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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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Posted by reinkefj 
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