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EricM
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| Trade in an underwater vehicle? |
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I've mentioned my auto loan in several threads regarding other topics, but my wife and I were trying to figure out what would be the best thing for us.
I purchased my vehicle by myself back in 07', I'm upside down on it and the interest rate is an astounding 22%. My credit is way better now than it was when I bought it and I've gotten married since and my wife's score is decent as well.
Would trading my vehicle in on a newer one and adding the amount owed to the new loan with a way lower interest rate benefit us or would it be a terrible mistake? My current auto loan will be complete March of 2014 (7 year loan), so I have right at 2 years left on it. I think I may be able to get anywhere from $6000-$6500 trade in and I owe right around $11,000. The reason for not just riding it out and paying it off is we have a baby coming this May.
I feel like there could be a benefit to doing this, but my knowledge in these types of finances is why I'm in this bad situation to begin with lol.
Any advice would be appreciated!
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Mon Jan 30, 2012 3:08 am |
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oldguy
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quote:
The reason for not just riding it out and paying it off is we have a baby coming this May.
Huh?? Having a baby doesn't mean that you must do dumb stuff - in fact it would be a good time time to start doing smart stuff. Congratulations on your new child. Keep the car, modern cars give 200,000 miles of trouble-free service, maintain it well and drive it for another decade or so.
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Mon Jan 30, 2012 1:30 pm |
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littleroc02us
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So lets say you did your plan and trade the vehicle in for 6k which means you still owe 5k and they throw this debt into another new vehicle that hypothetically you buy for 25k (some type of mini van or something) and now the loan is at 30k for 7 years. Think about that for a second, before you made this poor decision you only had debt of 11k and now it's around 30k plus that doesn't even account for the 60% depreciation in the next 4 years and all of the interest you will pay. I would stick the loan out for the next 2 years and if you should find yourself needing a bigger vehicle for your family than sell the vehicle privately and take that cash along with other cash saved up and buy a used minivan for 10k.. I myself just had a baby in October and we had two sedans, yes it was a pain in the butt do to the space but we survived. My wife and I saved up 12k in cash and bought a used 2005 Honda Pilot which we love and has plenty of space, but I don't owe 30k. Believe me we could afford a lot more of car, but why? As for you situation, don't do it man!
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon Jan 30, 2012 2:28 pm |
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EricM
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Thanks guys. Yeah, I understand exactly what you are saying. I feel like my vehicle isn't gonna last too much longer, hence why we are even considering something new.
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Mon Jan 30, 2012 4:03 pm |
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littleroc02us
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Is the vehicle only 5 years old? How many miles? What's wrong with it?
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon Jan 30, 2012 5:54 pm |
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oldguy
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Continually trading in late-model cars is a major cause of financial failures in the US - new cars ave become the status marker. People buy $25,000 cars and trade them in 5 yrs later for $5000. So they are paying $4000 per year for depreciation. Many families do this with 2 cars - so that's $8000/yr just for depreciation. If you do that for a driving lifetime, say 40 yrs, you are talking about millions of dollars - no exageration. So don't fall into that trap - instead use your income for a house & to care for your children and to build wealth for your family.
Read "The Millionaire Next Door", it will explain to you why millionaires often drive older cars.
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Mon Jan 30, 2012 7:25 pm |
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EricM
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quote:
Originally posted by littleroc02us
Is the vehicle only 5 years old? How many miles? What's wrong with it?
It's a Chevy, that's whats wrong with it. It's an 04' and has 135k on it. Every 3 or 4 months, I have to replace something dealing with the electrical system. I've replaced 8 different things thus far. The fact that it gets like 15 MPG is taking it's toll on us as well.
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Mon Jan 30, 2012 7:30 pm |
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oldguy
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quote:
It's a Chevy, that's whats wrong with it. It's an 04' and has 135k on it. Every 3 or 4 months, I have to replace something dealing with the electrical system. I've replaced 8 different things thus far. The fact that it gets like 15 MPG is taking it's toll on us as well.
Sometimes people will trade cars to avoid a $1000 repair bill - but a new car will be losing $4000 per yr while it is just sittting in your driveway - your '04 is done depreciating. Just maintain it and keep it in good shape, it will serve you well for another 70,000 miles.
AAA says that 90% of road calls are for the "wear items" - tires, batteries, belts, brakes - you can replace all 4 of those for $1000 - way less than the cost of ownership on a new car.
Yeah, it's a Chevy, maybe not your best choice - but the differences between modern cars isn't that great - Japanese cars have less problems and last longer - but only 5% or 10% better. I recently had to replace a wheel bearing on our Toyota at only 120,000 miles - so they can break too.
As for the 15 MPG - compare the cost to a car that gets 22 MPG. In 15,000 miles, one uses 1000 gallons, one uses 682 gallons - about $1100 per yr difference. Again - does it make sense to buy a new car to save $1100?
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Mon Jan 30, 2012 9:09 pm |
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EricM
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quote:
Originally posted by oldguy
quote:
It's a Chevy, that's whats wrong with it. It's an 04' and has 135k on it. Every 3 or 4 months, I have to replace something dealing with the electrical system. I've replaced 8 different things thus far. The fact that it gets like 15 MPG is taking it's toll on us as well.
Sometimes people will trade cars to avoid a $1000 repair bill - but a new car will be losing $4000 per yr while it is just sittting in your driveway - your '04 is done depreciating. Just maintain it and keep it in good shape, it will serve you well for another 70,000 miles.
AAA says that 90% of road calls are for the "wear items" - tires, batteries, belts, brakes - you can replace all 4 of those for $1000 - way less than the cost of ownership on a new car.
Yeah, it's a Chevy, maybe not your best choice - but the differences between modern cars isn't that great - Japanese cars have less problems and last longer - but only 5% or 10% better. I recently had to replace a wheel bearing on our Toyota at only 120,000 miles - so they can break too.
As for the 15 MPG - compare the cost to a car that gets 22 MPG. In 15,000 miles, one uses 1000 gallons, one uses 682 gallons - about $1100 per yr difference. Again - does it make sense to buy a new car to save $1100?
Well spoken. Probably some of the best advice on this thread, I've ever recieved. Thanks so much!
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Mon Jan 30, 2012 11:38 pm |
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