Author Topic: mustachian in training--car buying help!  (Read 2436 times)

Encinitas55

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mustachian in training--car buying help!
« on: May 26, 2013, 11:14:24 PM »
I am a new to the MMM lifestyle but at 27 I have no credit card debt, minimal student loans, and within the last year I've successfully gotten to 50% savings of my income. I was saving aggressively to buy a house, but unfortunately the 2001 Isuzu Rodeo I was driving just broke down and repairs will be well above the current value of the car. While I'm working to reduce driving, I do unfortunately need a car where I live.

I'm planning to buy a used, fuel efficient sedan (probably Toyota, Honda, or Scion) for around $8000-10,000. The question I have is whether I should pay cash or finance? The only reason I would consider financing is that my house fund is just at the point for a reasonable down payment and I was hoping to buy a house this July/August when (hopefully) my contract gets renewed. The thought was to finance the car now so that I could save the cash for a down payment and once I've bought the home work to pay off the car. If I pay cash for the car, it would take me 7 months to save up that amount and I worry that housing prices will increase in the time that I wait to have the down payment.

Never bought a house or a car before so I would appreciate any insight from wiser mustachians. Thank you!

Frankies Girl

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Re: mustachian in training--car buying help!
« Reply #1 on: May 27, 2013, 02:56:01 AM »
Just my opinions here...

Basic blue book value on the 2001 Rodeo is roughly $2500 to $3500. So the repairs are more than that? If the repairs are made, would the car in basically good enough shape to last another couple of years?

If that is the case, fix the Rodeo. Basic math wins on this one. $4000 is less than $8-10000. You have to come at the idea that while the basic value of the car isn't "worth" the cost of the repair, you're proposing to spend even more money than that. If the car is otherwise in good shape and will run for many more years with basic oil changes and little fixes, it's actually worth paying out for the repair than saddling yourself with a more expensive outlay. Plus, cheaper insurance and you're familiar with the car's quirks and probably don't care about a few dings and the like.


If the car is to the point of being very unreliable or this breakdown is just one of many, the a new (used) car probably would be a good idea. 


There really are only 2 good arguments for financing: either you get zero interest, or you get cash off the top for doing so. If the second is the case, then do it, but pay the car off as soon as you can. READ the contract carefully and ask however many questions as you need.

I just got a new car after my 17 year old vehicle finally had so many breakdowns that it left me stranded at the side of the road several times in a row. When I purchased, they offered a $500 incentive to finance. I read through the contract very carefully to see if an early payoff was penalized, then did the financing and then went home and called the finance company to re-confirm there was no penalty (was verbally told there was, but it wasn't in the written contract, and the finance company confirmed that "that's what the sales guys say, but there is no penalty) and then paid off the car the same week - meaning I snagged an additional $500 off for just doing the paperwork. Otherwise, I would have paid cash.

Buying a house in the summer months (I was told) isn't usually the best time, since that's when "everyone" tends to be out looking as the kids are out of school and moving them from one school district to another isn't as painful for them... so the market is supposed to be hotter during the summer months (pun intended?). If you wait until the fall/winter months, it might mean that the houses on the market have been there for a while... and more eager to deal. You can usually search the realtor sites to see how long a house has been on the market and also if they've lowered the price (good indicators that they'd be willing to negotiate more). Also, do the research on first time homebuyer incentives and grants (google "first time homebuyer and maybe your zip code?). There should be many out there.

Also, check in with banks to see what their mortgage rates are, and if you're seriously looking, maybe get preapproved (not qualified)  so you know what range of home you can afford. Use that info to look for a house that costs LESS than the amount they approved you for, tho.

You said you wanted to buy if your contract (hopefully) gets renewed... that's a concern as it sounds like you'd be out of a job if it doesn't get renewed. If that's the case, you should definitely wait to purchase a house. You do not want to take on that much if you're unsure of your income.

So basically if it was me: I'd either repair (first choice) or replace the vehicle (if it's just falling apart), paying cash unless the financing is a great deal, and hold off on the house purchase for a while until you're sure you've got a steady income and the home sales market might be more in your favor.

nktokyo

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Re: mustachian in training--car buying help!
« Reply #2 on: May 27, 2013, 03:01:17 AM »
You're right to think this through.

While I'm not a fan of borrowing for items that go down in value, it is nice to be able to go long USD debt at current interest rates. July/August is right around the corner, have you already started talking to lenders about your plans to buy a property?

In the interim... why not lease or buy a beater to get you through the next 12 to 18 months?

Encinitas55

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Re: mustachian in training--car buying help!
« Reply #3 on: May 27, 2013, 04:09:25 AM »
Thank you for your comments, here's a little bit more information:

The Rodeo needs a transmission rebuild which was quoted at $2500-$3200 in addition to some other minor problems. So repairs would probably be around $4000, it just has 160k miles and I'm honestly not sure how much longer it will work. I've been repairing/replacing something about every couple of months in the last year or so and I'm worried it will fully break down on me. My fiance has offered to call around to try to find some junked transmissions so that option isn't totally off the table.

We've met with a mortgage broker and have the amount, interest rate, etc. and as I stated we just have the amount needed for a down payment in the range we'd be looking at. What makes me nervous is that homes in my area (San Diego county) have been going very quickly as foreign investors are grabbing houses at cheap deals. I've heard anecdotal stories about seeing homes go up $20,000 in two months and one friend's real estate agent saying that housing prices in our area are expected to jump 17% by next year. I should probably ignore all of that but that's sort of what has me worried about depleting my down payment fund for a car.

I like the idea of getting cash off the top for financing. I was already planning to make sure there weren't penalties for paying off early. I think I'm going to call my mortgage lady on Tuesday and see if she thinks that financing a car would help/hurt my credit.

My job is relatively secure. My project (and thus position) is up for re-bid (government contract) and we'll know the results sometime in July or August but definitely by September. Typically what happens is if another company wins the contract they hire those already working on the project. I have a coworker who recently bought a new house and the rest of my team doesn't seem worried about the re-bid it, I guess I'm just more cautious because it would be my first house and this is the first time I've gone through that process.

I think the other thing that stresses me out is the fact that the car doesn't run right now--in fact I'm going to have to borrow a car just to get to work on Tuesday so the idea of buying a car seems like a faster solution then trying to repair it.

Thanks for your comments, it's given me a lot to think about and I appreciate it!