hard to give advice on the auto without knowing what any of the auto loan rates would be.

You need to get the interest rates down on the credit card debt. With a credit score in the 700s, you should be able to do that without too much trouble. The cheapest way would be to get a 0% intro APR credit card and charge everything you can on that and use your cash to pay down the high interest credit card debt. Obviously, you also want to be able to pay off the 0% before the interest rate soars. You can get balance transfer offers, but most charge a 3%-5% fee. Given the rates you are paying now, I guess the fee isn't all that bad. Since most "low" interest rate credit cards are still 15%+ I'd try to use the 0% angle.

Take a look at this list (or similar): https://www.cnbc.com/select/best-zero-i ... dit-cards/

You really need to get this under control or your finances can go into a death spiral due to the high interest rates. If you have to do a few 0% offers to get the debt paid off, it is fine but avoid a continuous shifting from one card to another with no end in paying it off in sight.

If there are other options available like moving in with someone for free/cheap I'd consider that until the car and credit cards are paid off.
User avatar
quantAndHold
Posts: 8155
Joined: Thu Sep 17, 2015 10:39 pm
Location: West Coast

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by quantAndHold »

I would ask if you live somewhere where you could get by without a car for awhile, until you get things on a better track financially. For example, taking transit to work, then using Uber or Enterprise when you really need a car, would probably save money.

And you are correct, I wouldn’t fix a car with those expensive repairs and over 250k miles.
Jack FFR1846
Posts: 16174
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by Jack FFR1846 »

This is absolutely a situation where replacing the engine is worth it. I get that if you have to pay a mechanic, it can get somewhat expensive. I just checked the pull-a-part place I go to and a replacement complete engine is $249. I used to go there for parts for my 09 Fusion, which is the exact same car and they always had 20 of them in the yard. If half were V6's, pick the one with the lowest miles. Maybe a side or rear crash. Local DIY guys will do this job for not all that much money. What I would do if I didn't want to do it myself? I'd go to the yard, pay the $2 to go in and then talk to the guys pulling parts. Find someone willing to get the engine and do the swap. Likely, they have a pick up which is all you need to transport the engine. The yard is going to bring it on a giant fork vehicle. Put an old tire (they'll give you one) on the truck bed and then strap it in. If you need a cherry picker (engine hoist) go to Harbor freight and buy one. When this is all done, you can sell it on craigslist very easily. I would expect that this job complete, putting in new spark plugs and changing the oil is going to cost a grand.

This is one of those cases where the cost to fix the car being more than the present value of the car is worth spending.

About 2 years ago, our 13 Subaru Crosstrek needed tires, a wheel bearing, a ball joint and 2 CV shafts plus the CVT solenoid controller. $3500 in repair and replacement cost. The car according to Car Max was worth $2800. I got the work done. That was right at 150k miles. Today, it's about to hit 200k. We replaced the wiper mechanism (from the pull-a-part junkyard) for $17. A bunch of bulbs blew, so another $50. Tell me how we could have spent say $3600 and gotten 2 years and 50k miles out of it? And the $3500 was paid to a mechanic because I didn't want to do it myself.
Bogle: Smart Beta is stupid
HomeStretch
Posts: 9219
Joined: Thu Dec 27, 2018 2:06 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by HomeStretch »

Welcome to the forum!

Sorry to hear about your car issues. As far as an unsecured personal loan vs. a car loan secured by the car, you need to see what you qualify for and the rates before deciding.

You might see if you can qualify for a 0% card in order to transfer the high-interest balances. This only works if you do not continue to increase your credit card debt balance. The DoctorOfCredit website usually has good info on credit cards available.

You may want to reflect on what gave rise to this debt in the first place and address the cause. I agree with the suggestions to get a 2nd job, cut expenses to the bone or go without a car for awhile in order to put more money towards paying off debt. Also consider establishing an emergency fund and starting a car fund to save towards your next car.
Mike Scott
Posts: 3026
Joined: Fri Jul 19, 2013 2:45 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by Mike Scott »

Are you in a location you can uber or use public transport while you pay off the credit cards? The credit card balances at those interest rates are an emergency status. Look up the Dave Ramsey advice for debt payment.

If you absolutely must have a car, buy the cheapest running one you can find for the amount of cash you have.
KlangFool
Posts: 27631
Joined: Sat Oct 11, 2008 12:35 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by KlangFool »

OP,

1) Don't replace the car. Live without the car.

2) Save money to pay off the credit card.

3) You cannot afford a car until the credit cards are paid off.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
secondopinion
Posts: 4058
Joined: Wed Dec 02, 2020 12:18 pm

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by secondopinion »

Diplomat wrote: Sat Jan 21, 2023 11:03 pm The question I have been trying to figure out is whether I should get an auto loan for a cheap used car or if I should opt to take out a personal loan instead and also use some of the loan money to pay off some high interest credit card debt I have as well?

My current take home pay after taxes and health insurance is taken out is $763 weekly and my credit score is in the mid 700's. I have only two credit cards, the first has a balance of $3,432.64 @ 26.74% APR and the second has a balance of $4,097.63 @ 26.74% APR.

I was planning on looking for a new vehicle at the maximum cost of $6,000. I was wondering if it would be better to get a personal loan to pay for the car and also the full balance of the two credit card balances or if it would be better for my credit score to only pay for a portion of the credit card balances and leave some of the balance still on them?
First things first, those credit balances are more costly than a car loan will ever be; absolutely do not put more on those credit cards.

Second, try to transfer the balances to a good 0% intro rate credit card and pay it off as quickly as possible. Even if you do not make it in time, the remaining balance will hopefully be better than before.

As far as the car, I really think it should be on a separate loan as to get best rates because it is collateralized.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Sax32
Posts: 52
Joined: Wed Jan 11, 2023 8:44 am

Re: Need Help Deciding on Loan Options to Replace My Car That is Broke Down and the Repair Costs are More Than the Car i

Post by Sax32 »

Diplomat wrote: Sat Jan 21, 2023 11:03 pm Need to get a new car after my previous car died and repairs cost more than the car is worth. Looking for advice on whether I should get an auto loan or a private loan instead and also use some of the loan money to pay off high interest rate credit card debt?

First of all, I want to say thank you in advance for any advice on my situation. I am having a very hard time deciding what to do. I will try and keep it as short and to the point as I can. My current car is a 2011 Lincoln MKZ 3.5L V6 with 267,920 miles on it and is undrivable, it needs a new water pump and also needs the head gasket replaced as well as other minor repairs but those are the two that make it unreasonable to pay to get it fixed.

Kelly Blue Book values the car in "fair" condition as such : Trade In Value - $663-$1,763 (avg- $1,200) and
Private Party - $2,690-$4,841 (avg- $3,766) which obviously is not accurate considering the needed repairs.

The question I have been trying to figure out is whether I should get an auto loan for a cheap used car or if I should opt to take out a personal loan instead and also use some of the loan money to pay off some high interest credit card debt I have as well?

My current take home pay after taxes and health insurance is taken out is $763 weekly and my credit score is in the mid 700's. I have only two credit cards, the first has a balance of $3,432.64 @ 26.74% APR and the second has a balance of $4,097.63 @ 26.74% APR.

I was planning on looking for a new vehicle at the maximum cost of $6,000. I was wondering if it would be better to get a personal loan to pay for the car and also the full balance of the two credit card balances or if it would be better for my credit score to only pay for a portion of the credit card balances and leave some of the balance still on them?

Once again, thank you for any suggestions, I really appreciate it and if there is any other information that is needed that might be a deciding factor I can provide that as well.
Might I suggest listening and rreading the Total Money Makeover by Dave Ramsey. His literature is perfect for those in your position who have debt, it worked for me. The interest rates on those credit cards is insane and I know you need a car. I don't think it's wise to get a private loan, although it may have a lower interest rate like around 12%, if you have any disposable cash monthly, I would start paying off those cc's. As for a car, if you can get a small loan from a bank, I would spend as little as possible. The Toyota Camry 4 cycl was a great reliable car when we were getting out of debt. Mine was called the dairy cow, because the white paint was peeling off and exposing black, so although it wasn't pretty, it got the job done. I was able to pay off all of my debt and then I sold it as is for $500. Now I can drive what I want.
Post Reply