Author Topic: Save for car-in-three-years or pay off 3.8% loans?  (Read 1659 times)

moonpalace

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Save for car-in-three-years or pay off 3.8% loans?
« on: March 23, 2017, 08:37:46 AM »
I'm close to maxing out pre-tax savings options, setting aside money for emergency fund, house repairs, etc. at a healthy clip.

I have a 2009 Corolla with 121k miles on it. I walk to work and my wife works at home. We could get by for quite a while without a car in a pinch, but we like to be able to visit family and friends and we live in a pretty rural place. We plan to keep the Corolla until it dies, basically.

I've been setting aside about $200/month in anticipation of buying a ~$10k used Corolla with cash in 2020 or after.

But I also have $68k in student loans. They're all at 3.8% or less, so I've prioritized investment savings over paying them off early.

Question is, should I take the money I'm saving for the car (along with my "extra" paycheck this month) and pay off one of my smaller, higher-interest school loans? Does it even make sense to save for this car when it looks likely that I could finance a car loan @ about 2% if needed?

Thanks for any thoughts!

marielle

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #1 on: March 23, 2017, 09:12:21 AM »
$10k seems pretty high for a car that you don't really need to be reliable since you have other ways to get to work. If you bought a cheap $3000 car and something went wrong and it had to be in the shop for a week, it wouldn't even affect your life.

I honestly wouldn't even worry that much about it, maybe set aside like $2000 or so and save up the extra later once you're in that situation. You did say you could go without a car in a pinch, so maybe those couple of months your family and friends would just visit you instead.

neo von retorch

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #2 on: March 23, 2017, 09:23:53 AM »
I think the thing here is time horizon. "Emergencies" and car purchases - you can only "plan" them so well, and if the market is going downhill for 1-2 years leading up to when you need the money, you're probably losing money on that. So those things should be in slow/stable/liquid accounts, like a 1% savings... given that, you're actually making less off of them than a 3.8% student loan. And debt sucks. I currently have a 2% car loan and I kind of hate that payment so I'm dabbling with paying that off at the cost of reduced investment balances...  a mortgage is a 30 year time horizon. Investments will very nearly certainly outperform a sub-4% mortgage rate. Car loans and student loans are shorter timelines; pay them off if you can. So if that emergency fund money is invested, think twice about if that's a good idea. If it's not, you probably want to keep it "in case of emergency" but don't forget springy debt.

frugaliknowit

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #3 on: March 23, 2017, 09:33:08 AM »
Depending on your income, if I had that much in SLs, I would only get my employer match, plus a roth (if eligible), then throw the rest at the SLs, but that's just me.  I don't like a hurdle of 3.8% or whatever.

No, I wouldn't put money in a savings account for a possible $10K car in 2020 with those SLs.

patchyfacialhair

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #4 on: March 23, 2017, 09:34:08 AM »
At this risk of sounding too culty like our lord and savior MMM, 121k on an 09 Corolla is practically nothing! It should last many more years with regular maintenance, especially given your minimal use as it is. Why are you concerned about its reliability?

Without an answer to the above: I vote paying off debt. You can always rent a car in a pinch. A couple hundred bucks for a rental is worth the peace of mind of not having another thing to maintain at the expense of becoming debt free.

moonpalace

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #5 on: March 23, 2017, 09:54:08 AM »
Thanks, everyone! Seems like a pretty clear consensus that, at least for a while here, it makes more sense to pay off debt than save for a car that I may not even need to buy for another several years. Our thought about the car is to keep it until it's basically falling apart. And that will very likely be more than three years from now.

MayDay

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #6 on: March 23, 2017, 10:03:56 AM »
I'd assume the car will be fine for a long time, and that if it does suddenly die, you can get a low interest loan or take money from your efund.

We have older cars, and are concious that they may suddenly need replacement, but until they are actively dying we won't set aside money specifically for a new car.

I'd either pay off the SL's or start funding a brokerage account to earn higher interest.

catccc

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #7 on: March 23, 2017, 06:56:52 PM »
At this risk of sounding too culty like our lord and savior MMM, 121k on an 09 Corolla is practically nothing! It should last many more years with regular maintenance, especially given your minimal use as it is. Why are you concerned about its reliability?

Without an answer to the above: I vote paying off debt. You can always rent a car in a pinch. A couple hundred bucks for a rental is worth the peace of mind of not having another thing to maintain at the expense of becoming debt free.

I agree with this.  And I think if up are going to keep that corolla until it dies, you've got a long way to go.  Idk how many miles you put on it in a year, but if you do basic maintenance, it's going to last a while.  The tricky part will be declaring it dead.  A $200 repair here and theree will be common when you get to 180 miles, I'm guessing.  But $200 to keep that car going is a heck of a lot less than buying a new one.  But when you do get closer to car buying time, I think it is a great idea to save for it in advance.  We are actually throwing $900+ into a new (to us) car fund right now, but we have zero debt.  We have  a 2005 Toyota Matrix (basically a corolla wagon) with 180K+ miles on it.  About to spend $600 on repairs, which is actually three $200 ish fixes.  We are allowing ourselves to buy a new car in a year or two when it hits 200k miles, but I can easily see us keeping it longer, if t is still running well.  I can also see us possibly buying earlier and selling the matrix if we see a good deal.

FLBiker

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #8 on: March 24, 2017, 07:50:22 AM »
I agree with the other folks.  We've also got an 09 Corolla (albeit w/ 92000 miles) and that's our new, reliable car.  We've also got a 1999 Ford Explorer Sport that I thought about replacing (because it was getting old) like 6 years ago.  That thing just keeps going.

Especially since you guys could get by without a car for a while, I wouldn't worry about saving for one right now.

PS - Our 09 Corolla has one of those Takata airbags that have been recalled.  We've been loaned a 2017 Camry by our local Toyota dealer (we didn't buy the Corolla from them) until they get the parts to replace it.  I'm not crazy about driving a $30000 car, but we've got a toddler and the airbag issue sounded pretty serious (though unlikely).  Plus, we live in a high humidity area, which seems like a contributing factor.  Anyways, just wanted to let you know in case you weren't already aware.  You can check your car here: http://www.toyota.com/recall

moonpalace

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #9 on: March 24, 2017, 07:56:40 AM »
I agree with the other folks.  We've also got an 09 Corolla (albeit w/ 92000 miles) and that's our new, reliable car.  We've also got a 1999 Ford Explorer Sport that I thought about replacing (because it was getting old) like 6 years ago.  That thing just keeps going.

Especially since you guys could get by without a car for a while, I wouldn't worry about saving for one right now.

Definitely moving in this direction! Glad to hear from another '09 Corolla owner! To answer someone else's question, we only put about 8 or 9,000 miles a year on it so I think it definitely makes sense to cool it on saving for an even newer car! This thing will probably still be running strong in ten years!

And boy, oh boy, am I gonna enjoy killing off some law-school loans! :-)

Quote
PS - Our 09 Corolla has one of those Takata airbags that have been recalled.  We've been loaned a 2017 Camry by our local Toyota dealer (we didn't buy the Corolla from them) until they get the parts to replace it.  I'm not crazy about driving a $30000 car, but we've got a toddler and the airbag issue sounded pretty serious (though unlikely).  Plus, we live in a high humidity area, which seems like a contributing factor.  Anyways, just wanted to let you know in case you weren't already aware.  You can check your car here: http://www.toyota.com/recall

Thanks! We got that recall work done already, I think. Will double-check, though!

Dicey

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #10 on: March 24, 2017, 09:06:56 AM »
I have a 2009 Corolla with 121k miles on it. I walk to work and my wife works at home. We could get by for quite a while without a car in a pinch, but we like to be able to visit family and friends and we live in a pretty rural place. We plan to keep the Corolla until it dies,

Under these circumstances, it would be far cheaper to just rent a car for long trips. Weekend rates are crazy cheap. When we do this, we save even more by renting a Prius from the Toyota Dealer. Good rental rates, plus even less spent on gas. Scratches the new-car itch, too. Not all dealerships offer rentals, but many do.

moonpalace

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Re: Save for car-in-three-years or pay off 3.8% loans?
« Reply #11 on: March 24, 2017, 02:41:45 PM »
Under these circumstances, it would be far cheaper to just rent a car for long trips. Weekend rates are crazy cheap. When we do this, we save even more by renting a Prius from the Toyota Dealer. Good rental rates, plus even less spent on gas. Scratches the new-car itch, too. Not all dealerships offer rentals, but many do.

Interesting! I'll have to look into this again. My hunch is that it wouldn't be cheaper for us. We only pay ~$30/month to insure the car, and it's paid off.