Author Topic: 21, got some money saved but need a car, tips?  (Read 2081 times)

Harley

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21, got some money saved but need a car, tips?
« on: March 23, 2017, 08:09:14 AM »
I turn 22 this year, my partner and I (of 5 years) have collectively saved almost $15k. For now we both work mediocre jobs but live on our own and have paid our own way for everything since we met. We have NO debt, not even a penny but that also means we have a fair/great (690/720) credit score but due to our age little credit history. We have not borrowed major amounts of money but our jobs are stable. Problem is our vehicle that we share broke down. Long story short it's a '99 Isuzu Rodeo in the past two years I've had it I've had to put at least $3k of work into it and now the engine and timing belt are shot an estimated $2.5k in repairs so totally not worth it I believe. What I'm looking at is a new car to purchase that will be reliable for MANY years to come and believe I have settled on a '16/17 Honda Civic. I will more than likely run this car until it needs a major repair that's worth more than the car. We're both young and without proper adult guidance and advice so I'm open to suggestions. The only reason I have decided not to purchase an older vehicle from owner is because I do not want the unexpected expense of more repairs. Thanks for your time!

E in DC

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Re: 21, got some money saved but need a car, tips?
« Reply #1 on: March 23, 2017, 08:26:05 AM »
MMM writes a lot about this.  Definitely search the site for his perspective.  I'd say don't buy new.  You can get a similar car for so much less when it's a year or two old.  Apparently you can find good deals on sedans and smaller and older electric/hybrids right now too.  Also remember, 4WD/AWD might not be worth your while when you consider that you can swap in a decent set of snow tires if needed. 

I drive an old Cherokee that I bought with cash.  I don't need to drive it much, or very far when I do.  If I did drive more, I'd probably replace it with an Escort hatch.  As it is, I'll drive what I have until it dies, or I need something more efficient and reliable. 

Hope this helps!

RWD

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Re: 21, got some money saved but need a car, tips?
« Reply #2 on: March 23, 2017, 08:28:13 AM »
A brand new vehicle will not necessarily be more reliable, it just has a warranty and no wear and tear. It's hard to predict whether a new car will be reliable because they haven't been on the road long enough to be proven (though a Honda is usually a good bet). Better is to figure out which slightly used cars have been the most reliable (e.g 4-6 years old) and buy one of those. You can read forums of the specific make/model you are interested in to see if there are any common failure points to look for in an inspection.

A new Honda Civic starts at $18.7k plus options, taxes, and fees. You say you've saved $15k so far so you would be spending more than all your money on this car. That's not the way to build wealth.

ketchup

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Re: 21, got some money saved but need a car, tips?
« Reply #3 on: March 23, 2017, 08:59:14 AM »
The only reason I have decided not to purchase an older vehicle from owner is because I do not want the unexpected expense of more repairs.
Would you rather have an expected expense of $15,000 or an unexpected expense of $400-1000 if something stupid breaks on a not-as-new car?  (Anecdote: my dad bought an '07 Nissan with 84k miles for $3700 two years ago.  Last year he needed to have major engine work done to the tune of about $900.  My mom bought a brand new car for ~$20,000 around the same time and has had no problems.  My dad is still ahead by far.  My mom probably feels bad for him and thinks he got a lemon.  Her costs are larger, just less visible.)

Also, brand new cars are not even the most reliable cars; the statistically most reliable cars (due to the bathtub curve) are 1-2 year old cars.  But you don't even "need" that for simple piece of mind.  If you did, would you just buy a 1-2 year old car every two years? No, that would be madness.

If unexpected repair cost is your main concern about getting a used car, try thinking about it that way. 

If you're not mechanically-inclined and don't know anyone that is, you can still alleviate that fear-of-the-unknown.  Get any used car you're considering checked out by a mechanic before you pull the trigger.  They'll probably charge about $100 for doing that, but even if you have that done on five different cars before you decide on one, that $500 is still way way less than shelling out for a brand new car.

Your '99 is dead and you want something newer.  Something like a 2010 will still be way newer and nicer, but a lot cheaper than a 2017.  I recently went from a 1992 to a 2009 and it seems like the pinnacle of luxury.  Some quick searching on my local Craigslist finds me plenty of 2010 Hondas with 70k-90k miles for around five or six grand.  If you go slightly "off-brand" you can find even better deals (newer or cheaper) on something like a Hyundai or Nissan.

Heroes821

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Re: 21, got some money saved but need a car, tips?
« Reply #4 on: March 23, 2017, 01:41:39 PM »
I'm going to assume (possibly incorrectly) that the purpose of listing credit scores was to highlight that a car loan would help your scores go up faster. I would say a small limit credit card that you pay off entirely every month will do more for your scores faster than a car loan.  I would definitely try to keep the lions share of your $15000 in your own pocket.  If you enjoy your old car and the body is in great shape $2500 to end up with a new engine is pretty much getting you a new car for super cheap.  I don't know what work you had done previously but if you replace the engine and actually like your current car you can probably get 15 more years out of it while not paying much in maintenance. 

I would definitely say if you have an emergency fund separate from your $15k you should work on that compounding interest ball.  Also read more MMM he talks a lot about cars and the lack of a need for them in the first place.

To add some MMM math to your quandary.  Keeping your old car for 15 more years will cost you $5500 (3k before 2.5k now) and then using AAA cost per mile for a vehicle driving the American "average" of 15,000 miles per year of 60 cents per mile (we mustacians know we can do better in both cost and distance) we get $9,000 a year.  That's seems terribly excessive but that is supposed to include all maintenance and gasoline. In 15 years that is around $140,500.  Now if you buy a $18,000 car you also have to add interest and $13,000 more dollars onto that number and then all the gains your $15,000 lost out on in 15 years.

Using http://www.dividend.com/tools/compounding-returns-calculator.php and $12,000 with the MMM estimated return of 7% compounding over 15 years we get: $33,108.40.

Spend the 2.5k fix your engine and invest 10-12k of that in an admiral fund or something (assuming you have an emergency fund - the ability to pay bills if employment ceases is more important than early investing)

Also CONGRATS on finding MMM at 22... my god I wish I had.

ketchup

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Re: 21, got some money saved but need a car, tips?
« Reply #5 on: March 23, 2017, 01:50:00 PM »
I'm going to assume (possibly incorrectly) that the purpose of listing credit scores was to highlight that a car loan would help your scores go up faster. I would say a small limit credit card that you pay off entirely every month will do more for your scores faster than a car loan.
I'll echo this too.  My credit is around 725 and I get approved for credit cards with silly limits (a quarter of my household yearly income on one card, really?), and I've never had a car loan.  Just credit cards since 2011, starting with a mediocre student card, and then a mortgage in 2015 (and for the mortgage they only really seemed to care that my credit wasn't garbage; it being actually decent seemingly played no real role).

My SIL got a new car with a loan in 2013 and part of her rationalizing was it improving her (already fine) credit.  It did (marginally), but not nearly enough to be worth it.  Don't do it.
« Last Edit: March 23, 2017, 01:52:12 PM by ketchup »

MommyCake

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Re: 21, got some money saved but need a car, tips?
« Reply #6 on: March 23, 2017, 02:13:45 PM »
I know someone who recently bought a brand new Civic.  When I calculated his down payment plus monthly payments he will be paying 43k over the next 7 years.  43k!  By the time you add in fees/tax/warranties/interest/etc the cost is very high.  Not something I would do.  My two cents... get a used Civic, 2008-2011 for under 10k.  There's lots under 7k on Craigslist in my area.  Whether or not to get a loan is debatable, but I'd say don't spend over 10k on the car either way.

marielle

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Re: 21, got some money saved but need a car, tips?
« Reply #7 on: March 23, 2017, 02:16:39 PM »
Don't forget that insurance will be crazy expensive for a new car, especially since you're under 25. Unless you decide to self-insure...but it doesn't sound like you have the funds to replace the car if totaled. The extra insurance cost could be more than what you end up paying in maintenance down the road.

Definitely get a pre-purchase inspection before buying as someone else mentioned.

2Birds1Stone

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Re: 21, got some money saved but need a car, tips?
« Reply #8 on: March 23, 2017, 02:28:13 PM »
Buy a 2012-2013 car that already depreciated by 50%+

By the time you need to replace it, you will be in a much better spot financially.

Aggie1999

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Re: 21, got some money saved but need a car, tips?
« Reply #9 on: March 23, 2017, 02:58:02 PM »
A common recommendation in this forum is to buy a used Prius with around 100k miles on it. There are a few threads covering people experience with used Prius cars for cheap ~$5k. If your truly on the MMM lifestyle bandwagon and are wanting to retire early then you should go down this route instead of buying a new car.

Bracken_Joy

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Re: 21, got some money saved but need a car, tips?
« Reply #10 on: March 23, 2017, 03:07:20 PM »
Oh man. PLEASE do not buy a new car. The cost of a new civic is more than your entire savings. That's crazy. =( In case the forum hasn't convinced you, Millennial Money Man (the other MMM haha) writes a LOT about it. http://millennialmoneyman.com/category/car/  And specifically geared to your age/life stage: http://millennialmoneyman.com/deserve-new-car-right-wrong/

Ankenystache

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Re: 21, got some money saved but need a car, tips?
« Reply #11 on: March 29, 2017, 08:06:13 PM »
Check out the reports on the new civic 4 cylinder turbo and fouled spark plugs before you buy. Basically if you are going to buy a new civic make sure its not a turbo car, somebody at the factory thought it made since to line up all the piston rings and within the first 500 miles you will have a set of fouled spark plugs and they will rip apart your engine and fix it. Not exactly what I would want on my new car.

Moral of the story... New cars have a lot of problems, you just don't see people talk about it because they don't have to pay for it.

Your rodeo sounds like it still runs fairly decent, try to work out a deal with your mechanic (go independent mechanic, not dealership) and maybe he can work with you a little bit. For 2500 bucks I would fix it and run with it, maybe spend a extra 200 and get it pro detailed (wash, shampoo carpets, etc) so it feels like a car you can drive for another 3 years

SwordGuy

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Re: 21, got some money saved but need a car, tips?
« Reply #12 on: March 29, 2017, 08:55:27 PM »
Let's suppose it's true that new cars are more reliable than used cars.

How long before a new car isn't new?

1 year?   30,000 miles?

Because I'm guessing you'll be driving that "new" car long after you pass either of those milestones. 
So, if you buy a new car, you'll be paying a big premium to drive what will soon be a used car.

It makes a lot more sense to just start with a used car at a much better price.

Frankly, by the time you buy the new engine and timing belt, after the money you've already put into it, you'll have a pretty reliable car for not very much.  And, because you have savings, you can easily handle an occasional repair and rental car bill.