advice on car financial issue

**remusrm** · 11-23-2016, 01:32 AM

I am in a bit of pickle.

I got a car last December and is great. But since I drive a lot and rolled a bit of negativity the trade in value is low. Around 11k but I owe 22500k. My problem is not the upside down and 498 payment for 48 remaining months, but the mpg. I only get 24-26 and I commute 110 miles/ day. That came up to close to 5400 in gas this year, or 450/month.

options:

A: Trade it in for a mirage that gets 38 mpg and will cut my gas bill to more than 40 percent! Also put 5k to get rid of my negativity? The mirage will come out to be 400 for 60 months.

B: Pay off the car asap and use my 5k savings, but since I drive so much it will continually depreciate and burn my money on gas?

I would save 100 per month in payments and about 200 in gas with option A.

**mndtrp** · 11-23-2016, 12:16 PM

If I did my math correctly (and I assume I did since they are similar to yours), you'll save around $2300/yr on fuel costs with the new vehicle, best case scenario. Meaning, you might not get the 38mpg the manufacturer claims. The cost of the car itself is a $100 difference in total, in favor of your current car, so that's negligible. What will your insurance and licensing/tagging costs do? I doubt it would be more than the $2300 you're saving on fuel. I don't trade my cars out very often, so I don't bother taking depreciation into account with vehicle purchases.

I guess taking only into account what you've posted here, getting the Mirage is the better choice. Other things to consider is the mirage a better car? Is it going to be a good ride, as opposed to just the cheaper ride? Can it handle any inclement weather you may get? I know nothing about the vehicle itself, so think about the fact that you spend a few hours a day in it.

**old guy** · 11-23-2016, 12:27 PM

A. Mirage. Payments is $24,000 (60 x 400). Cost of fuel for 5 yrs is $11,000. Total $ 35,000.
B. Payments is $23,904 (48 x 498). Cost of fuel for 5 yrs is $16,500. Total $40,404.

But keep in mind - most modern Asian cars provide about 200,000 miles of trouble free service, about 8 yrs for you. But a mini-car, ie a tiny 2000 pound car with a little 3 cylinder engine, won't be able to provide that, more likely only about 100,000 miles. You have to look at design goals - eg, if the designers prioritized function, reliability, high quality, you get 200,000 miles. Conversely if the design goals were 'tiny, cute, adorable' - not so much.

**remusrm** · 11-23-2016, 09:06 PM

I did have the mirage before, a 2014 model, and put on it 84K. The car has extremely good reliability, but since I went to snow a lot and family, the mirage was a tad too small. Someone on the mirage forum has a fleet of them for pizza delivery and they have over 160k.

I went today to trade in the Lancer and the price for the mirage being about 12k OTD, they were not abble to carry over that much negativity. I needed around 8k, no just 5k. So I will just dive in the lancer heavily to pay it off and next year look for the Mirage again.

**old guy** · 11-24-2016, 01:50 PM

The difference in gas cost between the two cars is about $1000/yr. Be careful not to spend an extra $8000 to get a car that saves only $1000/yr.

So I will just dive in the lancer heavily to pay it off and next year look for the Mirage again.

Why hurry to pay it off early, why not use the whole 48 month term, the interest cost is low. You have a car that will last for another 8 years, why trade for a car that will need to be replaced in only 5 years.

**stevekozak** · 11-27-2016, 07:52 AM

Originally Posted by old guy

Why hurry to pay it off early, why not use the whole 48 month term, the interest cost is low. You have a car that will last for another 8 years, why trade for a car that will need to be replaced in only 5 years.

Well, there is that whole concept of "debt is dumb"........ Trading the car in or not is a separate concept. Paying the car off as soon as possible is a great idea. Eliminating debt is never a bad thing. The thinking behind "why not use the whole 48 month term, the interest cost is low" is one that has kept people down for years. Debt is dumb! (we ARE in the Dave Ramsey forum..right?)

**frugalwarrior2** · 11-27-2016, 03:08 PM

no we are not steve. There is a section discussing Dave R. though. This is frugal village right??
The reason not to pay it off early Assuming its a regular car loan is that the interest is front end loading. Meaning you pay it first. YOu save money on a simple interest loan like you could get at the credit union. So you would save interest then.
Debt is dumb but he is already is the soup ans they say. He cant borrow his way out. The research should have been done before the purchase. But lesson learned doesnt incl.Trying to get out by spending your emergency fund. That just leaves you open to a small crisis (and there will be a few in 48 mo.). Which will grpw if you use the CC to get out of it-which you will.
Dave says dont buy what you cant afford and you must weigh all costs incl. milage,replacement parts,life of a vehicle,climate,etc plus GAS milage.
Dave says keep a 3 month cushion for bigger emergencies. The $1000. is for life little unexpecteds like flat tires and broken washers.
Dave say no more than 3 yrs. on a car loan $498. a month and the car gas plus full coverage are way too much.
Dave says everyone pays the stupid tax once in awhile but we must learn from our mistakes
So in the future do your due diligence and avoid impulse buying
know what you can afford,what you need and learn to recognize the diff.
And people please stop quoting D.R.out of context,its a bit like the blind man and the elephant.

**old guy** · 11-27-2016, 03:52 PM

Paying the car off as soon as possible is a great idea. Eliminating debt is never a bad thing. The thinking behind "why not use the whole 48 month term, the interest cost is low" is one that has kept people down for years. Debt is dumb! (we ARE in the Dave Ramsey forum..right?)

lol - but it never hurts to actually do the math?

I have a taxable SP500 Index Fund that averages 11%/yr, had it for decades, it's quite large now.
When we get a new car, I have two choices -

Scenario 1 - I could sell $33k of stock, use $30k to pay cash for a car and use $3k to pay the capita gains tax on my profits.
Scenario 2 - I make a zero 'down' and finance the car for 60 months. $526/m, ie $31,550 total over the 60 months. Meanwhile, the original $33,000 that I didn't spend is still invested in the 11%/yr SP500 fund. Where it doubles every 6 years on average. (it will be almost $66k 60 months from now when the car is paid-for.)

I've been doing this since about 1980 - altho I did pay cash for one new car in 1986, the 15% Jimmy Carter interest rates were too steep.

(BTW, we just got a new 2017 car about 3 weeks ago.)

**stevekozak** · 11-27-2016, 05:19 PM

Originally Posted by frugalwarrior2

no we are not steve. There is a section discussing Dave R. though. This is frugal village right??
The reason not to pay it off early Assuming its a regular car loan is that the interest is front end loading. Meaning you pay it first. YOu save money on a simple interest loan like you could get at the credit union. So you would save interest then.
Debt is dumb but he is already is the soup ans they say. He cant borrow his way out. The research should have been done before the purchase. But lesson learned doesnt incl.Trying to get out by spending your emergency fund. That just leaves you open to a small crisis (and there will be a few in 48 mo.). Which will grpw if you use the CC to get out of it-which you will.
Dave says dont buy what you cant afford and you must weigh all costs incl. milage,replacement parts,life of a vehicle,climate,etc plus GAS milage.
Dave says keep a 3 month cushion for bigger emergencies. The $1000. is for life little unexpecteds like flat tires and broken washers.
Dave say no more than 3 yrs. on a car loan $498. a month and the car gas plus full coverage are way too much.
Dave says everyone pays the stupid tax once in awhile but we must learn from our mistakes
So in the future do your due diligence and avoid impulse buying
know what you can afford,what you need and learn to recognize the diff.
And people please stop quoting D.R.out of context,its a bit like the blind man and the elephant.

I think you need to reacquaint yourself with Dave's concepts.

**stevekozak** · 11-27-2016, 05:22 PM

Originally Posted by old guy

lol - but it never hurts to actually do the math?

I have a taxable SP500 Index Fund that averages 11%/yr, had it for decades, it's quite large now.
When we get a new car, I have two choices -

Scenario 1 - I could sell $33k of stock, use $30k to pay cash for a car and use $3k to pay the capita gains tax on my profits.
Scenario 2 - I make a zero 'down' and finance the car for 60 months. $526/m, ie $31,550 total over the 60 months. Meanwhile, the original $33,000 that I didn't spend is still invested in the 11%/yr SP500 fund. Where it doubles every 6 years on average. (it will be almost $66k 60 months from now when the car is paid-for.)

I've been doing this since about 1980 - altho I did pay cash for one new car in 1986, the 15% Jimmy Carter interest rates were too steep.

(BTW, we just got a new 2017 car about 3 weeks ago.)

And you would assume the risk of that $33,000 debt. That is what gets left out of these discussions. Risk. The best idea is to start saving money for that new car, well before you need that new car, and buy it for cash. Risk free.

**old guy** · 11-27-2016, 06:07 PM

And you would assume the risk of that $33,000 debt. That is what gets left out of these discussions. Risk. The best idea is to start saving money for that new car, well before you need that new car, and buy it for cash. Risk free.

Risk free. Actually, that may be the very thing that has kept the younger generations poor, they have no understanding, therefore no tolerance for risk. The Law of Investing is powerful and relentless - risk and returns are directly proportional. If you are unable to assume enough risk to outpace inflation, then you cannot become wealthy, the purchasing power of your money never grows.

**frugalwarrior2** · 11-27-2016, 06:23 PM

I took the 15 wk Dave Ramsey course in 2009 and have a physical "every dollar counts budget" for every month for the whole time since then
We cashed in our whole life
we paid off 2 mortgages and a tons of debt mostly medical and CC. We totaled about $300.000 from a life altering accident DH had. We have been debt free for 5 yrs.
We cut out all the slippage by tweakeing the budget over and over again. WE lived like no one else so WE CAN LIVE LIKE NO ONE ELSE.
We live on about 50% of DH's income.
We matched his 401K to the 6% match all the time we could

So I ask you what do I exactly need to reaquaint myself w/??.

**stevekozak** · 11-27-2016, 07:58 PM

Originally Posted by frugalwarrior2

I took the 15 wk Dave Ramsey course in 2009 and have a physical "every dollar counts budget" for every month for the whole time since then
We cashed in our whole life
we paid off 2 mortgages and a tons of debt mostly medical and CC. We totaled about $300.000 from a life altering accident DH had. We have been debt free for 5 yrs.
We cut out all the slippage by tweakeing the budget over and over again. WE lived like no one else so WE CAN LIVE LIKE NO ONE ELSE.
We live on about 50% of DH's income.
We matched his 401K to the 6% match all the time we could

So I ask you what do I exactly need to reaquaint myself w/??.

I am happy to hear you are debt-free and are preparing for the future! I am as well. In your previous post, you seemed to say that Dave is fine with a car note if it is 3 years or less. He does not. You also seem to indicate that it is ok to let a car loan string out, and not pay it off as fast as possible, if you are past the first year or two of it. It isn't. You seem to be confusing Baby Step One and Baby Step Three. It is a bit difficult to know if you do or not, as your grammar is a bit confusing. This last bit may account for the first two points as well. If I have misunderstood what you have written, then I apologize.

**stevekozak** · 11-27-2016, 08:01 PM

Originally Posted by old guy

Risk free. Actually, that may be the very thing that has kept the younger generations poor, they have no understanding, therefore no tolerance for risk. The Law of Investing is powerful and relentless - risk and returns are directly proportional. If you are unable to assume enough risk to outpace inflation, then you cannot become wealthy, the purchasing power of your money never grows.

I agree with your point about investing. Buying a car is not an investment in any traditional sense. It really is a hedge against walking or using public transportation. No one with sense would invest in a product that is guaranteed to go down in value rapidly. Beyond that, I agree with your points.

**old guy** · 11-27-2016, 08:44 PM

No one with sense would invest in a product that is guaranteed to go down in value rapidly.

True. Start with the assumption that the decision to purchase a particular car has been made (based on need/want, etc). And then look at the 'highest and best' way to direct your capital. Eg, do you want your $30k tied up in the car in the garage? Or do you want to put that capital to work elsewhere earning money? (In both cases, the car is depreciating at about $4k or $5k per yr.)

Here's another one for you to ponder. Over the past 35 years I have maintained 4 single-family rental houses. I continually refi the loans on them. Eg. when a $150k house grows to about 50% equity, I refi and remove $50,000. The new $50k, 30 yr loan, 5% , costs $268/m ($97,000 total over 30 yrs). I place the $50k that I remove in the SP500 11%/yr index that I mentioned earlier - the $50k, on average, grows to $1,150,000. I've done this on each of the houses, 3 times on one of the houses. Sold the last rental in 2014. So I have purposely avoided being debt-free for most of my adult life, I often held 4, 5, or 6 mortgages at one time. I would not have become wealthy if I had simply stayed debt-free and safe, you need to understand risk and manage risk.