goober — 2010-08-02T11:31:14-04:00 — #1
Hey SitePointers! I know you're all fantastic with tech, but I'm hoping there are some automotive gurus out there as well.
I think this morning my car -- a 1998 Ford Escort ZX2 with 145k miles -- finally kicked the bucket.
I'm currently working for an IT Consulting firm doing government contracting in Washington DC, so I have a steady income that is decent.
I'm young and I'd like to avoid debt for car payments, but unfortunately have not been in this job long enough to have amassed enough savings to buy a car outright. Most of my additional income has gone to paying off a credit card (almost done!) and to student loans (nowhere near done).
I could afford car payments if I got a great deal, but I'd like to keep my monthly payments down to increase savings (prefer positive interest to negative interest).
Though I love driving, I don't see cars as a status symbol and can deal with a junker if necessary. I can drive manual and anything will be an upgrade from my last car, so I think my expectations are realistic enough to keep costs down.
So, I guess I have several questions:
- New-ish or used? Considering buying an inexpensive "new" (i.e recent certified used) car that will allow me to save money beyond making the payments and then utilize the trade-in value when I have the money saved up for my next car.
- If I go used, what is my best bet in terms of year/make/model to find a cheap deal that will allow me to save up money for my next one without worrying about drowning in maintenance costs in th meantime?
- This seems to be a buyer's market right now from what I'm seeing -- am I right? If so, I'm willing to shell out the money and make payments if it gets me an insane deal on a fantastic car. Always interested in hearing about these deals as well.
I appreciate any and all help SitePointers can offer. Thanks!
system — 2010-08-03T16:07:25-04:00 — #2
blz — 2010-08-03T18:14:20-04:00 — #3
Look in to buying a car rental shop/city lease return. They usually have an insanely fantastic maintenance regimen, the big depreciation is already absorbed and any weird kinks are worked out.
As you say, you are young. In my opinion, you should not be avoiding car payments at all. Illustrating that you can responsibly handle debt, and still maintaining a rigorous savings routine will turn you into a financial sweetheart at lending institutions.
"He's done very, very well with a $40K loan amortized over 6 years at 9%" With your savings, suddenly you have amazing leverage to secure a good rate on a $400K loan for a house in a few years. Now we are talking a loan where a percentage point amounts to huge dollars, EVERY YEAR.
Think of it as a type of loss leader, or priming your financial pump.
You should look into good v bad debt. Don't avoid debt, you're shooting yourself in the foot. Straight savings is leaving money on the table, and its security maybe shouldn't be on your top 5 list of priorities.
I'm a Canuck, so I don't know about the US. Student loans are pretty good debt. Usually low interest, and the interest is tax deductible anyway. I think that should be at the very bottom of your priority list from the sounds of it. A physics prof I know put it super well "Always take as long as you possibly can to pay a debt", especially low interest ones that are tax shelters!
conradical — 2010-08-03T19:39:39-04:00 — #4
When it is my turn to buy a car, I will probably go to carmax or some spot that has a mileage guarantee etc. Of course there might be the extra markup but me not being mechanically adept - it is a good investment.
bluedreamer — 2010-08-02T12:17:32-04:00 — #5
I'd say fix yourself a realistic budget then decide what's important, eg
- Reliability (background work required, some makes/models more reliable than others)
- Ecomomy (can you cope with 15mpg, or is 40mpg more your style?)
- Running costs (servicing, tax, insurance, some vehicles are more expensive than others)
- Depreciation (what's it going to be worth in 3/4 years when you trade in?)
- Comfort (need a CD player, need a blue one or a [insert colour] one, sunroof?)
Once you have all that then suss out some potential makes/models and scout around. Go for some test drives and see what prices are like in your area. You'll know when you find "the one"!
Kudos to you for not wanting extra debt
goober — 2010-08-02T12:11:52-04:00 — #6
Thanks for the response!
I appreciate the sentiments on the financial outlook -- it's tough not giving into temptation but it'll be better in the long run.
Public transit is fine for work -- and actually is pretty convenient as my apartment is practically on top of a metro stop. But unfortunately I often commute from DC to the Philadelphia area; I'd still need a vehicle for this as train tickets for that sort of travel far outweigh benefits.
Your concerns with the "junker" scenario are exactly my concerns. I'd like to find a happy middle ground between certified pre-owned and junker so I can save money without having that money taken away by recurring maintenance issues.
Thanks for the wishes! Feel free to send any other thoughts my way.
conradical — 2010-08-02T12:06:26-04:00 — #7
Excellent outlook by the way. It is rare to see folks not wanting to get into debt and thinking about savings and would rather drive a junker than get into debt. Good on you!
Having said that - I haven't a clue! My car (97 Saturn) recently died as well but I was donated a nice BMW.
Can you look into Rideshare? Or other types of similar types of deals that work for your neighbourhood? Public transit till you save up in cash - you'll be able to get a better deal in cash.
Motorcycle? Other than that.. since I am ignorant about fixing cars, I am hesitant to say junker because it might cost you maintenance - penny wise pound foolish.
Good luck though!