spunk999

Looking for advice for car loan?

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Hello - I am in need of a car - I am contemplating a few options available to me and wanted to know if anyone had any other ideas or feedback on the options I know of:

1 - Buy a car outright for around $1200-1500 ...

pro: no payments

con: may need another car in a year, will most likely have to spend money on things like tires, oil change, etc right off the bat, unsure if car will really be reliable

2 - Got approved from the EZ Credit Car Dealership in my community for no money down, have to just pay the sales tax (around $500) and registration and insurance is worked into the financing,

pro: reliable car, another trade line, free oil changes for a year, 24 month warantee, I can afford paying the sales tax upfront and would be nice to not have to part with more cash than that

con: cheapest car in their lot is $12k, payments for 40 months, probably a shifty deal interest wise

I considered shopping around, but did not want inquiries unnecessarily - I went to the EX Credit place because I felt I would get some kind of deal - I am just not sure if I want to take it ... Any help would be appreciated ...

Thanks!

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IMO, option 1 is far superior to option 2. You have a known cost, the vehicle, plus maintenance and repairs. ALL VEHICLES require maintenance and repairs. If you DON'T have a monthly payment, you can set aside a maintenance and repair fund using the amount of payment you were not making. You may even be able to keep the vehicle for several years if you maintain it properly. It is a pleasure owning a vehicle without a payment! :)

As for option 2: the quickest way to get in over your head is to pick up a long term car payment and 40 months is long term no matter how you slice it. The warranty offered by the car dealer is most likely worthless - it is just one more way to add thousands to your car for this extra "value" and then deny most warranty service as 'not covered'. Warranties are only as good as the company behind them - most are scams. Don't fall for it. You can only know what is covered by reading the actual policy before you purchase it and we all know how that goes....

If you decide you prefer to make payments - go to a credit union and get approved there for a loan. If you don't get approved by a CU, then don't buy a car on payments. JMO. Car payments keep us broke - stay out of the car payment loop.

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I cannot tell you how great option 1 is. I've repeatedly told this story on this website, but because it is the single best investment I ever made and helped turn around my financial life I will write this again.

In 2004 I filed a Chapter 7. Before discharge, I paid off the loan on my fully loaded gas guzzling AWD Explorer, sold it, and bought a used 8 yr old Civic for $3500 in cash. As part of my financial rebirth, I put together a 1yr and 5yr roadmap. This was part of my 1yr plan to "take a year off" from vehicle payments. Between no vehicle payment, less gas, much less insurance (liability only on old vehicle), I has calculated that I was able to save about $900/month. Over a year, that's $10,000. I figured I'd try to save up a rainy day emergency fund, start a 401k, and maybe start a house fund.

Fast forward to 2011. Three homes (one investment property), a wife, two kids, a 401k, two 529s, and a law degree later, I drove that car until three months ago. I finally gave my brother the car, which still ran very well with 270,000 miles on it, in exchange for two days of landscaping at my home (he's a landscaper). I was so happy with it that I leased a 2011 Honda Accord. I'd still drive the 1997 Civic today except that I have two kids and the car didn't have any side impact airbags.

So maybe you'll get 7 years out of that beater. And you'll save yourself $70,000. But you have to be comfortable with it. There were times when I'd drive my coworkers to lunch in my Civic and they'd make funny comments about it (they drive Infinitis, BMWs, & Mercedes). But the last laugh was mine. Every saved dollar was plowed back into down payment money so that I qualified for an investment property mortgage at 3.75% last year. And because of the massive reduction in interest expense, that rental property nets $500/month in free cash flow, even considering a 15yr mortgage timeline. My new 2011 Accord EX lease payment is only $250/month, so that equates to a free car plus $250/month in extra spending cash. Imagine that.

Lots of extraneous detail above, but it all started with the good choice that I made back in 2004 to drive a beater into the ground. I can't say that any other choice I made opened more doors because vehicle costs are like a anchor around your neck. Think fuel efficient, very little insurance, reliable. One option is a Civic, but that's just my vote for beater of the year. :)

Edited by jq26
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Many car dealerships offer their own auto loans to customers, but they may not offer the best rate. If you have an account with a bank or credit union, see if they can offer you better loan rates because they are likely to offer good rates to their own customers.

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So Spunk999, did you decide yet on which option you prefer for the vehicle purchase? Just curious..:)

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Hi - thanks for all the advice - I had been reading everyone's thoughts and had not posted a response. I am really trying to buy the car outright instead of financing - I am currently saving up and living without a car. I have a special needs baby with lots of hospital appointments and our hospital is 45 miles away, and FORTUNATELY I have been light on appointments this month and the ones I did have, I was able to get rides to.

I am hoping to have the money saved up within the next couple weeks ... I'll keep you posted :)

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Good luck with the car situation and I hope your baby is doing alright as well!

Hang in there and you're doing the right thing - You don't want any car payments. Great choice on using friends, family, and even neighbors to help you out!!

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Great choice to wait until you can pay cash...come back here when you get your new wheels and we will all celebrate with you! :)

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Yes, just for the benefit of other people in the same situation, the first week without a car is the hardest, figuring out how you are going to do all the things you need to, but once you get in a new routine, it is actually quite easy. I have some friends that are also willing to loan me small amounts of money that I can pay back over the next few months so all in all, I am finding a way to make it work ... thanks for all the well wishes :)

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I suggest Option number 1...pay cash for a used vehicle, and don't finance insurance... period. because they will finance an insurance policy which would cost much more than you could buy one yourself. Besides, on a used car, your state may allow "liability only" which is probably half or less what full coverage would cost. Also, always use an insurance broker who brokers many insurance companies and will shop for the lowest price for your situation. Tell them upfront what you can afford to pay for insurance..let them work around that.

I had insurance with a company a few years ago who suddenly DOUBLED MY MONTHLY PREMIUM ! Their excuse " because you are insuring only one automobile with us" ! Needless to say, I canceled and went to another policy ( thanks to my broker),premiums which was less than half each month of the other policy. Besides, although I didn't investigate the matter, the insurance company may have been in violation of Federal Trade Commission law for using such a flimsy excuse to double my premiums, especially since I had no tickets or accidents in 15 years or so ! I did raise the subject with my insurance broker, however, and I was rewarded with a few "gulps", a few "hum and haws" and a moment of silence from him.

Used cars are usually sold " as is"...ask the car salesman to include a clause which states" 30 days or so full warranty", otherwise you may buy a used car...the darn thing stopped running the minute you drove off the car lot...leaving you with no recourse.

Shop around...Don't fall into any trap !

Edited by Noway

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Hello - I finally got a car yesterday - it took all this time that I went without a car ... I saved up about $1500 and I got an installment loan for $1500 that I have to pay back over 10 months. With the $3000, I bought an older Mercedes in really good condition on Craigslist, registered plates and got the car detailed. It was well worth the wait and patience to wait rather than going the shisty car loan route. I almost buckled a month ago and almost financed $14k for a PT Cruiser ... I am so glad I didn't because I love the Mercedes 10 times more! It drives really smooth and looks really nice! I can't believe I went so long without a car, and it feels wierd not having one and not having to carry a car seat around wherever I go (I found a way to bungee cord the car seat to the stroller so it can all move around smoothly) and not having to drag the stroller and all that down 2 flights of stairs ... anyway, I am happy to start this new chapter of my life!

Edited by spunk999

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nice!

Word to the wise, however......MB's are friggin' TANKS. BUT: When they go, they go fast and expensive. I cannot stress this enough: Continue to build an emergency fund for your car. Continue to put money away. Continue the good financial decisions that you are making!!

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