Author Topic: Pay off Car or Trade in for MMM recommended hatch-back?  (Read 2572 times)

multi-vitamin

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Pay off Car or Trade in for MMM recommended hatch-back?
« on: February 24, 2015, 04:20:10 PM »
Hi All,

I have a 2012 Chevrolet Impala LT with 68,000 miles on it.  The Impala is 300 hp, V6 beast.  Interest is 4.89% through ALLY.  I purchased the vehicle in November of 2012 and got a 6 year loan.  I financed $15,839 -- this includes the warranty and the cost of the vehicle.

Currently  OWE: $7,083.00

Fuel Economy: 18 City, and 30 Highway

I drive a little over 14,500 miles per year.

I have gone back to school, so school and work account for almost all the miles.  My parents are allowing me to live with them for free(while attending University), so moving closer to school and work is not an option.  BTW, I think it is a safe assumption that living rent free is cheaper than not owning a vehicle.

Question 1:  Does it make sense to sell/trade-in the impala and purchase a used,Mr.-Money-Mustache recommended vehicle like the Mazda 3, or some small, fuel-efficient hatch-back that he recommends?

Question 2: I currently pay $1256 per year for auto coverage through State Farm.  Should I drop full coverage and go with liability only? I am a single guy in his late 20's.  Do I need a certain amount of money saved up to cover potential repairs due to accidents?  I am starting to save, but as of now I only have $1000 saved up in an emergency fund. 

Thanks in advance for the help!

seattlecyclone

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Re: Pay off Car or Trade in for MMM recommended hatch-back?
« Reply #1 on: February 24, 2015, 04:50:46 PM »
Quote
Question 1:  Does it make sense to sell/trade-in the impala and purchase a used,Mr.-Money-Mustache recommended vehicle like the Mazda 3, or some small, fuel-efficient hatch-back that he recommends?

Yes. Putting such a high percentage of your net worth into a vehicle is not smart. Trade it in for an older, less valuable car. The more fuel-efficient, the better. You're driving a lot right now (understandable due to your free housing situation), but every little bit you can increase your fuel efficiency would help you grow your stash.

Quote
Question 2: I currently pay $1256 per year for auto coverage through State Farm.  Should I drop full coverage and go with liability only? I am a single guy in his late 20's.  Do I need a certain amount of money saved up to cover potential repairs due to accidents?  I am starting to save, but as of now I only have $1000 saved up in an emergency fund.

This really depends on the rest of your financial picture. If you might have to finance a replacement vehicle if insurance wouldn't pay for it, you should probably keep some level of coverage until you increase your funds to the point where you can afford to self-insure. The good thing is that a cheaper vehicle costs less to replace, so your premiums should go down even if you do keep the same level of coverage. Regardless, I would recommend increasing your deductibles (perhaps to $1,000). Try to keep that much money on hand to pay for a repair or replacement if you do get in a crash.

gimp

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Re: Pay off Car or Trade in for MMM recommended hatch-back?
« Reply #2 on: February 24, 2015, 05:13:45 PM »
Gonna answer the second question first. In my opinion, it makes sense to drop collision and comprehensive only when you have the cash on hand, or easily accessible, to deal with the car being totaled. That means finishing paying off the loan AND getting another method of transportation.

First... nice car. 300 HP is nice. How often are you using 300 HP? Or 200? Do you take it to the track? Regularly open up on empty roads? If not, then you have unused specs, which you obviously don't need. If you were, I figure you'd be too much in love with the car to want to sell it. I'm therefore going to assume that it's quite a bit of a toy, as well as a tool - and since you've financed it, that tells me you can't really afford the toy. (Generally the case unless you get 0% financing like some people do - at which point, why not?)

So sell it and get a nice used car that'll get you places with no flash.

stashy

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Re: Pay off Car or Trade in for MMM recommended hatch-back?
« Reply #3 on: February 24, 2015, 05:37:08 PM »
I was dreading selling my most fun subaru WRX but I drive around the city all day and can't use it for its intent.  I reluctantly sold it and bought a honda fit with the purpose of stashin hard.  After about 2 weeks I was happy I did as it costs $15 to fill up and goes 350 miles a tank.  Also super reliable and I can easily resell later.  I believe there is a study that says a new car purchase happiness fades after about 2 weeks.  Just ask if it really makes you happy and if your self image is tied up in your vehicle and you'll have your answer.

James

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Re: Pay off Car or Trade in for MMM recommended hatch-back?
« Reply #4 on: February 24, 2015, 05:42:00 PM »
Definitely sell and replace with a nice MMM recommended vehicle. You drive enough to make picking the highest mpg possible a big factor, and the savings will add up over time.


Also, don't underestimate the cloud effect of what you drive and where you live. placing yourself in a MMM approved vehicle will be a constant reminder of your priorities, and that's a good thing. It will help set yourself up for that lifestyle, rather than continue your current lifestyle of driving a fast sporty car.

alsoknownasDean

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Re: Pay off Car or Trade in for MMM recommended hatch-back?
« Reply #5 on: February 24, 2015, 06:41:02 PM »
How much do you think the Impala is worth? I'd be a bit concerned that once you sell and pay off the loan, you won't have enough left over to buy another car.

I'd say at this stage that while selling and 'downgrading' is a good move, to wait until you're in a better financial situation.

Going to something that's better on gas is worth it (even if you only save $10 a week on gas), but getting rid of the car payment and expensive insurance has larger gains. :)