Author Topic: Need advice on car purchase  (Read 1113 times)

y2kcom2000

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Need advice on car purchase
« on: August 11, 2016, 10:08:05 AM »
Hello. I very recently have started to think about personal finance and think about what I should do to save. First thing was a car. I always wanted to drive a Audi so I bought Audi A4 right off graduation and i put so many miles on in for two years i ended up being 5k negative on my loan..I sold the car and rolled negative equity into my new Honda CRV which costed me about 27k so now I have about 32k loan @ .9apr

This car currently sells for about 25k to the dealer.

I was wondering if it is better to continually drive this vehicle or buy 2013 toyota yaris with 45k miles for about 10000 dollars and roll the negative equity of 7k into new loan. Actually I will pay about 2k off in cash so new loan will be around 15k or so. I have good credit score so i am guessing my financing rate will be around 2-3 percent.


Which is better for me in the long run.. I am looking to keep the car for at least 10 years. Thanks all for your help.

Khaetra

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Re: Need advice on car purchase
« Reply #1 on: August 11, 2016, 10:25:39 AM »
Can you make the payments on the CRV?  If yes, then that's the car you drive until the wheels fall off.  One lesson I've learned long ago is not to keep rolling over loans, as it makes someone else rich and not you.

Kroaler

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Re: Need advice on car purchase
« Reply #2 on: August 11, 2016, 10:32:56 AM »
I feel differently.  The CRV is a fantastic car, but if the Yaris can meet your needs and the CRV can be unloaded for 25k, I would go with the yaris.

ONLY IF THE 2 CONDITIONS ARE MET. 

Also I didnt check the KBB value of the yaris, but I assume you are looking at a used yaris that matches KBB private party value?

32k is alot of vehicle debt to carry.

Tiger Stache

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Re: Need advice on car purchase
« Reply #3 on: August 11, 2016, 11:54:14 AM »
it sounds like you should pay the car down and get that negative equity out of the equation. take care of the CRV and you should be able to drive it a long time. not sure what made you get rid of the A4, but mileage shouldn't be the only factor.

32K is a lot of debt for a CRV, but moving negative equity around just to get a cheaper car doesn't really get you ahead IMO. i'd give the CRV a year or two and see where your at.

neo von retorch

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Re: Need advice on car purchase
« Reply #4 on: August 11, 2016, 12:26:37 PM »
You have to compare long-term and one-times costs with each option.

CR-V will have higher long-term costs:
* Interest on higher debt load
* Longer to pay off
* Higher insurance premiums (x2 because you'll be required to keep collision until you pay off the loan)
* Greater depreciation

The Yaris will have higher one-time transaction costs:
* Current depreciation hit when you sell/trade CR-V (if you sell privately, you'll reduce the hit, but there may be a tax advantage to trading, plus you're preventing future depreciation on that car)
* Fees in purchasing Yaris (plus possibly state sales tax depending on how you sell CR-V, buy Yaris and what state you're in)
* Probably get less for your CR-V and pay more for the Yaris since it sounds like you're going through a dealer to trade

Can you sell the CR-V privately for $26k or more? If so, can you still roll the debt into the dealer financing for the Yaris?

The way I see it, you have a $25k debt + $25k car + $7k debt + $2k cash. The fact that you're "upside down" only really matters when you're negotiating financing at the dealer. If you trade the CR-V for $25k and get the Yaris for $10k, now you have $10k debt + $10k car + $5k debt. You have less car AND less debt (which means less insurance, lower gas costs, less future depreciation and less interest on loan payments). The fact that you still have more debt than car does not change - you've just done a good job of reducing your monthly expenses.

y2kcom2000

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Re: Need advice on car purchase
« Reply #5 on: August 11, 2016, 12:58:23 PM »
You have to compare long-term and one-times costs with each option.

CR-V will have higher long-term costs:
* Interest on higher debt load
* Longer to pay off
* Higher insurance premiums (x2 because you'll be required to keep collision until you pay off the loan)
* Greater depreciation

The Yaris will have higher one-time transaction costs:
* Current depreciation hit when you sell/trade CR-V (if you sell privately, you'll reduce the hit, but there may be a tax advantage to trading, plus you're preventing future depreciation on that car)
* Fees in purchasing Yaris (plus possibly state sales tax depending on how you sell CR-V, buy Yaris and what state you're in)
* Probably get less for your CR-V and pay more for the Yaris since it sounds like you're going through a dealer to trade

Can you sell the CR-V privately for $26k or more? If so, can you still roll the debt into the dealer financing for the Yaris?

The way I see it, you have a $25k debt + $25k car + $7k debt + $2k cash. The fact that you're "upside down" only really matters when you're negotiating financing at the dealer. If you trade the CR-V for $25k and get the Yaris for $10k, now you have $10k debt + $10k car + $5k debt. You have less car AND less debt (which means less insurance, lower gas costs, less future depreciation and less interest on loan payments). The fact that you still have more debt than car does not change - you've just done a good job of reducing your monthly expenses.

Thank you all for your analogy. I think the same too. That negative equity is just a debt that wont go away. But I wanted to know if incurring transaction cost (dealer markups on trade in and buying. My state FL deducts tax from trade in ) and saving money on a lesser car is more beneficial than keeping a better car - no transacion cost. Also, interest rate is lower for CRV at .9 % through Honda promotion. I am guessing my interest rate will be higher if I go through credit union or bank.
« Last Edit: August 11, 2016, 01:02:53 PM by y2kcom2000 »

rothwem

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Re: Need advice on car purchase
« Reply #6 on: August 11, 2016, 01:06:19 PM »
I'd be surprised if they let you roll the 5k negative equity into the Yaris loan.  Generally, the loan has to be under a certain LTV ratio, like on a house.  110% is the best I've seen, but maybe there are other ones out there that will go higher. 

With that said, an auto loan is probably the cheapest way to eat away at that 5k debt, you don't see 0.9% APR many places except for on cars.