Author Topic: New start, car loan vs company car?  (Read 3679 times)

briefus

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New start, car loan vs company car?
« on: June 03, 2015, 11:40:55 AM »
Hey all, My wife and I are about to hit 1 year and have realized our financial decisions must be priority, starting now. We've got approx $50k in debt, mix of consumer, credit, and student loans. My wife's car broke about 18 months ago and before our frugal minds were around, we bought a new, 2013 Kia sportage, and we owe just about $1k less than it blue books for right now.

Here's the deal:
My wife just started a new job and has an option for vehicular/transportation expenses:

Option 1) She can keep the 2013 Kia Sportage we have now, and be re-imbursed a flat-rate $0.45/mi for work travel (does not include to/from office). We would continue to pay our monthly car payment ($506), monthly insurance ($94), and maintenance (say $50 monthly budgeted), totalling $650 monthly. (not to mention, wiping $18k in debt)
or
Option 2) They will provide a new 2015 SUV, pay all fuel, maintenance, repair, and insurance, but she will be required to pay $65/week to use the car, that would be decked out with company logos, etc etc. and we would have to use it sparingly on the weekends.

If we take the saved money in #1, and subtract the monthly "lease" of #2, we've basically freed up $330 monthly that we can put towards paying down our high interest debts. I know it's basically "leasing" a car, and many hold strong opinions about why that's bad, but in this case, doesn't it make more sense to take the 2nd option? We haven't quite made up our minds yet, but leaning closely to taking the company car, and handing the Kia back to the dealership. She's very happy, safe and secure in her new job, surrounded by a great company and staff (many are friends), and (while I realize no one can predict the future), there's no reason to think she'd lose her job, or lose the car anytime in the near future. And if she did, we just go out and get a cheaper SUV for her until we re-settle.

Does anyone have any information, criticism, feedback on WHY this is a bad idea?

Sorry for the length, I hope it's easy to understand, and thanks in advance for any feedback/suggestions.



neo von retorch

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Re: New start, car loan vs company car?
« Reply #1 on: June 03, 2015, 11:49:43 AM »
What do you mean "wiping $18k in debt"? Are you saying they will pay off the car loan for her?

Gin1984

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Re: New start, car loan vs company car?
« Reply #2 on: June 03, 2015, 11:57:21 AM »
How much driving will she be doing for work? 

frugaliknowit

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Re: New start, car loan vs company car?
« Reply #3 on: June 03, 2015, 12:00:58 PM »
I don't understand why your wife would have to pay $65 per week for a business car...

briefus

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Re: New start, car loan vs company car?
« Reply #4 on: June 03, 2015, 12:17:18 PM »
What do you mean "wiping $18k in debt"? Are you saying they will pay off the car loan for her?
The car is worth about $18k and we owe about $18k. My friend is the GM at the dealership and said they would possibly just take the car back from us to re-certify and sell again, and since the re-certified price is still over $20k, we would only owe about $1k to make the trade-off happen. We would get rid of her personal car as well as the debt associated with it... Make sense?

How much driving will she be doing for work?
A lot. Regular day trips to locations ranging from 30 - 150 miles each way. I think a safe "average" would be 400 miles weekly (reimbursable).

I don't understand why your wife would have to pay $65 per week for a business car...
It's their only options, "your car and we pay $.45/mi",(and they require your car be no more than 7 years old, something "pretty" to haul clients/customers around in) or "our car and you pay $65/wk". I don't know the ins/outs of why, but can assume it's because they are expecting "some personal travel" in the car, which their paying fuel for, and I don't know why else? I wish I had a better explanation, but that's all I have to work on as of now.
« Last Edit: June 03, 2015, 12:21:12 PM by briefus »

neo von retorch

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Re: New start, car loan vs company car?
« Reply #5 on: June 03, 2015, 03:09:06 PM »
Definitely sounds like option C - sell the Kia (to the dealership if you'd rather not worry about selling to a private party), buy an inexpensive car, and start banking the $0.45/mile on a car that costs you less than $0.45/mile. (I drive an 8 year old Fit with minimal insurance, and I think it still costs me at least $0.25/mile.)

toincoss

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Re: New start, car loan vs company car?
« Reply #6 on: June 04, 2015, 12:59:37 PM »
I would do option 2. You're estimating about 21,000 miles driven per year. The $65 weekly price is basically gas and insurance. You get everything else for free. The used car purchase would probably break even in 3 years, but by then you'll need to buy another used car to meet the employer's standards.

klystomane

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Re: New start, car loan vs company car?
« Reply #7 on: June 04, 2015, 01:40:35 PM »
How about selling the Kia and leasing a car (to take advantage of employer reimbursement)?

Math (conservative estimate):
Assume 20k miles driven per year
Assume lease is $300/mth = $3600/yr
Extra miles beyond standard lease amount of 12k (in your case, approx. 8k miles @ $0.25/mile penalty) = $2,000/yr (also, I believe there are "high mileage" leases available for better rates).
Gas @ $3.50/gallon (assume 20mpg) = $3,500/yr
Insurance = $1,200/yr
Total cost/year = $10,300

Employer reimbursement (based on 20k miles @ 0.45cents/mile) = $9,000

Total out of pocket = $10,300-$9,000= $1,300

I believe leasing essentially means you don't have to do anything to take care of the car (I've never leased before) so no maintenance costs need to be factored in.

If you can find a $199/mth lease, then you'd essentially break even.

Also, I believe the IRS going rate for mileage reimbursement is $0.56/mile - can your wife negotiate that? If so, it gives you an extra $2k to play with.

Feel free to chime in...I'm mostly pulling numbers out of my a$$ here.
« Last Edit: June 04, 2015, 01:43:42 PM by klystomane »

briefus

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Re: New start, car loan vs company car?
« Reply #8 on: June 05, 2015, 09:55:39 AM »
Wow, you all are great. Thanks for the quick advice and suggestions on this. My thoughts are:
Definitely sounds like option C - sell the Kia (to the dealership if you'd rather not worry about selling to a private party), buy an inexpensive car, and start banking the $0.45/mile on a car that costs you less than $0.45/mile. (I drive an 8 year old Fit with minimal insurance, and I think it still costs me at least $0.25/mile.)
I considered this, but due to the company policy of vehicle standards, (7 years max, and must be SUV for hauling equipment), I don't see many options available that would lower our monthly cost significant enough to get return on the $.45 reimbursement. Her Kia gets about 29mpg on highway, which is where a lot of the driving takes place. Of the used SUV's I'm seeing that we could purchase for under $15k, I just don't see any financial gain by doing this, opposed to just keeping what we have. especially considering if I buy a 2011-2012 model SUV for $10-15k-ish, we'll need to replace it again in 3 years for policy. I like this idea for down the road, but right now it's hard to make the numbers work.
I would do option 2. You're estimating about 21,000 miles driven per year. The $65 weekly price is basically gas and insurance. You get everything else for free. The used car purchase would probably break even in 3 years, but by then you'll need to buy another used car to meet the employer's standards.
Like my reply to the last post, I think you're right about how it'd be nice to have the car paid off in 3 years, but only to purchase a new one because of company policy. This is what we're leaning towards, but option below doesn't sound too bad either.
How about selling the Kia and leasing a car (to take advantage of employer reimbursement)?
This is interesting thinking. I've never liked the idea of leasing, and it's almost always frowned upon in the FI-types but you raise an option I hadn't considered. Instead of paying $600/month (car + insurance) to eventually OWN The car we have, give it back, get a $200-300 lease (I think the cheaper cars are the ones you see listed for $199), for a decent SUV I'm guessing numbers are closer to $279-300/monthly. It still frees up (at minimum) $200 a month for the car payment and insurance, and we get to reap the rewards of turning in mileage. This is something I may look into. If her Kia was something that I wanted to drive down the road, it might make sense to keep paying on it, but I don't want her Sportage for the future, so knowing that we wouldn't be keeping it forever makes this decision a little easier.

You're right about the IRS reimbursement rates. In our state (Indiana), it's $.565/mile for business travel. They are giving $.45 and we are just planning on turning in the remaining $.115 on our tax return for business travel, so we'll be getting a little bit of that back anyways. She moved to this company because she likes what they're doing, and the position she took was actually being recruited about 30% lower salary than she wanted. She negotiated her salary up to where she wanted and agreed a 3month, and 6month evaluation to "adjust" and salary, bonus structure changes, vehicle needs, etc... basically the entire compensation/benefits package. The company is growing, and the owners weren't really sure what was all entitled up front. So I think some of this will be addressed during those discussions.

I appreciate everyone's openness to my question and feedback is great. Has anyone on here ever actually leased a car for business travel to get the reimbursement rates? that sounds like a nice idea, but wondering if there's any hidden fees involved with this. I'd obviously have to keep a check on the "overage" fees per mile by the dealership.

Thanks again

Jeremy E.

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Re: New start, car loan vs company car?
« Reply #9 on: June 05, 2015, 10:22:01 AM »
You're right about the IRS reimbursement rates. In our state (Indiana), it's $.565/mile for business travel. They are giving $.45 and we are just planning on turning in the remaining $.115 on our tax return for business travel, so we'll be getting a little bit of that back anyways. She moved to this company because she likes what they're doing, and the position she took was actually being recruited about 30% lower salary than she wanted. She negotiated her salary up to where she wanted and agreed a 3month, and 6month evaluation to "adjust" and salary, bonus structure changes, vehicle needs, etc... basically the entire compensation/benefits package. The company is growing, and the owners weren't really sure what was all entitled up front. So I think some of this will be addressed during those discussions.

I appreciate everyone's openness to my question and feedback is great. Has anyone on here ever actually leased a car for business travel to get the reimbursement rates? that sounds like a nice idea, but wondering if there's any hidden fees involved with this. I'd obviously have to keep a check on the "overage" fees per mile by the dealership.

Thanks again

if there might be a 3 or 6 months review that will adjust potential vehicle needs, why not keep the kia until then and negotiate at that point in time

epipenguin

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Re: New start, car loan vs company car?
« Reply #10 on: June 06, 2015, 08:01:45 AM »
Presumably the $65 per week would be taken out of her paycheck pre-tax? Also, just how much can she drive it on the weekend? I would try to find out an exact percent of total mileage which is allowable as personal mileage. And, how decked out with logos would it be? Can they be easily covered with magnetic sign covers?

Compared to the cost of the actual car, insurance, gas, and maintenance, $65 a week is good, although putting a restriction on personal miles driven is a bit unfair when you're paying to use the car.

My bf drives a fleet/company car - it costs him $100 a month, but he can put almost as much personal mileage on it as he likes, which is a big perk for us. There was one guy who was doing some taxi route as a second job who got into trouble for it, but regular personal driving is all included, even roadtrip vacations. Last year we did a week long trip in 6 states for zero gas money. I believe that the IRS has some rules about how much personal driving is allowed on average across the entire company. The logos on my bf's car are easily covered (they are driver and passenger door only, plus a small one on the back), which is good for the weekends.

I would take the company car, provided you get some clarity about how much she is allowed to drive it for herself.
« Last Edit: June 06, 2015, 08:06:43 AM by epipenguin »