Author Topic: Finance or dip into emergency savings?  (Read 2468 times)

FireAnt

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Finance or dip into emergency savings?
« on: October 27, 2018, 06:37:53 PM »
Hi all,

I got into an accident that totaled my car last week - I only had it for 2.5 months! The insurance adjuster estimated significantly more than what I paid for it (a testament to my money saving ways? haha). We found a similar vehicle we are getting on Monday. With the insurance payout applied, we will owe about $8600. I am wondering what would be the best route: 1. Finance it at a low rate (we have excellent credit) and continue to pay $1000/month like we were originally doing or 2.Pay it all in cash and dip into our emergency savings. We currently have $18,500 in savings and I calculated needing $15k in order for us to have a 6 month emergency fund if we were to lose our jobs. Maybe this is a no brainer? I have some anxiety not having a good safety net.

lhamo

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Re: Finance or dip into emergency savings?
« Reply #1 on: October 27, 2018, 07:29:56 PM »
If you dip into your emergency fund, you still have roughly 10k.  Without the car payment, you would get back to 15k in 5 months or less.  I would go with the cash payment -- you might be able to negotiate a further discount, too.

marty998

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Re: Finance or dip into emergency savings?
« Reply #2 on: October 27, 2018, 07:33:43 PM »
Another vote for using the emergency fund. You will save it back pretty quickly.

Thank your past self for planning well for events like this.

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #3 on: October 27, 2018, 07:47:08 PM »
If you dip into your emergency fund, you still have roughly 10k.  Without the car payment, you would get back to 15k in 5 months or less.  I would go with the cash payment -- you might be able to negotiate a further discount, too.

Are you sure about that? I thought they typically want to finance because they get some incentive with banks to do this.

Frankies Girl

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Re: Finance or dip into emergency savings?
« Reply #4 on: October 27, 2018, 08:32:10 PM »
Why are you getting a vehicle that costs almost 10K more than the very generous insurance payout? If it was me, I'd be looking at vehicles that are older, solid workhorses that are going to be roughly the same as the cost I received from insurance. If you're buying/financing a practically new vehicle, your insurance rates and the buy price are going to be MUCH higher.



FireAnt

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Re: Finance or dip into emergency savings?
« Reply #5 on: October 27, 2018, 08:51:45 PM »
Why are you getting a vehicle that costs almost 10K more than the very generous insurance payout? If it was me, I'd be looking at vehicles that are older, solid workhorses that are going to be roughly the same as the cost I received from insurance. If you're buying/financing a practically new vehicle, your insurance rates and the buy price are going to be MUCH higher.

It's only a $3000 more than my previous car. I spent 4 months researching the vehicle and negotiating to get the price from the first vehicle and I sadly do not have that luxury this time. I was paying aggressively on the vehicle, and they had to pay off the loan prior to giving me the remainder of the vehicle. I got $5000 more from the insurance than what I paid for the vehicle as well which was a bonus.

ETA: It is the same used vehicle, same year. Different mileage and features.
« Last Edit: October 27, 2018, 08:54:14 PM by italianant »

Telecaster

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Re: Finance or dip into emergency savings?
« Reply #6 on: October 27, 2018, 10:47:03 PM »
I think emergency fund.  Totaling a car is extremely rare, unexpected, and expensive.   This seems to be the exact reason for an emergency fund. 

DoNorth

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Re: Finance or dip into emergency savings?
« Reply #7 on: October 28, 2018, 11:40:24 AM »
another option if you're not averse.  Use a 0% CC convenience check offer from Chase Slate or something with little to no transaction fee, pay for the car with this, set up auto pay to have the balance at 0 by the time the introductory rate expires and keep the emergency fund as is.

DavidDoes

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Re: Finance or dip into emergency savings?
« Reply #8 on: October 28, 2018, 12:14:30 PM »
Why not get a cheaper vehicle? Spending over $10,000 for a vehicle seems pointless.

Don't carry a loan on any consumer item, ever.

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #9 on: October 28, 2018, 06:02:01 PM »
Why not get a cheaper vehicle? Spending over $10,000 for a vehicle seems pointless.

Don't carry a loan on any consumer item, ever.

I understand where you're coming from and I know there are different philosophies about this. I personally prefer to get a newer car (still used) with the plan to run it into the ground. I would rather not get anything too old due to the repairs they often require. If I were a mechanic or had a good family/friend connection to one, then I definitely would go that route.

RWD

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Re: Finance or dip into emergency savings?
« Reply #10 on: October 28, 2018, 08:36:14 PM »
We financed our last two vehicles. The interest rates were just too good to pass up.

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #11 on: October 29, 2018, 07:15:25 AM »
We financed our last two vehicles. The interest rates were just too good to pass up.

What were the rates?

RWD

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Re: Finance or dip into emergency savings?
« Reply #12 on: October 29, 2018, 07:50:30 AM »
We financed our last two vehicles. The interest rates were just too good to pass up.

What were the rates?

2.9% (in 2013) and 1.69% (earlier this year).

socaso

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Re: Finance or dip into emergency savings?
« Reply #13 on: October 30, 2018, 02:19:07 PM »
Emergency fund. Even if the interest rates are good it's still money you will pay out that you didn't have to since you have the money in savings.

erutio

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Re: Finance or dip into emergency savings?
« Reply #14 on: October 30, 2018, 02:23:41 PM »
Why not get a cheaper vehicle? Spending over $10,000 for a vehicle seems pointless.

Don't carry a loan on any consumer item, ever.

I understand where you're coming from and I know there are different philosophies about this.

Not around here.

RWD

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Re: Finance or dip into emergency savings?
« Reply #15 on: October 30, 2018, 02:39:50 PM »
Why not get a cheaper vehicle? Spending over $10,000 for a vehicle seems pointless.

Don't carry a loan on any consumer item, ever.

I understand where you're coming from and I know there are different philosophies about this.

Not around here.

This is sarcasm, right?

MDM

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Re: Finance or dip into emergency savings?
« Reply #16 on: October 30, 2018, 02:45:23 PM »
Don't carry a loan on any consumer item, ever.
Given the decision to purchase, the best terms of payment depend on alternate uses of the money.  If one expects to earn a higher interest rate than what is due on the loan, go ahead and take the loan.

erutio

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Re: Finance or dip into emergency savings?
« Reply #17 on: October 30, 2018, 02:49:23 PM »
Why not get a cheaper vehicle? Spending over $10,000 for a vehicle seems pointless.

Don't carry a loan on any consumer item, ever.

I understand where you're coming from and I know there are different philosophies about this.

Not around here.

This is sarcasm, right?

I typed something up, then erased it because I went back through the thread.

The math doesn't add up.

You got a full insurance payout, PLUS $5k more than what you paid for it 2.5 months ago, but would still need an additional 8.5k for the new (to you) vehicle, yet the difference in purchase price between the 2 vehicles is $3k?

« Last Edit: October 30, 2018, 02:51:03 PM by erutio »

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #18 on: October 30, 2018, 03:28:12 PM »
Quote
I typed something up, then erased it because I went back through the thread.

The math doesn't add up.

You got a full insurance payout, PLUS $5k more than what you paid for it 2.5 months ago, but would still need an additional 8.5k for the new (to you) vehicle, yet the difference in purchase price between the 2 vehicles is $3k?

I wasn't planning on laying out all the costs, but if you would like to know:
First vehicle: $19,500 plus taxes and fees
insurance pay out: paid off $10,600 to loan, check written for approx. $15,100
this vehicle: $21000 plus taxes and fees
***I will say that I was mistaken initially thinking it was 19500 OTD but it did not include taxes and fees***


We went in with the intention of paying it all off, but we did get 0.99% interest rate so we decided to put the insurance payment down and fiance that remainder so we could invest the money we were putting towards it to our 401K and max out our HSA. (ETA: the $1000 payments towards the vehicle)
« Last Edit: October 30, 2018, 05:08:34 PM by italianant »

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #19 on: October 30, 2018, 03:41:06 PM »
Why not get a cheaper vehicle? Spending over $10,000 for a vehicle seems pointless.

Don't carry a loan on any consumer item, ever.

I understand where you're coming from and I know there are different philosophies about this.

Not around here.

I also am not sure if you're being sarcastic or not. I've seen arguments for both. There was an article posted about the benefits of buying a vehicle new on these forums (A Subaru Forester in fact, which is the vehicle in question).

Laserjet3051

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Re: Finance or dip into emergency savings?
« Reply #20 on: October 30, 2018, 04:21:41 PM »
If you use your EF to purchase the car, how certain are you that you will not have an emergency in the months/years following that it will take you to replace your withdrawal?

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #21 on: October 30, 2018, 05:09:27 PM »
If you use your EF to purchase the car, how certain are you that you will not have an emergency in the months/years following that it will take you to replace your withdrawal?

I'll never be certain when I would get into an emergency.

RWD

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Re: Finance or dip into emergency savings?
« Reply #22 on: October 31, 2018, 07:45:59 AM »
We went in with the intention of paying it all off, but we did get 0.99% interest rate so we decided to put the insurance payment down and fiance that remainder so we could invest the money we were putting towards it to our 401K and max out our HSA. (ETA: the $1000 payments towards the vehicle)

You would have to be pretty silly not to take a 0.99% finance offer. You can even beat that by "investing" in a savings account!

soccerluvof4

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Re: Finance or dip into emergency savings?
« Reply #23 on: October 31, 2018, 08:42:06 AM »
Get what you can afford with what you have from Safety fund.

MrOnyx

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Re: Finance or dip into emergency savings?
« Reply #24 on: October 31, 2018, 09:03:52 AM »
I'd like to echo a statement above, which is that this is exactly what an emergency fund is for. Don't build an emergency fund then not use it when faced with an emergency would be my argument.

As others have said, The money you save from not having those extra monthly payments can go right back into replenishing your emergency fund, which could be done quite quickly in that regard. It can be done even faster if you switch gears and fully commit to replenishing your emergency fund before continuing to save/invest for FI or [insert your current financial goal/endeavour here].

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #25 on: October 31, 2018, 09:06:22 AM »
Quote
You would have to be pretty silly not to take a 0.99% finance offer. You can even beat that by "investing" in a savings account!

Per previous responses, it sounds like others do not agree with this sentiment.

ketchup

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Re: Finance or dip into emergency savings?
« Reply #26 on: October 31, 2018, 09:09:00 AM »
If they offer a silly-low interest rate, go with that over cash and pay it off over the full term, assuming requiring full coverage insurance doesn't inflate your costs too much (or you'd get that anyway).  The "don't ever have debt on a depreciating asset" crowd has a point from a consumerism standpoint, but you're smart and money is fungible.

The decision to spend $10,000+ on a car, that's a separate conversation.  Personally, I've never spent more than $2000 on a car.

Goldielocks

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Re: Finance or dip into emergency savings?
« Reply #27 on: October 31, 2018, 10:03:17 AM »
That's a rather expensive car that you are buying...   the sort of car that people that have no debt (other than a loan to finance investments**) drive.

I would pay it from the emergency fund, car accidents are what emergency funds are for. --> those "normal" but "unexpected" expensive events that impact your ability to make money / get to work / live in a home.

**The only reason people on the forum suggest taking a loan is because of very low rates and you invest the difference...   I do not get the sense that was the purpose of your last loan.

RWD

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Re: Finance or dip into emergency savings?
« Reply #28 on: October 31, 2018, 10:14:31 AM »
You would have to be pretty silly not to take a 0.99% finance offer. You can even beat that by "investing" in a savings account!

Per previous responses, it sounds like others do not agree with this sentiment.

I will add the caveat that you should not use financing as an excuse to purchase more car than you would otherwise buy with cash. And there are other minor considerations like insurance coverage requirements.

MrOnyx

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Re: Finance or dip into emergency savings?
« Reply #29 on: October 31, 2018, 10:34:02 AM »
I did mean to mention something about the cost in my previous comment... that's a lot of car you're buying! Or at least, I hope it is, at that price.

RWD made a sensible comment - if you're thinking of financing just because of the price of the car, consider buying a less expensive car with cash instead!

I understand where you're coming from with the philosophy of buying relatively new and then running it into the ground, but you can buy a 'relatively new' car for half the price you laid out previously. By my definition (and that of many other users here), you could even spend a quarter of that and get a car that's in great condition. Just something to consider before spending more money than you have to on something that won't return its monetary value to you.

RWD

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Re: Finance or dip into emergency savings?
« Reply #30 on: October 31, 2018, 02:21:54 PM »
RWD made a sensible comment
A big surprise, for sure.

FireAnt

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Re: Finance or dip into emergency savings?
« Reply #31 on: October 31, 2018, 03:34:24 PM »
Hi all- thanks for your input on my question. In terms of my decision to spend that much on a vehicle, I understand and appreciate your opinion. It is one of those things that is a big deal to me for various reasons and I am comfortable with that decision personally. I don't feel that I am putting myself in further debt to get a nicer vehicle. Again, I can pay it off with dipping into EF that the majority have supported that it is a qualifying expense. I guess you can consider me a FIRE "light" if that is a thing. I may fall more into Ramit Sethi's philosophy of purchasing/budgeting consciously for it. On a related note, you are welcome to look at my Case Study and give me input in that thread regarding my finances as that is the reason I wrote it up.

https://forum.mrmoneymustache.com/case-studies/case-study-social-worker-that-is-bad-at-math-but-wants-to-fire/