Author Topic: Best way to recover from a poor car purchase decision?  (Read 5300 times)

ck25

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Best way to recover from a poor car purchase decision?
« on: August 22, 2015, 08:33:46 PM »
About 4-5 months ago, before discovering MMM, I bought a new 2016 Mazda 6 with all the features for a total of $35k, including tax. I discovered MMM about 3 months ago, and have since completely re-evaluated how I spend money. My spouse and I have increased our savings rate from around 25% to about 60%. The biggest thing holding us back from saving more is this car payment, which is $900/month. We realized we could be fine with buying a used car that would be far more affordable, but we aren't sure how to even go about selling such a new car.

Here are some numbers associated with our car situation.

Car Payment: $900/month (36 month loan)
Down-Payment: $3,500
Total Purchase Price (including tax): $35,000
Amount Remaining on Loan: $29,000
MSRP For This Car when brand new: $33.5k
Mileage: 4,000 miles

I honestly don't even know how much money the car should be worth right now. It's still in perfect condition, but I know new cars depreciate a lot as soon as you buy them. I can't even find anywhere online that gives the approximate value for a car this new. We feel like most people who would be interested in this car would probably rather just buy a new one for the small extra cost, so it will probably be hard to find a buyer.

What do you guys think? What options are there for selling a 5-month old car? Is it worth selling it at all, or should we just deal with the monthly payments for now and just keep this car forever? At least it will be owned fully in 3 years, and then I can have zero car expenses for a very long time, since I will now be Mustachian and avoid spending money on another car until this one is fully broken down.

RWD

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Re: Best way to recover from a poor car purchase decision?
« Reply #1 on: August 22, 2015, 08:58:29 PM »
Used 2016 Mazda 6s are being listed on AutoTrader for anywhere from $18.4k to $34k. Average listing price is $24,650. Depending on options, trim, mileage, etc will affect where you fall in that range.

You'll be taking a big hit, but you already took that hit when you made the purchase. Selling sooner rather than later will limit the financial impact. Using myself as an example, I purchased a new car at the beginning of 2013 for $30k and in my second year of ownership I estimate I lost $5k to depreciation (comparing KBB values between December 2013 and December 2014).

The car payment is only the most visible part of what makes a newer car expensive to own. Even after three years when your car is paid off it will still be costing you a lot in depreciation and possibly higher insurance.

My recommendation would be to search AutoTrader and Cars.com for cars with similar mileage, options, trim level, etc. to get an idea of what would be a good listing price. Then list your car on those sites and perhaps Craigslist. Once you sell, find a replacement car that you can purchase with cash.

Kriegsspiel

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Re: Best way to recover from a poor car purchase decision?
« Reply #2 on: August 22, 2015, 09:05:17 PM »
Now now, don't give up so easily. The people that are interested in buying your car are the ones who want to get a totally new car off some newb retard. KBB has a price for a 2016 Mazda 6, you just have to put in your zip code to see it.

Sell that motherfucker. Then spend that car payment on rent. You can probably get a car for like $5,000 that gets 40mpg.

But that's just me. I sold a like-new BMW with maybe 6,000 miles when I found MMM. So you're in good company?

lbmustache

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Re: Best way to recover from a poor car purchase decision?
« Reply #3 on: August 22, 2015, 09:10:33 PM »
The bad news is the KBB PRIVATE PARTY price is ~$24k for the car in excellent condition. Which means you're losing about $5k on the car. Two options:

- Pay the car off asap and keep it till the end of time. Possible option but you are paying for all of the depreciation.
- Rip the bandaid off, take the loss of $5k, buy a cheaper car (maybe $10kish max?) and invest/save the rest.

RobinAZ

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Re: Best way to recover from a poor car purchase decision?
« Reply #4 on: August 22, 2015, 10:13:32 PM »
And be happy you aren't us-- $38k 2014 Civic Hybrid (rolled 8 or 9k in neg equity into it), one year old, 60k miles already, worth MAYBE $16k. $623/mo for 72 mos.

We literally almost got divorced over this.  Spent a year getting closer to the same page about $$ and still have a ways to go.

He will drive that car for freaking ever.


lhamo

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Re: Best way to recover from a poor car purchase decision?
« Reply #5 on: August 22, 2015, 10:37:51 PM »
What is the interest rate on your loan?  Because if part of the high payment is due to the interest, then you might be better off using some of your increased savings rate to just pay off the loan quicker, and enjoy the car for at least a few more years.  The biggest amount of depreciation on new cars is in the first year -- part of that is due to the sunk cost of taxes, licensing, etc. that you will never get back.  But once the first year hit is past, you may find that the car depreciates more slowly.  If you take good care of it and don't run up the miles, you may be able to get a decent resale price 2-3 years out, especially compared to what you would get for it now.

That being said, we just today made the decision NOT to go with a more recent used model car.  I'm getting a C-Max for roughly $8k off MSRP.  Choosing that over a Prius v due to the great price.  2012 Prius vs with 40k miles were still going to be more than that, and we decided it wasn't worth it. 

Cassie

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Re: Best way to recover from a poor car purchase decision?
« Reply #6 on: August 23, 2015, 02:54:02 PM »
Since you have a great savings rate & can afford the car I would just pay if off as quick In your situation it doesn't make sense to me to do it.

ender

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Re: Best way to recover from a poor car purchase decision?
« Reply #7 on: August 23, 2015, 03:33:39 PM »
What's your household income?

If you can relatively simply bump your savings to 60% (from 25%) you can probably just as quickly pay the car off. Since you're going to take a huge hit on it (5k) it might just not be worth it.

ck25

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Re: Best way to recover from a poor car purchase decision?
« Reply #8 on: August 23, 2015, 03:59:07 PM »
You'll be taking a big hit, but you already took that hit when you made the purchase. Selling sooner rather than later will limit the financial impact. Using myself as an example, I purchased a new car at the beginning of 2013 for $30k and in my second year of ownership I estimate I lost $5k to depreciation (comparing KBB values between December 2013 and December 2014).

I think this is really important for us to remember - I've been saying this to my husband since we found MMM and I think it finally resonated this weekend, which is why we wanted to post and ask about what our options were.

The car payment is only the most visible part of what makes a newer car expensive to own. Even after three years when your car is paid off it will still be costing you a lot in depreciation and possibly higher insurance.

yep, we were SHOCKED at the insurance cost, but we were pretty naive, since we just took over the insurance payments from the in-laws a few years ago, and that was for a 2007 car with a much lower value.

My recommendation would be to search AutoTrader and Cars.com for cars with similar mileage, options, trim level, etc. to get an idea of what would be a good listing price. Then list your car on those sites and perhaps Craigslist. Once you sell, find a replacement car that you can purchase with cash.

Thanks a bunch for your advice; we will check out those sites.

ck25

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Re: Best way to recover from a poor car purchase decision?
« Reply #9 on: August 23, 2015, 04:01:52 PM »
Now now, don't give up so easily. The people that are interested in buying your car are the ones who want to get a totally new car off some newb retard.
This is funny because we did not even think to do this ourselves 5 months ago. You would have thought the dealership was across the street based on how quickly we ran there.

KBB has a price for a 2016 Mazda 6, you just have to put in your zip code to see it.
Great tip!

But that's just me. I sold a like-new BMW with maybe 6,000 miles when I found MMM. So you're in good company?
This actually made us feel a lot better to know it's been done before :) we've been comforting ourselves with the fact that at least a Mazda 6 is not a BMW.

ck25

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Re: Best way to recover from a poor car purchase decision?
« Reply #10 on: August 23, 2015, 04:07:30 PM »
The bad news is the KBB PRIVATE PARTY price is ~$24k for the car in excellent condition. Which means you're losing about $5k on the car.
Ouch :( that is bad news.

- Pay the car off asap and keep it till the end of time. Possible option but you are paying for all of the depreciation.
- Rip the bandaid off, take the loss of $5k, buy a cheaper car (maybe $10kish max?) and invest/save the rest.

This is our struggle right now. Things are going to be pretty tight financially for us for the next 7 months - one thing not mentioned in the original post is that almost all of our savings we are putting into the down payment for our house. It's new construction and will be finished in Feb/March 2016, and we better have 20% at that point. This might make it pretty hard for us to do anything other than maintain the status quo.

ck25

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Re: Best way to recover from a poor car purchase decision?
« Reply #11 on: August 23, 2015, 04:08:57 PM »
And be happy you aren't us-- $38k 2014 Civic Hybrid (rolled 8 or 9k in neg equity into it), one year old, 60k miles already, worth MAYBE $16k. $623/mo for 72 mos.
eek - that is a hard situation. thanks for posting; glad to know we aren't alone in terms of buyer's remorse

ck25

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Re: Best way to recover from a poor car purchase decision?
« Reply #12 on: August 23, 2015, 04:12:42 PM »
What is the interest rate on your loan?  Because if part of the high payment is due to the interest, then you might be better off using some of your increased savings rate to just pay off the loan quicker, and enjoy the car for at least a few more years. 
The interest rate is 2%. I don't think paying it down more quickly is a feasible option for us at this point, unfortunately. It was not mentioned in the original post, but all of our savings is necessary for putting 20% down on a house that will be purchased in Feb/March (we are already under contract).

The biggest amount of depreciation on new cars is in the first year -- part of that is due to the sunk cost of taxes, licensing, etc. that you will never get back.  But once the first year hit is past, you may find that the car depreciates more slowly.  If you take good care of it and don't run up the miles, you may be able to get a decent resale price 2-3 years out, especially compared to what you would get for it now.
This is a good point, and something we hadn't considered. We were looking at it in terms of either selling it immediately or holding onto it until retirement. DH's commute is only about 10 miles RT so I don't anticipate a lot of mileage on it.

ck25

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Re: Best way to recover from a poor car purchase decision?
« Reply #13 on: August 23, 2015, 04:17:18 PM »
Since you have a great savings rate & can afford the car I would just pay if off as quick In your situation it doesn't make sense to me to do it.

glad to hear that some people think the car is worth sticking with. what is the rationale for paying off the loan more quickly? since our interest rate is only 2%, we hadn't thought it would be worthwhile to pay down sooner.

ck25

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Re: Best way to recover from a poor car purchase decision?
« Reply #14 on: August 23, 2015, 04:25:15 PM »
What's your household income?
Household income is 190k.

If you can relatively simply bump your savings to 60% (from 25%) you can probably just as quickly pay the car off. Since you're going to take a huge hit on it (5k) it might just not be worth it.
the savings rate increase was possible only because we were SO SO ridiculous before. I literally had the attitude that it's no big deal to drop 1k on clothes per month because I could afford it. And DH's attitude was obviously similar given the car purchase :( now that the clothes, vacations, cable TV and whatnot are cut out.. it's time to move onto the harder things. we are not so much worried about the monthly payments or amount spent on interest as we are about the opportunity cost of owning such an expensive luxury item that we don't need.

Cassie

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Re: Best way to recover from a poor car purchase decision?
« Reply #15 on: August 23, 2015, 05:03:18 PM »
I did not realize your interest rate was so low. I would keep it & pay on schedule.

surething22

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Re: Best way to recover from a poor car purchase decision?
« Reply #16 on: August 23, 2015, 05:07:49 PM »
I bought a new '13 Accord Coupe almost 2 years ago and have been reading MMM for a few months as well. I, too, have been ruminating on my poor purchase and whether selling now would be the better idea.

Following your thread to read more replies. Perhaps someone will chime in with feedback on my vehicle woes:

Original purchase price: almost $26,000 (all-in taxes/fees; MSRP was just over $27,000)
Total remaining on loan: $13,333 (0.9% with 37 months left), monthly payments are $355
Mileage: 27,000
Condition: good, some minor wear and tear

Paul der Krake

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Re: Best way to recover from a poor car purchase decision?
« Reply #17 on: August 23, 2015, 06:18:21 PM »
Yeah you bought a ridiculous vehicle, but the good news is that it's still practical and fuel efficient.

Rip the bandaid off once you have your house, it will still be less than one year old, and eat the loss then.

lbmustache

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Re: Best way to recover from a poor car purchase decision?
« Reply #18 on: August 23, 2015, 07:02:23 PM »
I bought a new '13 Accord Coupe almost 2 years ago and have been reading MMM for a few months as well. I, too, have been ruminating on my poor purchase and whether selling now would be the better idea.

Following your thread to read more replies. Perhaps someone will chime in with feedback on my vehicle woes:

Original purchase price: almost $26,000 (all-in taxes/fees; MSRP was just over $27,000)
Total remaining on loan: $13,333 (0.9% with 37 months left), monthly payments are $355
Mileage: 27,000
Condition: good, some minor wear and tear

Honda's tend to hold their value REALLY well. Have you checked KBB? I just did it randomly for an EX-L 13' coupe (the one with leather) in "very good" condition and it said your private party value is $19k!

iluvzbeach

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Re: Best way to recover from a poor car purchase decision?
« Reply #19 on: August 23, 2015, 07:40:47 PM »
I would sell it now. Take it back to the dealer and see what they'll give you for it. You might actually be quite surprised. They'll still be able to get top dollar for it, since it's in such good condition and has very low mileage. Remember the MMM post from just a month or so ago...if you wouldn't buy it now, sell it. It makes zero sense to pay 30K+ over the next three years just because you don't want to deal with the current depreciation. Sell it immediately. Don't look back. You'll be very happy with an inexpensive car that doesn't cost $900/month, especially when you see the impact on your savings rate.

cchrissyy

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Re: Best way to recover from a poor car purchase decision?
« Reply #20 on: August 23, 2015, 07:54:00 PM »
I'm weighing the same thing right now - bought a 2014 car and took all those first year hits (sales tax, instant depreciation) and am now deciding about keeping it for the long run or selling and getting the sort of vehicle I should have picked.  Of course, sunk costs are sunk... but, I'm trying to decide if the depreciation expected in the next couple years is really so bad...

At the time I bought it, my commute situation and walkability/bikeability looked very different. I thought I'd spend much more time in the car than my life actually requires.

Also, my prior 2 cars had died too young (both were 2006 cars with about 80k miles when they required new engines and transmissions costing more than they were worth). So I was swayed by folks urging me this time to look at newer and with a warranty.

RWD

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Re: Best way to recover from a poor car purchase decision?
« Reply #21 on: August 23, 2015, 08:24:31 PM »
What's your household income?
Household income is 190k.

Given this and your low interest rate it certainly won't break the bank to hang onto the car. It will clearly be cheaper to sell, but it's not as much of an emergency as it would be on less income and a higher interest rate. As long as you don't go buying a new car every couple years you'll come out fine.

If you want to pursue the most efficient use of your dollars then selling is still the correct course of action.

lhamo

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Re: Best way to recover from a poor car purchase decision?
« Reply #22 on: August 23, 2015, 11:13:43 PM »
If you want to go hard core post your whole budget situation as a case study -- the MMM crew will be brutal, but will surely find you lots of places where you can cut and divert money to your house downpayment.