The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: apricity22 on July 07, 2017, 07:19:31 PM
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So we are a two person family with three cars. It's not as bad as it sounds as we just inherited one of these cars. Anyway, we are relocating from suburbia to a walkable downtown area and are seriously considering becoming a 1 car family as only one of us will then need to commute. We definitely need to get rid of one of these cars but possibly two of them. Here are the details:
Car 1:
2016 Toyota Corolla, 15k miles
$18k owed at 0% interest, $300 monthly payments (Probably about $6k underwater), 1 year of warranty left
Car 2:
2011 Mazda 6, 70k miles
Nothing owed, worth about $6k
Car 3:
2007 Toyota Camry, 40k miles
Nothing owed, worth about $6k
We need one car for a 30 mile roundtrip reverse commute, road trips and the occasional errand that isn't doable by walking or bike. My initial instinct is to get rid of Car 1 since we owe money on it but it's painful having to make up that difference. Another option would be to sell Car 1 and Car 2 which would have us break about even and get rid of a car payment. All three of these cars are well maintained so I don't expect any maintenance for any of these vehicles in the near term. Could really use outside opinions of which I should ditch if I were to get rid of 1 or if I were to get rid of 2. Not really sure how to analyze paying $6000 to get rid of a car 1. I'm sure in the long run it is better but it will take awhile to make up that amount in saved payments and we lose the newest car and we've already taken the hit on depreciation and we aren't paying interest. Thanks for your help.
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Sell 2 first, then sell 1 and use the proceeds from 2 to pay off the $6k you're underwater. The Camry is larger than the Corolla, so more versatile for trips, kids, etc. And at 40k miles the Camry is just getting started in life.
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Keep the Camry.
The fact that you have to dig into your pocket to pay off car #1 is annoying, but ultimately irrelevant. Either way, you'd continue to take depreciation on an $18K item and if you later sold it for $9K when you only owed $3K on it, you're still worse off than selling it for $18K when you owe $24K (though you'd have gotten use of the car in the meantime).
Insurance on car #1 will also be much more than the Camry. I'd not carry collision coverage on the Camry, but the lender will force you to carry it on a car you owe money on, so you'll see additional savings on the overall insurance and on not carrying collision.
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Sell 2 first, then sell 1 and use the proceeds from 2 to pay off the $6k you're underwater. The Camry is larger than the Corolla, so more versatile for trips, kids, etc. And at 40k miles the Camry is just getting started in life.
Yeah, I agree.
Or if you really want the newer, shinier car, sell the Mazda and Camry, and invest the money since the Corolla is at 0%.
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As much as I'm car payment adverse, I'd think about keeping the Corolla since it is likely under a decent warranty and has 0% financing. I think I'd have a hard time paying out money on an underwater car loan. The other two vehicles could then be sold to lessen insurance, registration, etc, and the proceeds put into EF? Taxable investment account? Then earmark the future $ currently being paid to Toyota credit for auto deposit to same account, which looks like it would be in just over a year or so?
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As much as I'm car payment adverse, I'd think about keeping the Corolla since it is likely under a decent warranty and has 0% financing. I think I'd have a hard time paying out money on an underwater car loan. The other two vehicles could then be sold to lessen insurance, registration, etc, and the proceeds put into EF? Taxable investment account? Then earmark the future $ currently being paid to Toyota credit for auto deposit to same account, which looks like it would be in just over a year or so?
Why? Genuinely trying to understand this. The underwater amount is owed regardless - it's either a negative asset or it gets paid off - either way it doesn't affect net worth so it's irrelevant to the decision. Newer cars, on the other hand, depreciate faster and a financed car requires full coverage. From a financial perspective, keeping the Corolla is going to cost more, and 15k vs. 40k miles for a Toyota is a rounding error w.r.t. maintenance costs.
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Thanks all for your replies, this really helps with the thought process as we make this decision. Thanks!
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Arriving late. Is there much difference in the cost to insure? And how do they do on gas?
I'm for keeping one of the Toyotas - pros and cons either way.
Let us know what you wind up doing!