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buy a new car
QUESTION
Asked by “Chris L”
What is your answer?
Question
Should i buy a new car?
I have a 2004 model that went out of Bumper to bumper waranty last week. I am ahead on it about $2000. I work for a company that is contracted by an auto manufactorer and can get a discount. My car is not luxurious it’s a point a to point b and ocasionally point c kind of car. My current debt is the car and a credit card that has about 3500.00 on it. My payments are $209.00 I would like to stay in this range (which doesn’t leave much room for moving up). I worry about out of warranty repairs. the veh came with a 5/100 powertrain, and i have 1.5 years left on my loan. would it be worth it to trade and get a new vehicle?
ANSWER
Dear “Chris L”:
Well a “point a, b, c” car sounds better than some of the wrecks I drove in my youth. I had a old caddie I loved. But it used more water than gas. (Leaky cooling system. No money to fix it.) I used to travel with 10 gallons of water in the trunk. :-) Hopefully your is better than that.
Just to recap the question, you’ve a working car that’s out of warranty, have a loan with 18 months to go, but has some trade in value. You got debt but no savings. Did I get it right?
First, depending upon where you got your car loan from, you have sunken cost in your interest expense. You may not realize it but the car dealers use the “Rule of 72” for interest. It means that you pay interest in the front of the loan. Credit Unions use a more honest method. So when you refinance, you won’t get an interest refund or interest saving.
Second, you really need to have an emergency fund. You should be putting as much as you can into that fund as quick as you can. Depending upon many factors, you need between from 3 to 12 months of “burn rate” available. That can serve as your own “warranty fund”. 2004 isn’t that old. You didn’t talk about mileage. But you should be able to get 6 years and or 80k miles before you have major risks. So, I think you’re more in need of a emergency fund than a car.
Third, cars depreciate badly. Your biggest single expense is that! So, a new, or used, car is most expensive when you first get it. If you have your e-fund and a surplus, it might make sense to avoid the risk of a car repair. When you don’t, it seems like your worrying about the wrong things.
On my blog, I’ve talked about using a six year plan for car acquisitions. Finance for three years; pay for six. First three to the credit union; Second three to your savings. That’s what got me off the car treadmill. Adjust for usage. You need to make sure it doesn’t wear out before you’ve paid for it.
Get to a credit union for savings and loans. They’re “honest” (upfront about the terms) and will give you free advice you can depend upon.
Take a peek at Dave Ramsey and Suzzie Orman for the budgeting, savings, and emotions about money. They’re much better than I could ever be.
Hope this helps. I’m interested how it works out for you. Drop me a note sometime. My blog may have helpful “stuff”.
Ferdinand J. Reinke
Kendall Park, NJ 08824
SOURCE
http://www.creditunion.coop/
http://www.suzeorman.com/
http://www.daveramsey.com/
http://www.ftc.gov/
https://reinkefaceslife.com/2007/05/16/yahoo-answer-credit-unions-good-for-car-loans-not-good-great/
http://www.reinkefaceslife.com/…
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UPDATE: Selected best by the asker. (The best kind!)
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Asker’s Rating: star star star star star
Though the second answer was very good, this one went above and beyond, and met my expectations. i do want to make a plan to get my debt gone as soon as possible and i think that having reliable transporation that i am am paying for but have almost paid off will be my best bet.
Thanks
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Reinke Faces Life 
A tip for that new car buyer, don’t get the ‘bumper to bumper’ warranty, it
‘s a rip-off, at least if you are buying a Chrysler product. See letter I sent to the CEO:
We have owned a new 1995 Dodge Intrepid before, and currently own a 2001 Dodge Grand Caravan. But I wanted you to know that I have purchased my LAST Chrysler product. This information is being provided to you in hopes that you will change some of your warranty policies so that other unsuspecting customers will not be deceived like we were.
The deception began on October 15, 2001 when we purchased our van at (dealer name removed). We had spoken with the Finance Manager about getting a “bumper-to-bumper” warranty, which would be extended to 100,000 miles. We were first surprised when we learned that it would not even be a Chrysler warranty, but through some other company, in this case EasyCare. We had two options, PowerTrain (5 of the 10 warranty coverage areas) or Power Train Plus (all 10 warranty coverage areas). We picked the Power Train Plus option for $1,117.00, because we wanted “bumper-to-bumper” coverage. We remember specifically asking the manager whether we were getting “bumper-to-bumper” coverage or not, and he referred us to the EasyCare contract, where the 10 different warranty areas were listed. He said some things like “it’s all in there…everything is listed that is covered…as you can see, you have coverage in all of those ten areas.” We left there happy customers, thinking that we had our “bumper-to-bumper” coverage.
On June 1, 2004, we took the van in for service at the dealer for a transmission problem. The part that needed replacing was a “Transmission Control module”, which we learned was NOT covered under our warranty! We found out then that “only” the items listed under Transmission in our warranty were covered….if it wasn’t listed then it wasn’t covered! You can imagine how upset we were; as we thought we had “bumper-to-bumper” coverage. That visit cost us $830.92. We had also been keeping up with all recommended maintenance to that point, using your dealer for the service. We have continued with the recommended maintenance, but not with any Chrysler-Dodge dealer.
Just recently, on May 29, 2006, we brought the van in for service at the dealer because we had both power window units that were failing intermittently and we “assumed” they would be covered under the warranty. Well guess what…although I am sure you are not surprised…. but we were told that our EasyCare warranty did not cover these units! But the dealer could replace them for us, for over $600! And… now very reluctantly… we had already paid your dealer $483.95 while we were there for an idling problem, having my spark plugs and cables replaced, and the fuel system cleaned. We didn’t find out until later that the power windows were not covered, otherwise we never would have had the engine work done, and even now we still have an idling problem. Now we will find someone else to repair our power windows, someone we can trust and count on for good service and value.
Please let your current “warranty brokers” know that people want them to be upfront and honest, and don’t care about their bonuses or commissions on pushing a sale of warranty coverage that will make a lot of money for them, since the warranty company won’t have to write any warranty checks anyway. You “might” prevent more dissatisfied customers.
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