How long before replacing car, and pay cash toward car or student debt?

[fruplicity]

Preface: I have all the usual excuses for not wanting to go car-free (illegal for me to bike to work on the roads available (ie underwater highway tunnels), public transpo commute is 1.5 hours vs. 1/2 hour by car though I do use it a few times a month, want to easily visit family 2+ hours away on a regular basis, etc). But if I were a true badass, I'd say bye to the car. But I'm only badass enough that the car I've owned for the past 6 years is a 13-year old beige Buick.

Probably within 2 years, we'll need to replace it - it's got 118k miles, paid for emotionally, not financially - inherited from relative. I think the car averages 20mpg?

We already have the 10k saved that could pay for a replacement car (plus whatever we could get for the Buick). I'm not confident enough with cars to go lower than this. (We have additional savings too that are continually building, along with long-term savings, etc). 

The past 3 years we've averaged $2400 in repairs. This year we've already spent $1250 and the place "recommended" another $1400 for new struts and power steering column thingie. Insurance runs just under $1000/year (I know this probably sounds outrageous for the car - we live in one of the worst areas of the city for accidents though we've never had one. If anyone has any concrete advice for new car insurance shopping I'm all ears).

Since we have the money but the car isn't quite falling apart, how do we know when we should replace it?

2nd part of this question:

We're already paying more than minimum on our student loans, (40k, average 5% interest). When we do go for a car, should we shop for a better rate on a car loan and put the cash meant for a car towards student loans instead?

I've already heard the answer that we shouldn't do anything until all our student loans are paid off (~40k) which if we were true badasses we could do in two years of very lean and mean living. See above - I'm not a true badass. I'm planning on payoff in 4-5 years while balancing other financial and life goals.

Thanks everyone!

[Physics]

Why would you have to replace it in two years?

You have a paid for car.  Drive it into the ground while killing off your student loans.  I doubt any car is going to be cheaper than just keeping your existing one on the road for another 5+ years.

I suppose having a "car dies" contingency plan is worthwhile.  But the most financially optimal path has got to be to continue with the car you have while it still survives.

[menorman]

Sounds like your car is definitely reaching the point where it is going to need some serious work done that could easily cost almost as much as the car is worth. I'd say sell the car now while it still runs and with the proceeds, buy something  newer and in better condition. Between the $10k you already have and what you get for this car, you should have far more money than you need to get a car that will last you another couple years. Also, you could realistically expect to find good cars at $5k that are in better mechanical condition and also get better gas mileage. Seeing you currently drive a Buick,  they'll look at least just as presentable. Even if you decide to put a couple dollars into the new car to do a tune-up and change belts/fluids, you should still be able to come out ahead.

[Physics]

Maybe I'm misreading.

Fruplicity said it has 118k on it right?  Not 180k.

[the fixer]

I'd suggest you start by finding out how much you could get for your current car by selling it. I'm guessing it's not much, and if that's correct I think you should just drive the car into the ground. That means no more "recommended" work on any of the non-critical systems. Just put as much as you need into keeping the car drivable and street legal (mainly engine, drive train, and brakes) as long as it doesn't get too expensive. Any money you put into fixing anything else is just getting thrown away.

If I'm wrong and you could get a decent amount for the car, like $3-4k, you might indeed be better off selling it and getting a more fuel-efficient car that MMM recommends for 6-8k. But don't just look at blue book values; check Craigslist for similar models, or take the car somewhere for a trade-in quote if you wouldn't want to do a private-party sale.

For insurance, do you have a liability-only policy? If you have that much money saved up you can "self-insure" the car for comprehensive and collision coverage.

[sowantere]

I would drive it into the ground.  My old college loans went from 2% to 7 % for absolutely no reason on my part.  That bothered me alot and pissed me off enough to pay them off quick.  They were thru sallae mae.  I didn't see how much a month you pay on gas.  If a new car payment would be less than you would pay on gas since your 20mpg is low then the newer car would eventually pay for itself.  The new prius c starts at 19k brand new.  In two years it should cost 14k used and in four years probably about 10k or lower.  So good things come to those who wait.

SowantERE 

[James]

For insurance, do you have a liability-only policy? If you have that much money saved up you can "self-insure" the car for comprehensive and collision coverage.

+1  Certainly shop around, I can't imagine you can't get a better rate, start with the online places just to get an idea of where you should be at.  Not worth throwing money away if you can help it.

I suggest selling and getting something slightly newer. (must be done private party, if planning to use a dealer than my advice changes)  The mileage isn't a problem, but the 20mpg isn't so hot.  Get something small, maybe 5-6 years old, maybe 80-100k miles on it, and pick something known for reliability.  Spend under $10,000 on it and then you don't have to worry about what you get for the Buick, it's all gravy to be put on the student loan.

[fruplicity]

Thanks for all the replies, though honestly I'm still stuck in a rut about what to do based on the mixed advice!!

I think we could safely get around $2500 for its current condition and based on Kelly Blue Book.

I never used it for work until a new job 6 mos. ago that puts 28 miles a day on it (some days I do take an extra hour each way for public transpo). My husband drives a bit on the weekends for hobbies, so we have been spending a ton on gas.

I think we do have full insurance coverage - I had asked about dropping comprehensive & collision but they told me it would only save us like $20 a year. Should ask again and shop around.

I also don't know how to start car shopping. I will absolutely use the recommended MMM models but I'm so nervous about where to buy. Both private-party and dealership options frighten me.

And I didn't see any answers to Part II of my questions: If we already have the cash to pay for a new (used) car outright, but my student loans are all at 5%, should we shop for a car loan at a lower rate instead and put the cash toward student loans?

Thanks!!!

[AJ]

Part II of my questions: If we already have the cash to pay for a new (used) car outright, but my student loans are all at 5%, should we shop for a car loan at a lower rate instead and put the cash toward student loans?

Here is what I would suggest: pay cash for the car, then obtain financing after the fact. You will benefit from the negotiating power of cash in hand, then use the proceeds of the loan to pay your student loans down.

[James]

And I didn't see any answers to Part II of my questions: If we already have the cash to pay for a new (used) car outright, but my student loans are all at 5%, should we shop for a car loan at a lower rate instead and put the cash toward student loans?

I agree with AJ, the financing is completely separate from the whole car issue.  I would put this aside until you are finished and have the ability to focus on this alone.  Then you need to consider the tax implications (student loan interest is deductible, care loan interest isn't, but it's also capped at a salary limit). 

It certainly depends a great deal what interest rate you would get on a car loan.  If you finance a car up front a dealer might give you a great 2-3% loan (or lower) that gives him very little profit or even costs him money.  Why would he do that?  Because he then sells you a car for more than he would otherwise and makes his profit that way.  If you pay cash you can spend less on the car and you are almost certainly better off in the long run despite the low interest rate promised.  You are also not tempted to spend more on a car simply because it's financed.  Finally, if you finance after the fact you will be lucky to beat your 5% student loan by enough to make it worth it, especially if you are able to deduct the interest you are paying on the school loan.

I really think you are best off buying a simple and low priced car by private party.

[fruplicity]

I love this place (and I'm totally naive about car buying) - I had NO idea you could finance after the fact! Thanks!

Not that I would have financed through a dealer anyway (but also good point about them giving a "great" loan if they could convince me to pay more for the car). I just thought I'd be "required" to bring a check from a bank directly to the person I'm buying the car from if I chose to finance at all.

Now to convince my husband that an MMM-approved car is the way to go. It's such a luxury to know we can rely on our Buick while we take our sweet time researching all this stuff to really get the car we want at a good price.

[James]

Good luck!  Glad the forum could help, these are those "little" decisions that make such a huge difference over the next 20 years, the compounding nature of your decisions at this point make the effort worth it.