Financing and cash flow,buy a car?

[ohiofarmer 3,265]

So first let me tell you guys that both me and my wife are watchful of our money. The only debt we have is real estate at $700 a month with maybe 6 years to go.  We are trying to keep running an old 2005 Pontiac that is getting long in the tooth until she retires.  You all know how real estate debt goes. The payments nearing the end of the loan are mostly principal,and our principal payment is below 175.00.  At 3,75%

 

 We could pay that off tomorrow if we wished and effectively see cash flow increase by $700.00 a month.  The church magazine is advertising that they have auto loans for 2.5% and that got me to thinking.  Pay off the house and use the cash flow for a new car..  We planned to buy a new good car with our stash and pay cash.  I do realize that to get a car at that financing rate of 2.75% that it would have to be new. We also have  GM  rewards money of  $3000.00 built up that can only be redeemed for a new car.

 

 Don't be easy on me, because it has to pencil out. Wants vs. needs can make you less happy than you are right now. So I want the same advice that you would give your kids.      Discuss.

 

  Oh,BTW, my daughter is in her 9th year of college and drives a car from the last century. She has a great start on a 401 Roth and only owes1K  on student loans. She gets made fun of by her co-hort at college, but has something to smile about when they complain about their debt.  Hard work and frugality never hurt anybody.

[RandyLittrell 3,877]

I bought one new truck in 1988, and will never buy another one. When you figure in loss of value the minute you drive it off the lot, higher taxes, higher insurance. It just doesn't seem worth it to me. But......thats me. Everyone has there own thoughts and opinions and thats ok. I can tell you that I work in the body shop for Cable Dahmer Chevrolet and all new cars have very expensive parts on them. I have seen one headlight with the driver for the bulb costing $3400 bucks. Yup, you read that right. The radio's with navigation in them can cost over $5000. If you buy a new car, make sure you carry full coverage for the length you own it and I would do an extended warranty. 

 

 

Just my 2 pennies. 

 

 

Randy

[JAinVA 4,619]

The missus and I put 2 kids through college on our own dime.No loans for them or us for college tuition.That meant the missus and I worked two jobs  each.When we were paying off our home loan we had new family vehicles for mama.Me,I had a selection of Ford trucks of the same vintage so I could drive one while wrenching on it's stand in.I think you are in the same boat a lot of us have found our selves in.With a long winter ahead I think that I opt for a newer car.Not having a house payment is a great feeling but the prospect of a broke car on the shoulder of an interstate at night makes me lean toward a newer car.JMHO,Luck,JAinVA

Edited September 5, 2018 by JAinVA

[Ed Kennell 38,022]

52 minutes ago, JAinVA said:

The missus and I put 2 kids through college on our own dime.No loans for them or us for college tuition.

Same here for my two sons Jim.    Now working on the four grandsons education.

The financial advise I always used and stressed to my sons.....never borrow to purchase anything that is not absolutely essential.    Save the money first, and many times, by the time you save enough to purchase the item, you will realize it was not worth the work required to buy it.

[WHNJ701 4,165]

14 minutes ago, Ed Kennell said:

Same here for my two sons Jim.    Now working on the four grandsons education.

The financial advise I always used and stressed to my sons.....never borrow to purchase anything that is not absolutely essential.    Save the money first, and many times, by the time you save enough to purchase the item, you will realize it was not worth the work required to buy it.

just curious if you put your 2 kids through college why the grandkids now, shouldn't your sons be  putting their kids through instead of you?

[Ed Kennell 38,022]

I started 529 funds for all my grandsons when they were born and they are now using those funds.  My sons also have 529 funds for my grandsons.

[mmmmmdonuts 274]

I used to work in the finance industry for a bit and can tell you most likely tell you that they would tell you this. If you can make more money from the returns on investing the money that's what you should do. Always pay off the higher interest rate first.

 

For me personally, since I am fairly conservative I would do the following.

 

1) Make sure you have an emergency fund. ~3-6 months of your debts/expenses covered in cash readily available in case of an emergency before doing anything else.

2) Assuming you have an emergency fund, I would pay off the house and then get a car payment. Part of the reason is because the interest rate is lower on the car.

3) GM does periodically do 0% financing on new vehicles so you maybe able to get a loan through them for less depending on how soon you need to buy. It usually is a few times a year.

[KC9KAS 4,741]

Not sure about your state, county, local taxes, but where we live, if you still owe $1000 on your home you get a "mortgage" exemption on your property taxes. Here again, you have to do the math to see what is best for your situation.

 

"Indiana, Land of Taxes"!

[Stormin 9,981]

I tell my lot, it's easy to borrow money, harder to pay it back. As previously said, always have an emergency fund.

 

 As to buying a car, I have only ever bought one new one. That was just before I retired. The intention of a new one is that it will be the last car we'll have all being well. It's 12 years old now and in that time it has cost us, putting aside road tax, insurance and the annual m.o.t., £900.

 The kids say why don't we get a more modern one. Why? It does what we want, or I should say what s.w.m.b.o. wants, as she drives it much more than me.

[Jerry77 1,218]

54 minutes ago, mmmmmdonuts said:

1) Make sure you have an emergency fund. ~3-6 months of your debts/expenses covered in cash readily available in case of an emergency before doing anything else.

2) Assuming you have an emergency fund, I would pay off the house and then get a car

Good advice...at 78 years of age and having several different houses and many cars , I can say with certainty:  Buy the house you can afford and work to pay it off as soon as possible...In the meantime: my wife and I  did not buy new cars and trucks..,.we paid cash for whatever the cash would buy...making payments on an object that is losing value hand over fist is for the well-to-do..But,if I were well off,  I would be driving new vehicles.. we have always been very frugal...I was blessed with a wife that didn't need the latest fashions etc..all of this allowed me to retire at 57....love it..........

[Aldon 4,826]

Age and ability to handle and navigate stranded vehicle issues should be factored in.

 

i recently bit bullet and bought a new truck. It will in all probability be the last new vehicle I buy. But I wanted a clean slate that I maintain and will handle all possibilities I may have for a vehicle in my next 20ish years.

 

i know I don’t want my aging wife to get stranded in an older vehicle when I’m older and less capable of wrenching on a vehicle on a cold road side.

 

So, I think MmmmmmDonuts advice is good and if you have risk covered I’d weigh in on paying off house and buying a new vehicle. Interest rates won’t always be this low. And likely never be on a used vehicle.

[The Tuul Crib 7,336]

3 hours ago, RandyLittrell said:

I bought one new truck in 1988, and will never buy another one. When you figure in loss of value the minute you drive it off the lot, higher taxes, higher insurance. It just doesn't seem worth it to me. But......thats me. Everyone has there own thoughts and opinions and thats ok. I can tell you that I work in the body shop for Cable Dahmer Chevrolet and all new cars have very expensive parts on them. I have seen one headlight with the driver for the bulb costing $3400 bucks. Yup, you read that right. The radio's with navigation in them can cost over $5000. If you buy a new car, make sure you carry full coverage for the length you own it and I would do an extended warranty. 

 

 

Just my 2 pennies. 

 

 

Randy

I'm with you Randy ! Let someone else take the hit!!

[roadapples 6,983]

What ever you decide get AAA. Well worth the money. You won't be sitting along the side of the road long....

 

[953 nut 55,077]

Paying off you mortgage lifts a tremendous burden off your shoulders. As @mmmmmdonuts mentioned you don't want to do that at the hazard of not having a reserve fund. Also, You and your wife should be stashing as much money as you can in 401Ks and IRAs while you are working.

The 2.5% auto loan would be very tempting for me. In my opinion the $3,000 GM cash would make a new car depreciation less of a factor, but once the transaction for the car is completed I would get a cash-back card, my Fidelity card gives me 2% on all purchases and no fees.

We tend to hold on to a vehicle longer than most so the new car depreciation can be considered negligible. Our 2008 Mountaineer has about 98K on the odometer and we plan to continue driving it another ten years or so. We had over 200K on our most recent trade ins and have bought new vehicles with the exception of my present truck,  it was three years old with 13K and I knew the history on it.

Buying a used car scares the pants off me! When you see all the flood damaged cars after storms you know some of them will end up on car lots. Used car dealers have earned a bad reputation and I've never heard anyone say different. If you KNOW all of the history on a used vehicle it could be a good buy. A friend who worked for a car rental company told me to never buy one of their used cars. He said they wouldn't do any maintenance on them and just log them as having been serviced regularly. Once they go through a couple auto auctions in a couple of states the rental car history seems to disappear. 

[Kenneth R Cluley 515]

like most of you been through some lean years with 2 kids in college, etc. The problem with New vehicles is you don't get the "discounts" that dealers /companys offer unless you use "their" financing. That rate is usually 7 + %. Or they offer either discount or 0 %. I purchased from dealer paid for 6 months, switched to credit union at 2.9% as new vehicle because was less than 10,000 miles and less than year old. I offered cash to dealer and price was way higher without financing. good luck. Lease vehicles in large metro areas are pretty good deal if you check them carefully. 2 - 3 years and regularly serviced. 

[SPINJIM 1,981]

1. Mortgage interest is still tax deductible, car loan interest is not.   

2. You will loose more than your $3000 in depreciation on a new car when you drive it off the lot.

3. Some dealers offer promotional finance rates on used cars.  I bought a 2 year old Toyota Highlander (already depreciated) from a Toyota dealer for 1.9% interest.

 

    Good luck

[roadapples 6,983]

Get a home equity loan then you can take it off your taxes... 

[oldredrider 2,548]

Tax law has changed. Supposedly, home equity loans can now ONLY be used toward the home...repairs, upgrades etc. Check with your tax advisor before making a costly mistake.

[roadapples 6,983]

I have a home equity line of credit. No one has ever asked what I use it for...

[r356c 375]

I was going to start a new thread, but this is close enough...

 

Ya gotta eat

I have been playing around with Walmarts, Walmart Grocery app on my Android device the last couple of weeks.

 

If you live in an area that offers it, use it.

I'll bet you cut at least 20 percent off your food bills.

Walmart's answer to the Amazon onslaught. (Amazon beat Walmart by a buck a can on my favorite tuna if you order a dozen at a time.)

Having food shipped to your home is not familiar for most of us. It does stretch the food dollar.

It forces menu planning and eliminates impulse purchases.

 

Edit: Walmart is online order and local pickup, Amazon is online order and ship to home, just to be clear.

Edit 2: It's never too early to get used to online ordering of groceries delivered by self driving vehicles in the nearish future.

Edited September 7, 2018 by r356c

[ohiofarmer 3,265]

 I do appreciate the replies. Also will monitor this thread for even more good ideas. The tax guys are saying that our mortgage interest will not make much difference because of the tax cuts and higher standard deductions going forward. We are at full retirement age but still working [saving a lot each month] and I am drawing on my wife's Social Security as a spouse and will draw on my own at age 70. We have some rental properties and can sell land contract if we wish to.

 

 Everything we do relates to cash flow and taxes. A good source of gently used cars is retirement auctions. The biggest worry is that a car might have sat for 3 -5 years when the kids took away grandma's keys

[Cvans 1,009]

  First as someone stated above, pay off the highest interest first.

  This is the option we have been using for a number of years and it works out well. Buy a program car through a dealer. Someone else pays the first years depreciation and you end up with a nearly new vehicle and a full warranty. If you have money earning 4% and can get a loan at 2.5% take the loan and leave your investment were it is. You will be saving 1.5%. Pay it off in a year if possible. Sometimes they will penalize you for paying it off sooner. If your credit is excellent you can be offered very low interest on a loan. Buy the vehicle when new car sales are slow. Not all dealers will make the effort to find the vehicle you want so find one that will and stick with them if they treat you right. 

   By going with a program car you can end up with a lot more vehicle than you were willing to spend on a lesser vehicle. It has worked this way every time for us. We now call the dealer and let them know what we are looking for and about how many miles we would like on it. May take a month or two to find. He sends us photos and if we say it's a go he purchases the vehicle. We have had 5 of these now and it has worked great. The last one had 8,000 miles on it and belonged to a factory rep. 

Good luck with your purchase.

Edited September 8, 2018 by Cvans

[wh500special 2,160]

I doubt many of us are equipped to offer really sound financial advice and I’m not either. Actually, it sounds like you might be better off advising many of us!

 

You’ve already paid the bank all the interest on the loan for the house.  I don’t see a reason to hurry to give them the rest of their money since there’s nothing more to be saved. 

 

Buying a a car is a money losing proposition.  You just have to decide how much and what kind of risk you can live with and be sure that no matter what happens you can look back on that decision with no regrets.  

 

You’re obviously at a point in your life where you’ve earned some age and have created a situation where you don’t have money problems.   That’s awesome and probably not a societal norm.  

 

My guess is that you and your wife have been “savers” all your life.  That’s how you got to a point with an almost paid off mortgage and no other debt.  And based on the land and rental property allusions you made, you have some other assets.  

 

You might just be at that point in your life where you have financial freedom many people will never have.  But you’ve trained yourself -admirably- not to pee away your money.  

 

I’m inferring a lot from your comments of course.  

 

My parents and in laws are similar.  They saved and saved for years and now have a hard time spending on even reasonable purchases.  

 

Anyway, if you think you want a newer/more expensive car this is probably your moment.   But if you’ll regret it in any way ditch that Pontiac and get a 5 year old Camry or accord and run that sucker into the ground.  

 

My wife and I are savers.   We have some debt but the cost of it is low enough that it doesn’t make sense to pay it off early.  And we’re in a position that we could pay it all off tomorrow which is nice.   

 

There is “good” debt and “bad” debt.   I’d lump a mortgage and college tuition into the “good” column.  Other things are more case-specific and subjective.  

 

I had to buy two cars last year.   That sucked.   But it really felt good to get out from under a piece of junk Ford Edge that was by far the worst (reliability) car I have ever had.   In the two years before I decided to cut it loose it took thousands in repairs...wheel bearings, radiator, air conditioning, alternator, battery, front axle shaft.  And the transmission was no longer shifting like it should between first and second.  

 

It was maintained meticulously and was still crumbling beneath us.  

 

But it it was paid for, so I kept it longer than I should have and ended up plowing money into it that didn’t increase its value. No love lost for that junk pile.  

 

Paid for the other car outright.  But that was a special case since I didn’t want two car payments and VW bought back my previous car due to their shenanigans.  In hindsight I should have financed it since I could have gotten 1.9%.  

 

The $3000 incentive is nice if GM has something you want.  It wouldn’t be enough to sway me into their fold 😎

 

Anyway, I urge you to do what makes you happy so long as you can live with the decision when you look backwards (I suspect that since old habits die hard you’ll end up with a used car).  

 

Steve

[Jerry77 1,218]

2 hours ago, wh500special said:

 They saved and saved for years and now have a hard time spending on even reasonable purchases

I can attest to that - it becomes a way of life that is super hard to quit...don't need them but still buy what I have coupons for...aarrhhggg

[ohiofarmer 3,265]

    Lots of great advise here, but the best advice of all is that many of you just guided my own thoughts and my wife's to come to a decision.  We lived very frugally all the time since a year ago when this thread began. First we went to zero debt on the real estate and continued to work and save all our Social Security. Because of how we structured our SS, mine goes up by $300.00 a month in 2,5 years.  Sadly, that loophole is no longer available.

 

   I started looking for the biggest bang for the buck, and for us it was a new RAV4 Hybrid. My wife was not having a pickup, so that was that When you buy a Hybrid, it only costs $700 more than a AWD, and we certainly wanted that. The brakes last like forever on these things because of regenerative braking. Base model plus Hybrid plus a small upgrade to help detect crossing foot traffic and cars coming across from the back. We thought that was a good decision because it is hard to watch out for people walking with their nose stuck in a cell phone who walk right in to your space as your battery powered car is making no noise..  The salesman did not want to take off a lot off the sticker, so I told him we would just buy a 2020 model through costco when the new models come out because of depreciation and all that. Then we got our price.

 

 We 'financed the car ' for the smallest amount allowed to get an additional $900 off sticker. The paperwork came last night, so i called Toyota to get the payoff on the loan. Total interest was $19 and change.  So still debt free on everything with a car that is rated 40MPG and should help to pay back the depreciation between new and used somewhat.  When we put pencil to paper it really made sense. We did a life cycle on the RAV vs a loaded Accura private sale on a 2016 and also a used RAV from the same year . With all the additional safety and backup cameras the RAV beat them both by a wide margin. The fact that it does not hurt our bodies to get in and out of the RAV is a nice bonus. 

 

    Maybe I can keep saving some more and get that C-160 I have been seeking....