Author Topic: First post! Clown Car Help!!  (Read 5317 times)

Burninator

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First post! Clown Car Help!!
« on: January 14, 2014, 08:33:01 PM »
Howdy Mustachians -

I've recently seen the light, so to speek. But my mustache is but a wisp. I need some sage vehicle advice. Currently, my family of 3 owns one car, a necessity for my work. The car is a 2013 Jetta Sportwagen TDI that we purchased one year ago, with a zero percent interest loan. We owe approximately 20,000 on the car, and the Blue book value is around 21,000. I'm trying to convince my wife we should sell the VW and buy less of a clown car in the $6-10,000 range (Scion Xa or Honda Fit). We would be paying cash for the new used car. Am I correct that purchasing a cheaper car would be a much better financial decision? We currently drive approximately 8000 miles a year.

Assuming we can get 20,000 for the VW, and worse case scenario pay 10,000 for something else I see the savings as:

10,000 + difference in full coverage insururance vs liability only.

The only hurdles I see are my wife, who loves the car, and the difficulty of selling such a new car.

What do you guys think?

Thanks

Burninator

Bruised_Pepper

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Re: First post! Clown Car Help!!
« Reply #1 on: January 14, 2014, 08:40:36 PM »
Definitely sell.  I think you've got a handle on it. 

Judging by the other "what to do with my car" posts around here, the fact that you have positive equity in a car that cost over $20,000 is a miracle.

Home Stretch

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Re: First post! Clown Car Help!!
« Reply #2 on: January 14, 2014, 08:57:33 PM »
I am going through a similar decision making process right now (see the only thread I've started).

Every month you make a car payment is another month of throwing away more cash and sinking more money into a car instead of making that money work for you as an investment.

I would go as far as to say that a viable strategy would be to sell the Jetta, get something in the 10k range, and then on top of that use a sub-3% credit union car loan to finance the used car purchase. That will keep as much cash as possible available for investment, which will almost certainly earn you more than 3%, especially with the way the market has been correcting lately.

Also, selling a new-ish car is crazy easy. Put that thing on craigslist and you can flip it in a week. People love nothing more than getting a practically new car that someone else has already taken the initial depreciation hit on (no offense).
« Last Edit: January 14, 2014, 09:01:17 PM by raggedtoad »

Burninator

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Re: First post! Clown Car Help!!
« Reply #3 on: January 14, 2014, 09:17:16 PM »
Thanks for the thoughtful and timely replies. Raggedtoad, I like your strategy of financing the used car with a low interest loan, and using the capital to invest. A caveat may be that most banks would require full insurance coverage on financed vehicles. The cost of full insurance and interest on the loan may leave me with less mustache than if I just buy it outright.

_JT

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Re: First post! Clown Car Help!!
« Reply #4 on: January 14, 2014, 09:36:23 PM »
Keep in mind that it's not just the flat 10k you're saving + insurance. Because you'll know how an extra 10k of capital you can invest/pay down debt, which can end up (with interest) turning out to be 2-3x that amount over 5 or so years.

Home Stretch

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Re: First post! Clown Car Help!!
« Reply #5 on: January 15, 2014, 11:53:50 AM »
Don't forget about the magic of compound interest! That $10,000 of cold hard cash that the bank will let you borrow for 5 years at 2.7% (no joke, just looked it up - if you have a decent credit score, a used car loan is 2.7%).

That $10,000 loan will ONLY cost you $700 over five years! The $10,000 that you have intelligently invested in a mutual fund that returns the historical average of 7% (last year was closer to 20%) will earn you somewhere around $4,100 at the low end!

$4,100 - $700 = $3,400 of easy investment gains.

As far as the insurance cost... I'm not sure if this is mustachian or not, but I think a $10,000 car is still worthy of comprehensive insurance regardless of whether the bank requires it. If you crash into a tree it would sure suck to be out $10k because you were cheap and only bought liability coverage. If you buy a $4,000 beater, I would go the liability-only route.

Regardless, the cost difference between liability and comprehensive coverage for 5 years is still probably less than $3,400.

Your call!

luigi49

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Re: First post! Clown Car Help!!
« Reply #6 on: January 15, 2014, 12:18:55 PM »
Just wonder why its called a clown car?  Where did this originate?

Spork

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Re: First post! Clown Car Help!!
« Reply #7 on: January 15, 2014, 12:22:25 PM »
As far as the insurance cost... I'm not sure if this is mustachian or not, but I think a $10,000 car is still worthy of comprehensive insurance regardless of whether the bank requires it. If you crash into a tree it would sure suck to be out $10k because you were cheap and only bought liability coverage. If you buy a $4,000 beater, I would go the liability-only route.

My rules for buying a car:
1) you can afford to pay cash.  (if you finagle a deal where you leverage it for more money, no foul).
2) you can afford to drive it 1 mile, crash it into a tree and pay cash again for a replacement just like it
3) after applying rules 1 and 2, the amount of money you spend should be a slice of your total stash small enough that you don't throw up on your own shoes in disgust.

I'm cool with not insuring a $10k car with collision as long as these rules are followed.  Hell, I'm cool with someone buying an exotic car as long as rule 3 applies. 

...but I think if you can't pass all 3 rules, the end result is: you really can't afford the car.

Eric

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Re: First post! Clown Car Help!!
« Reply #8 on: January 15, 2014, 12:44:35 PM »
Am I really reading advice that states you should borrow money in order to invest it?  Shit.  I was kind of hoping that the markets would keep their upward climb going, but when I see stuff like this, it makes me feel like it's about to be the dot com bust all over again.  You know, back when even your hair stylist was talking about how awesome the stock market was?

Burninator -- You need it for work, but only drive 8K miles a year?  Something doesn't add up there to me.  With that low of mileage, plus a bike, you may be able to get by with a car for 1/2 or 2/3 that much.

Your original logic is correct.  A cheaper car will allow you more cash and cash flow to invest.  And OVER THE LONG TERM, the markets are where you want to be.  Trying to bet on a return of greater than a loan % over the short term is a risky play, and one just as likely to cost you money as make you money.
« Last Edit: January 15, 2014, 12:47:08 PM by Eric »

Eric

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Re: First post! Clown Car Help!!
« Reply #9 on: January 15, 2014, 12:45:29 PM »

Burninator

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Re: First post! Clown Car Help!!
« Reply #10 on: January 15, 2014, 02:10:58 PM »
Eric -

You are correct, it doesn't fully add up. I must have a car so that I can move my firefighting gear from station to station within 30 minutes. The average travel time by car between our farthest two stations is 30 minutes. Hence my absolute need for a car. That being said, do I need a 10,000 dollar car to accomplish this? The answer is no. I could do with a much cheaper car. 10,000 seems to be about average for the two models I'm searching for (Honda Fit and Toyota Matrix). I chose these cars based on long term reliability and utility. My wife runs a wedding cake business out of our home and needs the ability to haul relatively tall wedding cakes. I think a hatch or wagon best fills these needs. I've owned several cars in the sub 4000 dollar range and the increased maintenance costs and downtime due to repairs is not worth saving a few thousand to me. If I find a Fit, Matrix, or Vibe with under 100,000 miles for less than 10,000 I'll buy it. Ideally, I would like to spend 6-8000. I just threw out the 10,000 dollar figure for as a worst case scenario for calculating savings.


luigi49

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Re: First post! Clown Car Help!!
« Reply #11 on: January 15, 2014, 07:59:22 PM »

greaper007

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Re: First post! Clown Car Help!!
« Reply #12 on: January 15, 2014, 09:43:23 PM »
I recently bought a 2000 Toyota Sienna with 139,000 miles for $3800.   Sure the gas mileage isn't great, but I need it so infrequently that it doesn't really matter to me.    Here's a couple pluses with a car like this.   It's a Toyota so it runs great, I expect at least another 60,000 miles out of it (or about 10 years).    It has tons of room for stuff like fire gear, camping trips or the kid's bicycles.    Also, my insurance is only $30 a month because it's so old. 

You could buy a low mpg car like this, and a 10+ year old honda civic for less than $10,000, and you'll probably still be driving them both in 10 years, and you'll take a much lower hit on depreciation and insurance costs.   I like to employ a multi-car strategy when driving old cars.    That way if one of them breaks down you can drive the other one to work.

Also, as much as I like VWs (my other car is an 03 golf), they're a nightmare for mx as they age.   I do all my own mx, drive a normally aspirated 2.0, and I'm still generally putting about $300-$400 a year into the car (this year it was struts, a broken water pump and a timing belt, right around $400).    Just wait till the high pressure fuel pump on the TDI blows, that's a multi-thousand dollar part.   

Good luck with whatever decision you make.

Anatidae V

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Re: First post! Clown Car Help!!
« Reply #13 on: January 15, 2014, 11:10:32 PM »
Just a query - what is MX?

greaper007

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Re: First post! Clown Car Help!!
« Reply #14 on: January 16, 2014, 07:15:59 AM »
Sorry, old habits die hard.   MX is maintenance in the aviation world.