Seeking advice on vehicle situation

[Riptide]

Hello Mustacians, long time lurker of the blog but this is my first time on the forums. I did do a search for this topic to avoid clutter but I keep getting an error message so here goes:
So after 3 years of on and off reading this blog and others, listening to podcasts and convincing myself to see the light, the penny dropped last week and I'm on my way to badassity. In pursuit of that goal I've smashed away $3,000 in credit card debt (which was chewing away at my funds at over 20% interest for 3 years) with $900 left to go. Once that first hurdle is crossed, I'll be standing at the bottom of a much taller one (but the only other debt hurdle in my path, thankfully). My vehicle payment.

I bought a spanking-new Jeep Wrangler in 2014 with the intentions of modifying it to go off-road (which I did, and it was fun and awesome and I regret it less than I honestly should). I have somewhere around $18-20,000 left to pay off, which I had planned to do in big chunks (Still have to call them and find out what if any fees there will be for early payoff). I'm currently chipping away at it with $290 payments occurring on a bi-weekly basis (9.26% interest).

Please stop punching me in the face! I swear, I'm reformed!

Anyhow, my question is this: Do I just start throwing gobs of money at this monster while continuing to drive it 70km a day to and from work with the V6 sucking away roughly $60 weekly in fuel? Is there some other option of which I am currently unaware that will be more cost-effective?

About my commute: I'm an Ironworker by trade, in Alberta of all places in the world and my wage is far too high to make a job change in this market of disappearing jobs (for now [plus we're getting insane amounts of overtime on this project]). My commute is simply something I have to deal with for the time being (again, unless I'm seriously missing better options) considering the sheer absence of any job paying more than minimum wage (well, out of jobs I'm qualified for). Any advice is well appreciated. Thanks!

[lbmustache]

No one here is going to tell you to keep the Jeep, unfortunately.

10% interest is crazy high but maybe that's normal for Canada?

There usually isn't a penalty for early payoff... I personally have not heard of any recently, anyway.

Jeeps keep their value crazy well: sell it (hopefully you make a profit), buy a cheaper car. With a better interest rate if you must finance again. :)

[Lulee]

You should congratulate yourself on the progress you’ve made to date and being smart enough to spot the next hurdle.  I’ve never had a car loan myself but that interest rate is nasty (though not as bad as that credit card)!

There’s another thread in this sub-forum entitled something like “a 5k vs 8k second car” which might have some useful advice if you run the numbers and decide that replacing the Jeep with an older and more fuel efficient vehicle will help you get out of debt faster.  I’m not sure what the sale of a two year-old Jeep would bring you (the early years’ depreciation can really cut into the resale value of lots of vehicles), but given that you’ve tricked it out for off-roading, hopefully it would be enough to pay off the loan and have some leftover to buy your next vehicle used.

Have you considered moving closer to the job site?  Cutting the commute to a few kilometers would save you hundreds each month in gas bills even with that gas-guzzling V6.  That savings and all the overtime will help you kill off the credit card debt in a couple of months at most.

In the US at least, there are additional savings to be had by running an older vehicle.  It usually costs far less to register and insure them yearly.  Given you did all that work on the Jeep to make if off-roading worthy, you’ll likely be able to do a lot of any maintenance needed on a vehicle that’s old enough to not be under warranty so that works in your favor.

Good luck!

[Riptide]

I did consider moving closer to the job site, but most places around here want a 1-year lease. The nature of my job is that it moves a lot, depending on where things are being built. Trying to pinpoint where the work will be in 6 months is difficult right now, Alberta's job market is kind of up in the air for the time being. It all depends what oil prices do and which projects go ahead or get cancelled.

About selling it: I have to payout the loan before I can do that, otherwise I'm in really big trouble as I understand it. I'll call the finance company and get more info on my options in that regard.

Thanks for the responses!

[chemistk]

It seems like you enjoy your Jeep - which is always something to consider when you're making big decisions. Even though the obvious answer to all of us may be to try and sell it, to you it might be more difficult. How much it it worth to you?

What (if any) are your options for refinancing - that would be a good place to start because 10% interest is a bit high.

Given the state of flux of your job - and the fact that you could be out of one before you've paid your Jeep off, I would definitely start thinking about what alternatives you'll be willing to consider. If you sell it, you might break even and pay the loan or you might even lose out a little bit but getting out from underneath it now and starting over could help you in the long run.

If you inevitably decide to keep it, I would try and get rid of the loan ASAP for the reason I mentioned above. Times may be good now but how will they be in a year? 2 years?

[NoStacheOhio]

About selling it: I have to payout the loan before I can do that, otherwise I'm in really big trouble as I understand it. I'll call the finance company and get more info on my options in that regard.

That's not usually the case, unless you sell it and try to skip on the loan.

In this instance, your best bet may be a dealer trade-in, unless you can find a private party willing to work with you. If they're taking out a loan to buy, their bank can probably just deal directly with your bank, and everything will be fine. If you do a dealer trade, they'll obviously give you less money. Play with online calculators to figure out what numbers you need to make it work. The big thing to figure out is if you're underwater, and if so, by how much. If your equity is about $0, you may be better off saving cash and making the minimum payments until you have enough to buy a more practical vehicle.

If you're making good overtime, and the future is hazy, status quo may be your best bet. Just try to cut spending in other areas while you attack this one.

[nereo]

The jeep is a 'sunk cost' and you are losing money every week that you drive it through depreciation and through added fuel costs.
The financially optimal thing to do is sell the jeep and buy something older, cheaper, and more fuel efficient. 
Yes you may be "underwater" by a few $k, but if you keep the jeep for another few years the losses will be even greater.

A dealer trade-in will be the simplest method but not the most economical.  If you have some positive cash flow a better financial option would be sell the vehicle private-party (netting you a few $k more than you are likely to get from the dealer) and using that cash to pay off the Jeep loan.  Then you can buy a sensible used car with a new loan (if you must) or with cash (preferable).  My bank keeps offering me auto-loans up to $10,000 at just above 3% and I am in Canada... you can ask yours what they will offer.

As for your "mistake" - we all make them.  Yours probably cost you ~$10k overall... not an insiginificant sum but not something that will financially ruin you.  Sounds like you had a lot of fun driving that jeep around and maybe you can make it a financial goal to own a jeep again once you are FI.  Have you read the tales of FI with Bruno (a couple who is FI in their 30s driving aroudn Mexico)?

[lbmustache]

I did consider moving closer to the job site, but most places around here want a 1-year lease. The nature of my job is that it moves a lot, depending on where things are being built. Trying to pinpoint where the work will be in 6 months is difficult right now, Alberta's job market is kind of up in the air for the time being. It all depends what oil prices do and which projects go ahead or get cancelled.

About selling it: I have to payout the loan before I can do that, otherwise I'm in really big trouble as I understand it. I'll call the finance company and get more info on my options in that regard.

Thanks for the responses!

No, you sell it and use that amount to pay off the loan. If there's any extra not covered (i.e. you owe $20k and the car sells for $18k), you have to pay for that out of pocket. If everyone had to pay off a loan before they sold it, you would see almost zero (newer) used cars. :)

I also recommend Carmax but I do not know if that exists in your area. Super easy and they take care of everything for you.

[Cassie]

Have you looked at refinancing the loan?  That high of interest would be crazy in the US for a car.

[Dicey]

OTOH, in the grand scheme of things, there are worse mistakes. I could see making yourself keep the car as your own personal Scarlet Letter. If every time you see, drive or even look at that vehicle, you are reminded of the error of your ways and kept from making more costly mistakes, it could actually pay off in the long run. Minority opinion, to be sure, but then there are a million paths to FIRE.

I would look into the possibility of lowering the interest rate and use this experience as an impetus to learn and understand the dynamics of car loans (all loans for that matter). IMO, the most un-mustachian thing you've copped to here is signing a note that you did not fully understand. Really, you don't know if there is a pre-payment penalty? Hang your head in shame and get busy learning from this critical mistake.

[Riptide]

Thanks for all the responses, everyone. Good to get a few different points of view on this. The most prudent short-term solution I can find so far is to trade it in for a cheaper, more fuel-efficient vehicle. Selling it outright will result in eating $9k worth of negative equity. A trade-in should result in a lower interest rate, going to see the bank today to see if I can get my own financing; my credit score being 100 points above what it was when I purchased. Combine that with 2 years of no missed payments plus having an old collections debt fall off my report in that same time and things are looking good. A smaller loan due to lower interest will be more easily paid-off, plus the fuel savings in the meantime from burning half the fuel will help. Looking at a VW Golf, always had a thing for hatchbacks!