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Thread: To keep the car or let it go.
08-06-2011, 09:49 PM #1
To keep the car or let it go.
I'm a newbie to DR and I'm just starting out. I have a question on my car loan that I was hoping someone could help with. This is will be the first debt I will be paying off as I have no CC debt.I have a car loan at 16% for about $21,000 on a 2010 Malibu. I already have a full-time job but will be taking on a part-time job to get me through my baby steps.
My Question is....Since this is a somewhat newer car. Should I totally pay off the car which would take me about 2 years to pay off and then ride it the wheels fall off? OR do I pay off enough to keep me from being upside down on the loan and then sell it? I could most likely do this in about 6 months or less. I would then buy and drive a hooptie until the wheels fall off.
Any help or suggestions would be much appreciated!!
- 08-06-2011, 10:35 PM #2
To me $21,000 is a huge debt for a disposable item. Of course, I've never in my life bought a new car!
I think you have to do a list of pros and cons as to which is the best way to go.
Do you have an emergency fund?
Do you have gap insurance since you're upside down on the car loan?
What are your goals for the next 5 years and how does the car loan factor into them?
Driving the vehicle until the tires fall off is not a bad idea except how soon will that happen after its paid for? You want time to save for a replacement vehicle before that happens.
What does your budget as a whole look like?
Its a good question but its hard to answer without a bigger picture of your finances.
08-07-2011, 11:23 AM #3
Thanks for responding and the idea of the pros and cons list. To answer your questions:
Do you have an emergency fund? Yes. I have saved about $1500 and I add to it every month
Do you have gap insurance since you're upside down on the car loan? Yes
What are your goals for the next 5 years and how does the car loan factor into them? Pay off $60,000 in student loans, $2000 in past debt (hospital and old accts) and save %20 for down payment on a house.
Driving the vehicle until the tires fall off is not a bad idea except how soon will that happen after its paid for? You want time to save for a replacement vehicle before that happens. I was thinking if I kept the car it would last me another 8-10+ years. It should last me for at least 150,000 mi to about 200,000 mi and I have about 13,000mi on it now.
What does your budget as a whole look like?
Health Ins, Pension, 401K, IRA taken out of paycheck.
Take home is $2168mnth Part-time will add another $600-$700/mnth
Rent: 370 (I have a roomate. roomate pays elec/heat)
Car Ins: $105
Cable: $100 (Have to keep as it is a tradeoff with roomate for elec)
Food: $150 (high end)
Student loan: $390
Clothing/Personal items: $100 most likely is less.
Total= $2094 in expenses
I don't start my part-time job until next month once those funds start rollinging in I will put that money towards my car payment. Which would make my monthly car payment around $1000 + per month.
08-07-2011, 02:40 PM #4
Your budget looks good. I wonder though if your roommate should be paying a portion of the rent. You are paying 100% of rent and cable and roommate is paying electric/heat. How does that equal out? Would it help to put rent, electric/heat/cable into one pot and each pay half? I assume roommate pays for own food/misc. household etc.
You do not have anything in your budget for repairs/replace for auto or household. Do you intend to use your EF for those? I have a friend that once purchased a new car because she could not afford new tires for the old car. I know you're too wise to do that but it is important to budget for things like that.
I think you would be wise to take your EF up to $2,000 to $2,500 right away before you start the extra payments on the car. That's because your EF would not cover even a months expenses at this time.
Last edited by Anna43; 08-07-2011 at 02:42 PM. Reason: to add thought
08-07-2011, 03:52 PM #5
I would be inclined to pay off the car and just keep it until it dies. If you're trying to sell the car as soon as you're not upside down, then you still have the hassle of selling the car, and you have to be able to predict car prices at least 6 month out. It probably would save some money over the long run, but it wouldn't be worth it to me. I'd just take the lesson learned and apply it to the next time you need a car.
Although - would you be able to refinance the car? I know my credit union will give you as low as 3.5% on a new or used car.
08-07-2011, 05:29 PM #6
That is a really high loan amount and a really high interest rate. Are you current? Have you ever been late? I would refinance to a lower rate and then pay it off and keep it for 10 years. Good luck on your journey!
08-09-2011, 11:37 PM #7
Thanks for all the suggestions. I've had the car since March of this year and I'm current on my payments. I think I will just keep it and see if I can get it refinanced as suggested.
08-10-2011, 08:02 AM #8
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