Author Topic: Borrow money to buy a car?  (Read 8479 times)

velocistar237

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Borrow money to buy a car?
« on: March 21, 2012, 08:45:23 AM »
Rule #1: You NEVER, EVER borrow money to buy a car

Bear with me here.

We are expecting our third child in August. Right now, my wife has to push a double stroller up a steep hill to get to many of the places she goes. She is fine with delaying our car purchase, but I expect she'll want a car within the next two or three months.

We are taking a few trips next month, and it doesn't make sense to me to rent a car right before buying one.

I just payed down some student debt, and now our checking account is a bit low. I don't want to take money from my stash for this purchase.

We have the option of taking out a loan at 2.5% from our credit union, with no processing fees or pre-payment penalties. It's essentially free money.

So, we could borrow, or we could wait and save up. Am I making excuses? Should I just wait?

shedinator

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Re: Borrow money to buy a car?
« Reply #1 on: March 21, 2012, 09:16:12 AM »
If you do it, don't buy in the city. Even the used car dealers are fairly marked up. We got our scion xA @ Bernardi Honda for less than blue book value (I may have haggled a bit). Also, Pepperell Auto Sales has some really sweet deals. Specifically, this prius, as well as this under 10,000 section.

wilk916

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Re: Borrow money to buy a car?
« Reply #2 on: March 21, 2012, 09:24:59 AM »
How long would it take you to save up?  1 month?  1 year?  10 years?

How expensive is the car?

I think answering these questions will help you.  If, for example, the answer is 1 year and you are spending $10k on the car then it will cost you approximately $250 ($10k * 1yr * 2.5% APR) to buy now rather than wait it out (assuming you accelerate payments on the loan to pay it off in the 1 year time span).

I'm guessing if you are struggling with your current car situation then the $250 cost would be worth it.

Good luck.

The Money Monk

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Re: Borrow money to buy a car?
« Reply #3 on: March 21, 2012, 09:31:02 AM »
Rule #1: You NEVER, EVER borrow money to buy a car

Bear with me here.

We are expecting our third child in August. Right now, my wife has to push a double stroller up a steep hill to get to many of the places she goes. She is fine with delaying our car purchase, but I expect she'll want a car within the next two or three months.

We are taking a few trips next month, and it doesn't make sense to me to rent a car right before buying one.

I just payed down some student debt, and now our checking account is a bit low. I don't want to take money from my stash for this purchase.

We have the option of taking out a loan at 2.5% from our credit union, with no processing fees or pre-payment penalties. It's essentially free money.

So, we could borrow, or we could wait and save up. Am I making excuses? Should I just wait?

While it may be painful to take money from the stash, I don't think it's a good idea to borrow money for a quickly depreciating consumer good when you have the money to pay for it (or ever, for that matter).


shedinator

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Re: Borrow money to buy a car?
« Reply #4 on: March 21, 2012, 09:43:21 AM »
as I re-read your post, it looks like you're more or less in a situation of your own making. You have the money, either in checking or in your stache, or a combination of the two. I guess you need to look at this in the same way others might evaluate whether to use a HELOC to purchase something- is borrowing the money, over the long haul, going to increase or decrease your net profits? at 2.5% interest, I'm inclined to assume that you would see a net profit from the situation, especially since the loan's interest doesn't even pace inflation. But then, my guess is you could cobble together $3-4k in a fairly short period of time, which is enough to pay cash for a decent car, even in the Greater Boston Area.

Taylor

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Re: Borrow money to buy a car?
« Reply #5 on: March 21, 2012, 02:16:37 PM »
Although I think it's a good idea to pay for large purchases in cash if you can, I personally did borrow money to buy my new (used) car. I was trading from an old Ford Escape to a 2007 Prius with only 32k in miles. With the trade-in, plus the 6K I put down, and 1.9% financing o nthe rest, my monthly payment is around $150. When I subtract the money that I'm saving in gas alone (not even counting the maintainance on the old SUV), the net payment is around $75. It was worth it for me.

velocistar237

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Re: Borrow money to buy a car?
« Reply #6 on: March 28, 2012, 09:42:39 AM »
If you do it, don't buy in the city. Even the used car dealers are fairly marked up. We got our scion xA @ Bernardi Honda for less than blue book value (I may have haggled a bit). Also, Pepperell Auto Sales has some really sweet deals. Specifically, this prius, as well as this under 10,000 section.

Thanks for the tips. I've seen a few decent listings on Craigslist in the Natick area, but that might not be far out enough. Pepperell seems a bit far to buy a car, but I suppose driving three hours to save $500 would be worth it.

How long would it take you to save up?  1 month?  1 year?  10 years?

How expensive is the car?

It would take less than a year. The car would be about $7000 whether I borrow or not.

as I re-read your post, it looks like you're more or less in a situation of your own making.

It's true, I should have seen this coming. I paid down some debt, and then a few annual bills came due. We're not in a pinch at all really, and we can get by without a car for a little while longer, though it will get harder and harder for my wife.

Come to think of it, since 2.5% is a lower rate than any of my other loans (I like collecting loans; I have four), it doesn't really make sense not to take out this car loan and pay the minimum payment on it. If I were debating whether to buy the car outright or borrow and invest, there would be some small uncertainty, but if I take out a 2.5% loan to pay down a 4.5% loan, then I'm guaranteed to come out ahead.

Ben

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Re: Borrow money to buy a car?
« Reply #7 on: March 28, 2012, 12:21:48 PM »
Velocistar, I assume you have already established a pattern of saving (or debt paydown) that you feel confident is going to continue? How long have you and your wife been spending less than you make?

If you've been on the F.I. train for awhile, then the numbers seem to line up and it makes sense (mathematically) to incur this debt. If you've only been making more than you spend for a few months, or especially if you will be losing income due to maternity leave, I would be very cautious going down this road.

shedinator

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Re: Borrow money to buy a car?
« Reply #8 on: March 28, 2012, 11:18:12 PM »
Thanks for the tips. I've seen a few decent listings on Craigslist in the Natick area, but that might not be far out enough. Pepperell seems a bit far to buy a car, but I suppose driving three hours to save $500 would be worth it.

Natick's not too bad. West of Newton or South of Quincy would be my recommended area.

James

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Re: Borrow money to buy a car?
« Reply #9 on: March 29, 2012, 11:48:55 AM »
Velocistar, I assume you have already established a pattern of saving (or debt paydown) that you feel confident is going to continue? How long have you and your wife been spending less than you make?

If you've been on the F.I. train for awhile, then the numbers seem to line up and it makes sense (mathematically) to incur this debt. If you've only been making more than you spend for a few months, or especially if you will be losing income due to maternity leave, I would be very cautious going down this road.

+1

velocistar237

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Re: Borrow money to buy a car?
« Reply #10 on: April 05, 2012, 12:15:14 PM »
I think we're in good shape. In the past 8 years, we've gained about $250K, mostly on one income. Not having had a car for so long has been a major contributor, and I'll be sad to see that go away. I would like to go car-free again after our youngest is able to walk decent distances, but I'm afraid this change might last a decade or two.

velocistar237

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Re: Borrow money to buy a car?
« Reply #11 on: April 20, 2012, 09:15:07 AM »
Okay, I did it. I borrowed $8K at 2.49% to buy a car.

It's a 2006 Mazda 5 with 100K miles. It has a third row of seats, so it will fit our three kids in car seats with no hassle. The dealer listed the car at $1000 below the KBB private-party price for its condition ("Good"). It has a manual transmission, and it had been on the lot for a few months. The dealer replaced the clutch. Because the price was lower than 80% of the bank's assessed value for the car, they didn't require a down payment. I debated holding out to buy a Matrix for its lower price and better gas mileage, but in the end, we won't drive much, and the slightly bigger space would be useful with three kids.

The dealer is within walking distance of my house. I picked the car up yesterday, loaded my bike in the back, drove to get a parking permit, and drove it home and parked. This morning, I got up and walked to the grocery store with my granny cart, and then I rode my bicycle to work.

I bought a car. Sad week.

James

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Re: Borrow money to buy a car?
« Reply #12 on: April 20, 2012, 09:35:17 AM »
Glad it worked out, we would love to be able to drop down to one car...  so don't get too down about having to get one.  :)