How to Navigate Past Expensive Car Loans

For many commuters a vehicle is essential to get them to and from work. People with larger families may also need a vehicle to get the family places. Public transit often isn’t an option in small cities or towns. A large percentage of the population relies on a vehicle. But despite the best maintenance on a car, they still breakdown and need to be replaced. Often many people simply do not have the cash to buy a new car, yet they are hesitant to buy a used car more than a few years old. A car loan is how they’ll be able to obtain the best vehicle to suit their needs.  Selling your old car at online companies like We Buy Cars is a great way to get the down payment for a new one.

Obtaining a car loan can be a lot like obtaining the best mortgage. It’s going to take time and research to shop around.

There are many sources for car loans, so before you sign on the dotted line, scope them out first. Your first option is going to be directly from the car dealer. You’ll find that they may offer the best financing, after all, they want you to buy their car.

Your second option for a car loan is from your bank. If your credit report is outstanding, you may qualify for a low interest loan. You may also be able to obtain a second mortgage and get it tacked onto a once-a-month lump sum payment.

The third option is to get it from a company that specifically provides loans to individuals. If you go this route, check the interest rate and loan terms carefully. Often these companies are created for people who don’t normally qualify for an auto loan. This means that the interest rates will be exceptionally high.

If you’re considering the purchase of a new car, and you know that you’ll need to obtain a car loan, it can be of benefit to pull your credit report. There are many agencies that provide this service. This will allow you to learn your credit rating, and whether you need to fix any errors. It can be of benefit to you, as a higher credit rating means that you’ll be able to obtain the best interest rate possible.

If you’re a woman, you may also wish to be extra aware before obtaining a car loan. Many people will assume you have not done your research, and may try to take advantage of that. They’re out to make money after all. Sadly it’s still something that you need to be aware of before you begin your negotiations. It’s important to brush up on car and loan terminology. If you don’t understand something in a contract, be sure to ask.

You may also ask for what you want. Is it possible that they can drop the interest rate a half a percentage point? It can certainly help you out over time, but be of little risk to the lender.

By the time you’re ready to sign on the dotted line you’ll have found the best interest rate for your car loan. Soon you’ll be driving home in your new car!

Why buy a transmission when you can buy a new car?

I was creepin’ on Facebook the other day, when I saw a sparkly new car show up in one of my friends’ posts. After clicking around, I discovered my friend purchased a brand spankin’ new Jeep Cherokee.

I thought it was a little odd that she purchased a new car being that the last time I spoke with her she told me she was looking to quit her part time job at a local photography studio.

I can’t imagine a part-time photography assistant makes mad scrilla, but perhaps I’m wrong?

On Friday night, I attended a fundraiser for a youth group I am part of, YoungLife. While at the banquet, in walked Ms. Jeep Cherokee. We started chatting and I mentioned I noticed she had got a new car.

I asked her a little about the circumstances leading up to the purchase.

Because I’m nosy.

She told me that her former car’s transmission went out and it was going to cost $2,000 dollars to fix. With excitement, she further explained that her former car was only worth $900 dollars so it made no financial sense to fix it.

And that’s when she said, “So I went and bought the Jeep.”

It took every ounce of self-control to not do something like this…

picard_facepalm_by_nocturnalmarauder-d661t3i

 

 

I wanted, so badly, to know everything about her situation.

…I wanted to know how much the car cost.

…How much she put down.

…And what the heck she was thinking.

 

Instead, I smiled politely and said something like “Well that’s exciting.”

 

Since when did a $2,000 expense become a justification for a $20,000 loan?

I couldn’t imagine she put more than 10% down, which means she is not only the proud new owner of a Jeep Cherokee, but also a couple hundred dollar per month car payment.

I think what upsets me the most is that she is completely oblivious to the gravity of taking on such a big loan. I desperately want to sit down with her and ask why she thinks $20,000 is better than $2,000. Or at the very least, why she didn’t buy a $5,000 used car?

I know most of us PFers have encountered similar situations. You know, where someone says something that makes the PF nerd inside of you want to curl up in the fetal position and start sucking your thumb.

 What did you do?

Do you smile and politely pretend like your excited for them? Do you slap them across the face and tell them their dumb? Where is the line between expressing legitimate concern and sticking your nose where it doesn’t belong?

Moral of the story: depreciating assets suck.

We decided to give being a one car family a shot

Cars are freaking expensive. Even though both of our cars were fully paid off (’07 Scion tC and ’06 Honda Pilot) they still ate up a considerable amount of our discretionary income. Gas ($300/mo), insurance ($120/mo), and maintenance (call it $600+/year)  aren’t cheap.

So even though our cars were paid off, they were still costing us about $500 a month.

That’s insane and I think I would have projectile vomited all over the place had we had another $400+/mo in car payments to add to that.

Now that Baby Ninja is a thing, we realized my Scion tC had become nothing more than a glorified driveway ornament. I loved my Scion dearly, but the car only had two doors, and let me tell you a little secret; coupes and car seats don’t mesh. 

I sat down with Girl Ninja and pitched the idea of selling the Scion and trying out the one car household thing.

She was down. 

I put my car up on Craigslist and within a few weeks I fetched $9,500 for it, which was right at its Blue Book value.

Now I should remind you that I have a company car so while I’m out working, Girl Ninja still has our Pilot. That said, I’m not allowed to use my work car for anything other than official business. No quick stops at the grocery store, no driving with passengers, nothing.

So maybe we are more like a 1.5 car household?

It’s been about 6 weeks now, and so far we haven’t once thought to ourselves “Man, it sure would be nice to have two cars.” 

Perhaps this will change as time wears on, but for now we’re enjoying the almost $10,000 boost to our savings account and reduced monthly vehicle expenses. I’m sure eventually we will end up buying a second car, one with four doors of course, but so far this one car household adventure has been pretty fun.

How many drivers are in your household? How many cars do you have? Have you ever got online insurance quotes from a service like youi car insurance quotes online

 

CARpe diem

I don’t know how much gas is where you live, but in Seattle $3.95/gallon seems about normal. Girl Ninja and I spend about $200-$250 a month on gas. Thank goodness for a work vehicle, otherwise that amount would be another $100+ higher. Our insurance runs another $160/month.

Carry all these expenses out over a twelve month time frame and we’re averaging about $5,000 a year to drive our two cars.

FIVE THOUSAND DOLLARS!

Do you know how many California Burritos that is?

ONE THOUSAND BURRITOS! 

Driving freaking sucks. It sucks the money out of my wallet, and places it in to a depreciating asset.

That is no bueno.

Sure I could drive less or probably find cheaper insurance (we have full comp/coll coverage on both vehicles), but even that wont drastically reduce our annual auto expenses.

No.

The only thing Girl Ninja and I can really do to ensure transportation has a minimal impact on our budget is try to drive less, and drive our vehicles until they explode.

New cars depreciate like crazy (40% in the first four years). This is why I personally could not stomach a $400 car payment on top of the gas, insurance, and maintenance payments I previously mentioned we have.

The disdain I have for debt, outweighs the joy I’d get from driving a new vehicle. 

That’s just me though. I have plenty of friends that have car payments (many who read this blog in fact). They are all intelligent people and are by no means reckless when it comes to their finances. I realize that just because I don’t have an appetite for a car payment, doesn’t mean that someone else wont find them beneficial or helpful.

This is the very reason I love personal finance.

You do you, and I’ll do me. 

So reader, How much do your transportation costs work out to each month? Break it down by line item (gas, insurance, maintenance, and payment). After adding all these numbers up, are you shocked just how expensive driving can be (I was with our $400-ish a month obligation)? Where does it fall on your balance sheet (I’m assuming probably your second or third largest expense after your rent/mortgage and maybe food)?Do you hate car payments, find them a necessary evil to have reliable transportation, or love the ability to spread payments out over many years?

 

The bells and whistles.

Cars. They serve a simple purpose, to get one from Point A to Point B. While their purpose is pretty straightforward, the bells and whistles that come with them are anything but. From heated seats to cars that parallel park themselves, features don’t come cheap.

What’s more, cars are also the most expensive depreciating asset most of us will ever own. So today, I thought we’d take a look under the hood and see how dirty PDITF readers are riding…

The rules are simple, total up the value of whatever cars you own (if you were to sell them today) and share that value below. It would obviously be helpful if you also shared the year, make, and model.

Car 1: 2007 Scion tC, 59k miles, $9,500. Owe: $0

Car 2: 2006 Honda Pilot, 85k miles, $14,800. Owe: $0

 Total Vehicle Assets: $24,300

 

For those of you that lease, just pretend you owned the car. 

 

The best test out there to tell you if you should buy a home.

Screen shot 2013-04-30 at Apr 30, 2013, 10.57.57 PM

My hunch is that most first-time homeowners buy their first place with the best of intentions. They imagine spending decades in their future abode, establishing roots, and engaging in their community.

But then life happens.

They have more kids than they originally thought they wanted (or discover they can’t have any kids), they get a job offer somewhere else, a loved one gets sick and needs constant care, or maybe they still love their house but hate their neighbors and decide to move. The statistics don’t lie, most people in their 20’s and 30’s, who buy homes, don’t live in said homes long enough to realize much of a financial benefit.

The average length of homeownership is hovering right around seven years.

Many of these homeowners kiss any potential profit goodbye when they pay nearly 10% in commissions and fees. At the end of the day, these homeowners were nothing more than glorified renters who could paint their walls.

So how can you determine if you’ll be able to make homeownership profitable?

Introducing my patent pending Vehicle Litmus Test.

Unless you live in the heart of a major metropolitan area (San Fran, LA, or NYC), I’m going to assume you own a car. (If you don’t, this whole post is pretty much a waste of your time). If you own a car, you should take the test below. If not, then this entire blog post is irrelevant.

/Begin Test

How long have you owned your current car? And how long did you own your previous car?

/End Test

It seems about 99% of people who buy new, or even new-to-them, cars always say something like “Oh, I’m going to drive this car in to the ground. I’ll have it at least 10 years.”

You probably said, or thought, something similar. Didn’t you? DIDN’T YOU!!!!!

But did you actually follow through with that promise?

How you answer that question says a lot. You bought a car thinking you would drive it in to the ground, but then made a total 180 and justified a change for something more fuel-efficient, more modern, larger, smaller, newer, cheaper, faster.

I get it.

Your priorities and desires changed. This is why the vehicle litmus test is so important.

Are you really going to stay in the house long enough to make buying worth it? You like to think you will, but does your track record say otherwise?

Drop a comment below with your answers to the litmus test. Be honest 🙂

My answers to the vehicle litmus test…

Car 1: Bought my Scion tC in 2006 brand new. Eight years later, still love it and have no plans to sell.

Car 2: Our 2006 Honda Pilot purchased in 2012 with 70k miles on it. Bought with intentions to drive to 150,000 miles.

Previous car: Girl Ninja’s 2005 Corolla she bought in 2006. Sold after six years so we could buy the Pilot. An upgrade that was totally unnecessary.

Thursday Poll: Vehicle Value

Cars. They serve a simple purpose, to get one from Point A to Point B. While their purpose is pretty straightforward, the bells and whistles that come with them are anything but. From heated seats to cars that parallel park themselves, features don’t come cheap.

Cars are also the most expensive depreciating asset most of us will ever own. So today, I thought we’d take a look under the hood and see how dirty we are riding…

Just one rule, many of you probably have more than one car in your family, if that’s the case, answer the question below ONLY in regards to the vehicle with the highest resale value. For those of you that lease, just pretend you owned the car. 

[poll id=”11″]

Extra credit: Share the make and model of your car. Do you have a car payment? If so, how much?