Author Topic: Help! Car Crisis!  (Read 6408 times)

mcdonasm

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Help! Car Crisis!
« on: August 19, 2014, 02:08:49 PM »
My name is Steven and I am 23 year old clean upper lipped software engineer with a strong desire to grow a full burly money mustache. I am 2 years our of college and still paying down my student loans. I have been exhibiting a lot of mustachian behaviors before I heard of MMM and I thought I was doing pretty well for myself.. But then I got punched in the face next door to Mister M$ney. I am amazed at how many ways I have been throwing money away these last 2 years due to weakness. I am actively making mustachian lifestyle changes and have lots of awesome room to improve my physic, but I realized that I made a grave mistake and I am not sure how to go about correcting it.

The car I was driving through HS and College (which we got for $0.01 from a family friend) broke down for good on me 1 year after college graduation. I landed a Web Dev role at Amazon with a significant pay raise. I had a tough case of excusitis and the long and the short of it was, I bought a new car, on credit....

I bought a 2013 Mazda 3 with < 50 miles on it and most of the bells and whistles available because the one I really wanted, blind spot monitoring, required that I get nearly all of them. I put a 4K down payment on it, the total of the stash I had been saving up for a car, and landed a 5-year 0% interest loan from Chase. Well a year and a half later I owe just about as much as it is worth, when sold to a private party, and am paying a whopping $620 a month on the car and insurance.

I have realized that I don't have a real need for a car, especially one as fancy and expensive as the one I bought, I now have no mustache, other than a few retirement plans which I pay max into, probably can't sell my car for what I owe on it, and desperately want to cut out this luxury expense from my life.

Are there any helpful mustachians out there that can give some advice on how best to go about selling a car which is likely under the loan for? Also would it be the best idea of cut my losses on the car right now (nearly $10K 1/3 of the total cost).

I am not paying interest on the car, and I would be able to own it for easily 20+ years considering how little I do drive it.. But w/o it I would be able to put $510 dollars towards some peach fuzz under my lip each month (the cost minus a $90/month buss pass I would be able to justify w/o the cost of the car).

I think that it would be worth the $10K loss to save another $20K that I still owe on the car because in the 3.5 years I still owe on the loan, the additional stash of $510 adds up to more than I owe on the car w/o any magical interest compounding taken into consideration.

That money saved up would be able to be properly used to buy a reasonable car in the future when I have a greater need for one, family and such, as a cash purchase.

But I am overwhelmed at the idea of trying to sell it... Can a mustache please help me become less overwhelmed by the task?
« Last Edit: August 19, 2014, 03:22:54 PM by mcdonasm »

RWD

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Re: Help! Car Crisis!
« Reply #1 on: August 19, 2014, 02:27:59 PM »
0% interest and you've already taken the biggest depreciation hit? Unless you're planning on going without a car entirely or it's keeping you from meeting your savings goals I would hang on to it. The Mazda 3 (or at least most versions of it) has fairly reasonable running costs. Keep in mind that your payments are not just disappearing - all of it is going toward principal. So your actual cost to run the vehicle from here on out is depreciation (~$1k/year right now and will only get better), insurance, gas, and maintenance not covered by warranty.

So I'd estimate your actual cost is maybe $250-300/month? Compared to a $90/month bus pass I'd pick the extra freedom and free time, but that's just me.

sandandsun

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Re: Help! Car Crisis!
« Reply #2 on: August 19, 2014, 02:44:21 PM »

I think that it would be worth the $10K loss to save another $20K that I still owe on the car because in the 3.5 years I still owe on the lease, the additional stash of $510 adds up to more than I owe on the car w/o any magical interest compounding taken into consideration.

To be clear, is it a loan or a lease? if lease, I think you are stuck... If loan, you have some options- personally I would concentrate on knocking the loan out asap and then, when you have the title in hand, you will be in a better position to sell... the car will also be worth less and you will have a bigger pool of potential buyers- not many people interested in buying used what they could get new for just a little more...

mcdonasm

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Re: Help! Car Crisis!
« Reply #3 on: August 19, 2014, 02:58:44 PM »
That was a typo, it is a loan. I will own the title in another 3.5 years, $20K.

bacchi

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Re: Help! Car Crisis!
« Reply #4 on: August 19, 2014, 04:14:04 PM »
Sell it, join car2go (you're in Seattle, right?), and get a bus pass. Get a rental car for trips out of town.

If you decide you truly need a car, there will always be plenty.

okashira

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Re: Help! Car Crisis!
« Reply #5 on: August 19, 2014, 04:39:14 PM »
I'd sell it. You don't need a $20,000 car sitting around depreciating and racking up insurance costs.
I didn't say you can't get another, but a $2000 clunker should do you just fine to get your freedom since you don't need one anyway.

hexdexorex

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Re: Help! Car Crisis!
« Reply #6 on: August 19, 2014, 05:09:30 PM »
If you live in Seattle you can easily do without a car or get a junker. Sucks that you you paid sales tax on it etc...

RetiredAt63

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Re: Help! Car Crisis!
« Reply #7 on: August 20, 2014, 06:29:33 AM »
Um, you pay sales tax on a used car too.  Here you either pay it at the dealer's, or you pay it when you transfer the registration if you buy privately. It would just be less because the sale price is less.

Sucks that you you paid sales tax on it etc...

RWD

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Re: Help! Car Crisis!
« Reply #8 on: August 20, 2014, 08:21:53 AM »
Um, you pay sales tax on a used car too.  Here you either pay it at the dealer's, or you pay it when you transfer the registration if you buy privately. It would just be less because the sale price is less.

I think it depends on the state. Where I live you pay sales tax and a use tax (VLT) if you buy at a used car dealer, but you only pay the VLT if you buy private party.

mcdonasm

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Re: Help! Car Crisis!
« Reply #9 on: August 20, 2014, 11:09:26 AM »
I think that selling it would make sense and it would actually give me a greater sense of freedom because I would be better able to reach my savings goals without the $510 a month I would be paying, but it is a daunting task that I am a bit overwhelmed by.

To sell a car which one still owes money on requires 3-4 parties involvement (the seller, the seller's bank which holds the title, the buyer, maybe the buyers bank which he/she will be getting a loan from), also included into the mix is the local governing body which will no doubt be taking it's share of the sale in taxes/fees. Then there is the passing of the registration of the license plate to deal with and what ever taxes/fees might be associated with that. How does the coordination of all those parties work out? Also if I am under on the loan (owe more than I can sell the car for), I will have to have the additional funds to pay off the rest in cash. I currently have no money saved up for this. Also this adds additional complexity to the situation and seems to clutter the whole ordeal even more.

There are two ways I could go about it as far as I see. The both start with me continuing on the Mustache route and cutting down on my expenses as much as possible.

1) I could find someone to buy it as soon as possible, get a personal line of credit to cover what ever cost is left, if any, and pay that off as soon as possible. This initially sounds bad because the obvious, a personal line of credit with interest, to cover the left over cost of selling a car which had an interest free loan. But in this route I would be able to get rid of the $160/month in insurance costs, which seems very likely to cover the cost of the interest payed on the line of credit and then some.

2) Keep the car for a while longer, paying it down, interest free but with $160/mo in insurance, until it is worth more than I owe and then selling it. The problem with this is it puts me further back in my savings goals and I think this option would take longer and possibly more money from me due to the insurance payments.
« Last Edit: August 20, 2014, 11:11:07 AM by mcdonasm »

RWD

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Re: Help! Car Crisis!
« Reply #10 on: August 20, 2014, 11:15:18 AM »
Your insurance sounds a little high, you might want to shop around and see if you can get a better rate even if you only keep the car for a few more months or so. I've never paid more than about $110/month on insurance for any car since I bought my first one when I was 18.

mcdonasm

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Re: Help! Car Crisis!
« Reply #11 on: August 20, 2014, 11:21:45 AM »
I have shopped around, and in fact changed my insurance 3 times since I bought it to find a lower cost insurance. My record is spotless, but I am a 23 year old male with comprehensive coverage on a $30K car. I always keep my eyes out and have regularly tried to find a lower rate, but have found the lowest I could so far.

RWD

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Re: Help! Car Crisis!
« Reply #12 on: August 20, 2014, 11:25:21 AM »
I suppose that's not too far out of line considering you're required to carry more insurance when you take out a loan for you vehicle.

mcdonasm

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Re: Help! Car Crisis!
« Reply #13 on: August 20, 2014, 11:29:24 AM »
If I didn't have comprehensive coverage, it would be about half the cost. But I am required to get comprehensive coverage due to the bank owning the title.

usmarine1975

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Re: Help! Car Crisis!
« Reply #14 on: August 20, 2014, 11:39:39 AM »
I am guessing you have Collision as well most bank's require it along with Comp.  In regards to saving money on your Insurance.  Slow down and do not switch companies so often.  That actually affects your ability to get a better rate.  Yea I sold insurance for a while and was surprised by the different things that effect your insurance cost.  Even choosing the wrong company can effect your premium.  Basically companies that will insure anyone do not help your ability to lower your premium.  If you are with a company that is pickier in who they insure it helps your premium.  Credit score effects it but it's not based on your credit score #.  Insurance companies have their own rating schedule.  And your History greatly impacts it as does the type of car you have and yes a Red sports car will increase your cost as will a sports car any color.

Check with your company to see if they have a discounting rate with a known carrier, hopefully it's the company you are with that alone can save you 10 to 15 %.  Joining the NRA with my company actually gives a discount.  My College also has agreements with different companies as well.  Try to find something that you are already a part of that has the discount it's instant savings without changing your policy.

If you decide to sell, start a savings account to help you pay the rest off.  Another thought would be to apply for a credit card that would give you a 0% offer for cash.  I found one with my credit union that didn't charge a transfer fee.  Just a thought obviously be careful with the credit card thing.  Good Luck

yddeyma

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Re: Help! Car Crisis!
« Reply #15 on: August 20, 2014, 12:03:14 PM »
I was in the same boat as you, got a fancy raise at work and bought a brand new Acura for $40k.  After a year, I still owed $25k (which was barely what it was worth).  Here's how I looked at it:

I had already paid the stupid tax for a brand new car.  I had sunk $15k into the down payment plus a year's worth of monthly payments.  The question was, really, did I want to pay ANOTHER $25k for a car I didn't really need or want?  The answer was NOOOOO.  It took me several months of pondering before I came I realized the stupidity of keeping it.  It really hurt me to admit I had made a bad blunder, and I didn't want my friends/family asking what the deal was. 

Here was the hard part.  To make it easier to sell, I put ALL my cash towards the loan to pay it off so that I could have the title and then sell the car on Auto Trader.  It worked, but it took 3 months to sell it and I was nail-biting the entire time because my e-fund was essentially nothing (this for a family of four, yeesh). 

There are ways to sell a car when you still owe on it without going through a dealer, but it involves some trust on the part of your buyer and I doubt many will be willing to do so.  You can always sell it back to the dealer, but you're gonna take a hit to the sale price.

On a side note, this same principal applies to the house I own right now (too expensive, too big).  Unfortunately I am much more emotionally attached to it and have not been able to pull the plug and sell it.  Oh well, baby steps I guess.

Tetsuya Hondo

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Re: Help! Car Crisis!
« Reply #16 on: August 20, 2014, 12:20:12 PM »
If you don't need the car then sell it. Now.

Don't ever make a decision on the basis of sunk costs. The money you spent on it up to this point is not coming back and throwing more money away won't erase that fact. All you can do is make the best decision based on where you're at now.

If you don't want to deal with the hassle of selling it to a private party, and you have money to cover the difference between what you owe and it's value, then the easiest thing you can do is to take it to CarMax and write them a check for the difference of what it's worth. I've actually done that before. I'm not saying this is the best option, but it probably is if you'll delay another month or two as you're continuing costs will eat up any additional money to be gained by selling it private party.

I was once in this exact same situation. And it hurt to have to sell my car and pay someone for the privilege of doing so, but it was one of the best moves I ever made because being freed of a monthly car payment and insurance and gas and etc. was the pivotal moment that redirected me from living paycheck to paycheck (or worse) and growing the modest stache that I have now. Cars are financial sinkholes and if you don't need one, get rid of it as quickly as possible.

eil

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Re: Help! Car Crisis!
« Reply #17 on: August 20, 2014, 02:39:55 PM »
If you don't have the money right now to make up the difference between what you owe and what the car is worth, spend the next few months paying down the principal until you're not underwater. (And triple check with the bank that the overage is applied to the principal and NOT future interest.)

I've seen people on craigslist try to sell cars by having the recipient take over the loan. I don't know how this works or if anyone actually falls for it, but might be worth looking into.

mcdonasm

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Re: Help! Car Crisis!
« Reply #18 on: August 20, 2014, 03:34:46 PM »
(And triple check with the bank that the overage is applied to the principal and NOT future interest.)

There is zero interest on the loan at all so all money owed by the loan is principal only.

I've seen people on craigslist try to sell cars by having the recipient take over the loan. I don't know how this works or if anyone actually falls for it, but might be worth looking into.

I don't know if it possible to transfer the loan to anyone else. If so this would be a great option because less than 1% of applicants qualify for the 0% interest loan, so this would be a barganing chip, but I haven't heard of it as a possibility, and it does seem like that wouldn't be in the best interest of the bank issuing the loan.