Author Topic: Trading in perfectly fine newer car for older  (Read 12899 times)

jackass-to-badass

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Trading in perfectly fine newer car for older
« on: May 13, 2014, 04:02:02 PM »
I started reading MMM one week ago and have been fairly obsessed with the blog since that time. I can't count how many times I've asked myself, and my starting-to-be-exasperated husband, "What would Money Mustache say?" (To save time, I leave off the "mister." Probably saves about 45 minutes a day.) Oddly enough, this has all coincided with my spouse getting a 35% raise in salary. I'm grateful for the increase in income and am determined to take full advantage (as a saver, not a spender).

One of the points that really clicked with me was the admonishment not ever to finance a new car. Two years ago, we bought a new Mazda CX-5....not with cash. We reasoned that we our only debts were $8K remaining on student loan and a mortgage we could handle. Our other car, a 2000 Ford Focus, was paid off about 9 years ago. We haven't had any problems with the car payments, have been maxing out 401K contributions, etc. In short, we were swimming along happily until I met Money Mustache and realized we could do a heckuva lot better for ourselves if we treated these debts as emergencies (something to pay off as quickly as possible) rather than as something folks just have (some kind of monthly fee for being alive).

Anyhow, I got all wrapped in the MMM goodness and general badassity and decided I could at least partly make up for past jack-assity if I sold my car back to the dealership and instead bought something that we could pay off very, very quickly (but something that would get us 31 MPG or more, which is what we get with the Mazda). In fact, the dealership has been calling us recently because they need more used cars on their lot, apparently.

Before we could talk ourselves out of it, we went to the dealership. They appraised our car at $18,500 (2013, 17K miles on it). We had a balance on it of $16,600 (so a difference, in our favor, of $1900). Then we purchased from the same dealership a 2005 Scion tC (single owner, 65K) for $8500 + taxes, fees, etc.  Factoring in the residual, we now have a Scion for $7300. We'll pay down this debt in a matter of months, even though the interest rate is quite low (1.75%). (We also have earnings coming to us within a month that will allow us to wipe out the remaining student loan debt, our only other non-mortgage debt.)

I guess my question is, assuming we'll drive it efficiently enough to get at least 31 MPG, was this very Mustachian or not? Knocking out $9K of car debt seemed like a no-brainer, but now I'm worried that switching from a 2013 car to a 2005 with only $9K to show for it wasn't so brilliant. I mean, insurance & registration will be less--and we're $9K closer to having no car payments--but maybe I should've kept the newer car and aggressively paid it off instead?

A different kind of buyer's remorse, I suppose. Any thoughts would be really appreciated.

feelingroovy

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Re: Trading in perfectly fine newer car for older
« Reply #1 on: May 13, 2014, 04:46:44 PM »
We did the exact same thing.

In June 2012 we bought a new Subaru Forester for $20k.  First new car I ever bought and first car with a loan.  6 months later found MMM.

Although I loved the moonroof and heated seats, I realized I didn't like having a new car.  I worried about it too much.

Anyway, a few months after that, we sold it to a used car dealer for $18,500.  We had tried selling it on craigslist, but never got one call, even though the blue book value was still above $20k.  I think most craigslist buyers just can't spend that much.

Anyhoo, we got a 2007 prius instead for 11k.  Paid it off pretty quickly. 

A year later I am SO happy to be debt free again and don't even miss the heated seats. 

forward

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Re: Trading in perfectly fine newer car for older
« Reply #2 on: May 13, 2014, 05:03:24 PM »

You absolutely did the right thing.  Now you just need to get rid of that much smaller loan amount on the Scion.  Great job.  Also the dealers never 'need' cars, they just wanted you to come in, trade your Mazda for a newer shinier Mazda and pocket more profit, because thats what most people do.  You shocked the heck out of them with what you did I'm sure.

CarDude

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Re: Trading in perfectly fine newer car for older
« Reply #3 on: May 13, 2014, 06:11:29 PM »

You absolutely did the right thing.  Now you just need to get rid of that much smaller loan amount on the Scion.  Great job.  Also the dealers never 'need' cars, they just wanted you to come in, trade your Mazda for a newer shinier Mazda and pocket more profit, because thats what most people do.  You shocked the heck out of them with what you did I'm sure.

What he said.

Sebastian

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Re: Trading in perfectly fine newer car for older
« Reply #4 on: May 14, 2014, 08:23:22 AM »
I'm in a similar but little bit different of a situation. I bought a 2012 Scion tC 2 years ago and before I found MMM I was gung ho about paying this car off as fast as possible. I guess in hindsight I should have taken all the money I put towards it and put it in investment accounts, but oh well.

Right now I owe $6300 on the car, and the blue book value is somewhere between $12-15K. I was wanting to sell it via CL and I've had lots of inquires, and I want to buy a cheapo Honda Civic for like $2-3k. The challenge is that I work 50 hours a week and as soon as a decent looking Civic goes on CL it's gone within a couple hours.

I'm glad I stumbled across this thread because maybe it would make more sense for me to do something similar to what you guys did? I wonder if I could straight out trade it in and be debt free! I was kind of banking on doing it my original way though and have a $3K surplus of cash to dump into my Roth IRA. Hmmmmm...

ketchup

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Re: Trading in perfectly fine newer car for older
« Reply #5 on: May 14, 2014, 11:03:31 AM »
I did something similar very recently.  I "traded down", not from a newer car to an older car, but from a "nicer" more-expensive-to-fuel-and-maintain car to a "less nice", cheaper, cheap-to-drive car (and incidentally ended up 3 years newer and 22k miles ahead).  I went from a 1996 Volvo 850 wagon to a 1999 Chevy Metro.  Sold the Volvo for $1750 to a bearded musician that needs to haul drums around, and bought the Metro for $1000 from a 4th-year computer engineering undergrad student.  Volvo averaged me 26MPG-ish overall, the Metro gets me 44MPG right now (average over first 5 tanks of gas), and I plan on doing some modifications to bring it up even more (goal is about 55).  I thought I would miss the Volvo.  I didn't.  Increased happiness through increases in simplicity and decreases in cost.

jackass-to-badass

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Re: Trading in perfectly fine newer car for older
« Reply #6 on: May 14, 2014, 12:21:31 PM »
I'm glad I stumbled across this thread because maybe it would make more sense for me to do something similar to what you guys did? I wonder if I could straight out trade it in and be debt free!

Hey Seth--I'm thinking it couldn't hurt to see what you'd get with a trade-in. We were surprised with their offer of 18,500 on ours. And the Scion's price was recently lowered, making it about $2000 less than Kelly Blue Book. I think the standard transmission was scaring people off (and of course, that was a REQUIREMENT for us).

And thanks for the support, Ketchup, CarSafetyGuy, mic575 and feelingroovy. 

eil

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Re: Trading in perfectly fine newer car for older
« Reply #7 on: May 14, 2014, 12:57:04 PM »
Quote
I guess my question is, assuming we'll drive it efficiently enough to get at least 31 MPG, was this very Mustachian or not?

Are you kidding me? If you continue down this path, you are going to be rocking the biggest 'stache this side of Magnum P.I. in no time flat.

The only thing more mustachian would be to just keep the Focus and not buy the second car at all. (Hello bicycle!)

RapmasterD

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Re: Trading in perfectly fine newer car for older
« Reply #8 on: May 16, 2014, 09:46:51 PM »
I wonder how mustachian it is to lock in a short term loss versus sucking it up and driving the new car until it is dust. I realize this statement is partially or largely absurd because a car is a depreciating "asset."

That said, how many miles are you driving per year? You could have probably taken your Forester to 200K or more. I've got nearly 130K on my 2001 Forester, which we bought as a new car in July 2000. Like a hangover, it will be with me for awhile because I'm now taking a commuter bus most of the way to/from work and driving as little as possible on weekends. Thus I'm putting about 7K per year on my car...tops.
« Last Edit: May 16, 2014, 10:05:05 PM by RapmasterD »

SDREMNGR

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Re: Trading in perfectly fine newer car for older
« Reply #9 on: May 16, 2014, 10:52:07 PM »
You did good.  I applaud your action.  Not many people could give up the new car.

I personally wouldn't pay off the car loan in such a hurry.  It's only 1.75% and the money could be better put to other investment uses.  If you do the math, It only comes to a few hundred dollars at most.  But if you don't have anywhere else to invest it, by all means, but you say you have a mortgage.  Wouldn't that be a better place to put extra money?
« Last Edit: May 17, 2014, 09:33:02 AM by SDREMNGR »

paddedhat

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Re: Trading in perfectly fine newer car for older
« Reply #10 on: May 17, 2014, 06:44:02 AM »
Couple of points on the thread that seem to be flashing caution in my cynical mind.

In fact, the dealership has been calling us recently because they need more used cars on their lot, apparently.

Bottom line.....They would tell you that they are holding your Grandmother hostage to get you in the door. I have done business with several great new car dealerships, but I always assume that I am being lied to, and act accordingly. In this case, they are being honest on several fronts. First, in some markets the supply of wholesale used cars is tight. They send buyers and drivers to weekly auctions, end up paying a premium for unknown stock, and then have to pay an employee to drive it back, then repair and recondition it. If you show up with a clean piece, and they know the history, they spend less for it, and have less risk involved. So they need clean, documented stock for a good price, and you are their source. Selling you a new car is a bonus, since there is a modest amount to be made doing so, (if you are smart enough to not allow them to fleece you). The clean, low mileage unit you are trading in is the real prize, since it will make them far more than the new car transaction.

Anyway, a few months after that, we sold it to a used car dealer for $18,500.


This may of been a great deal, or not.  Depending on many factors, especially if it was traded for the Prius? Trade-ins are a great way to really screw the buyer. I never get involved with one until I have several important pieces of info. in hand. First, the real value of my trade-in. Now this is not something you are NOT going to find online, and often has no relationship to the offer from your dealer. A dealer will have their buyer inspect your trade in, then either grab a weekly "black book" or other value guide that you have zero access to, or go to a subscription website that gives him the latest results of local and regional auction sales. They then hand the sales manager a figure that you will never see. For example, you get an offer of $20K for your car, yet the buyer told the sales manager that he will buy the car from the sales department for $17.8K.  The $2.2K split becomes a tool to get you to bite. You are looking at a new car with $3K in mark-up and they tell you that they can offer you $20K for your car, against the $30K sticker on the new one you want. If you bite, they got your car for wholesale, and made $800 on the new one, plus other money coming later from the manufacturer. The first step in avoiding this is the find out the real value of your car. In my case, there is a local, high volume used car dealership that will give you a serious offer, and show you how they arrived at that figure. In other cases taking it to a few dealers and going with, "I'm going to sell this to the highest offer, what would you give me for it?" would give you some valuable info. I have even stopped at a small used car shop and said to the owner, "I'll buy you lunch if you give me the straight up on what this car is worth".  The second step is to find out what the replacement vehicle is worth. This can be tricky, but generally I would be hesitant to buy off the lot anyway. IMHE, when looking for a 'stashe grade ride, a dealer is going to be at least 30-40% higher than the same Honda, Corolla, Focus, etc..... will be from a Craigslist buy. That said, if your jonesing for a newer, nicer piece that is typically going to be a dealer item, I would recommend getting aggressive at several dealers who have similar cars on the lot. Start low, and with the understanding that it's cash, no trade, and see how low they will go.

making it about $2000 less than Kelly Blue Book

The best use for KBB is to print it out and use it to light the fireplace. Seriously, anytime a dealer runs adds with bold, "$2000 UNDER KBB PRICE" they self identify as shit-bags. I got to know the buyer from a local, decent used car dealer, who tries to buy newer units off the street. He just shakes his head at how often sellers storm off in a huff, after being told the truth. Typically the seller shows up with a KBB figure of say, $10K, and that's what they expect. My guy will ask how they determined that, then try to explain that the value is nowhere near that. In some cases he has walked the seller to a matching vehicle on the lot, with less mileage, in better condition, and a retail price less that the $10K that KBB claims that a seller should expect. He has even gone so far as to pull the paperwork, including the check paid to the seller, and ask, How can I give you $10K for this car, when I just bought a nicer one for $3K less, and I can head to the auction and get another 1/2 dozen more for that price. Even after all that, folks will still storm off, confident that they are not going to allow themselves to be screwed, since KBB is right.

Finally, it doesn't really matter how you end up doing the deal, if you find what you want, and have a clear understanding of the true value of both units. If you are selling a car that's worth $15K and buying another worth $10K, there is a $5K split. It doesn't matter if you are paying $14K for the new one and offering you $19K for the old one, there still is a $5K split. If you are walking away, debt free, bank check for $5K in hand, with zero sales tax paid, the numbers on the paper don't mean squat, as long as you protected the split, and didn't give anything away. The only way left to get screwed at that point is in Insane "dealer fees". This is very regional, and I have done business in areas where $500-700 in fees is standard policy. These are nothing but additional profit, and are pure B.S.  Never pay them, do your best deal, and THEN back the fee out of the deal. Many dealerships have a policy that a contract cannot be written without the fee included, and it is often preprinted on the sales documents. Once again, don't stress, just tell them that you are happy to sign once the price of the car is lowered by the dealer fee.
« Last Edit: May 17, 2014, 06:48:10 AM by paddedhat »

paddedhat

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Re: Trading in perfectly fine newer car for older
« Reply #11 on: May 17, 2014, 07:03:17 AM »
You did good.  I applaud your action.  Not many people could give up the new car.

I personally wouldn't pay off the car loan in such a hurry.  It's only 1.75% and the money could be better put to other investment uses.  If you do the math, It only comes to a few hundred collars at most.  But if you don't have anywhere else to invest it, by all means, but you say you have a mortgage.  Wouldn't that be a better place to put extra money?

In most cases the answer is probably no. A car is not an asset, even if you own it outright. It's a tool that needs to be repaired, maintained, insured and feed continuously., IMHO in the case of continuing to pay for a rapidly depreciating product, just because the money is "cheap" it doesn't add up. If liquidating the car can produce $5K in free cash, look where you will be 24 months down the road by keeping it. First the car could easily depreciate by that amount in that time period, so your "investment" has lost $5K. Next on a 60 month, 1.75% loan, the payments would of been $2090. Now, admittedly, very little of this would be interest, but still it's money that went to a depreciating asset, so your down roughly $7K in two years. If you free up that $5k and invest it at 5% in an index fund your up $513 for a total of $5515, or ahead by roughly $12K. Maybe I'm totally wrong on my thinking, but it seems logical to me?

CarDude

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Re: Trading in perfectly fine newer car for older
« Reply #12 on: May 17, 2014, 07:13:27 AM »
You did good.  I applaud your action.  Not many people could give up the new car.

I personally wouldn't pay off the car loan in such a hurry.  It's only 1.75% and the money could be better put to other investment uses.  If you do the math, It only comes to a few hundred collars at most.  But if you don't have anywhere else to invest it, by all means, but you say you have a mortgage.  Wouldn't that be a better place to put extra money?

In most cases the answer is probably no. A car is not an asset, even if you own it outright. It's a tool that needs to be repaired, maintained, insured and feed continuously., IMHO in the case of continuing to pay for a rapidly depreciating product, just because the money is "cheap" it doesn't add up. If liquidating the car can produce $5K in free cash, look where you will be 24 months down the road by keeping it. First the car could easily depreciate by that amount in that time period, so your "investment" has lost $5K. Next on a 60 month, 1.75% loan, the payments would of been $2090. Now, admittedly, very little of this would be interest, but still it's money that went to a depreciating asset, so your down roughly $7K in two years. If you free up that $5k and invest it at 5% in an index fund your up $513 for a total of $5515, or ahead by roughly $12K. Maybe I'm totally wrong on my thinking, but it seems logical to me?

No, I agree. However, I also feel the same way about pretty much any debt. I'm a fan of paying things off first and then investing.

RapmasterD

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Re: Trading in perfectly fine newer car for older
« Reply #13 on: May 17, 2014, 07:20:15 AM »
Yup. A car is a rapidly depreciating asset. BTW I love this topic and relate to it. The biggest face punch BY FAR that I give myself is buying my wife a brand new Lexus SUV last summer when my 13 year old car died and I commandeered her 13 year old car. It was before discovering this forum.

I face punch myself ever time I see it in the driveway. And I refuse to trade it down. Divorce would be more expensive than losing 25K over five years. So we will drive it until it is dust. My goal is that my daughter will get it as her first car. She celebrates her fourth birthday in July.

CarDude

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Re: Trading in perfectly fine newer car for older
« Reply #14 on: May 17, 2014, 07:34:15 AM »
Yup. A car is a rapidly depreciating asset. BTW I love this topic and relate to it. The biggest face punch BY FAR that I give myself is buying my wife a brand new Lexus SUV last summer when my 13 year old car died and I commandeered her 13 year old car. It was before discovering this forum.

I face punch myself ever time I see it in the driveway. And I refuse to trade it down. Divorce would be more expensive than losing 25K over five years. So we will drive it until it is dust. My goal is that my daughter will get it as her first car. She celebrates her fourth birthday in July.

Don't face-punch yourself too hard on that one. Yes, it would have been better to get something cheaper and not brand new, but from a car safety perspective, a Lexus SUV is consistently one of the safest vehicles on the road, even when looking at models more than a decade old. And those are dividends that will protect your wife and daughter year after year. Try to think of it as a different kind of investment.

Also, being a fancy Toyota, the odds are quite high that your daughter will indeed be driving it 13 years from now. A buddy of mine recently replaced an 18-year-old Toyota with a 13-year-old one because he wanted a safer family car, and the 18-year-old Toyota was a holdover from his single days. However, besides some mechanical issues that he decided not to fix because he was planning on selling it, the car was fine. And the newer one runs like a clock. Most cars now will last an awful long time as long as they're maintained.
« Last Edit: May 17, 2014, 07:38:37 AM by CarSafetyGuy »

RapmasterD

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Re: Trading in perfectly fine newer car for older
« Reply #15 on: May 17, 2014, 07:52:32 AM »
Thanks Car Safety Guy! BTW, my daughter is eligible for the car when she is 18....so about 14 years and change from now.
« Last Edit: May 18, 2014, 03:53:49 PM by RapmasterD »

paddedhat

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Re: Trading in perfectly fine newer car for older
« Reply #16 on: May 17, 2014, 08:32:46 AM »
My goal is that my daughter will get it as her first car. She celebrates her fourth birthday in July

Got to agree with the safety man on this one. while shopping for a car for my college student daughter, I drove a 15Y.O Camry that was overpriced by a lot, and nearly destroyed by UV damage. The white paint was flat to the point of being nearly opaque, and the tops of the rear seat backs were turning to dust. It has 105K miles on it. The test drive was stunning. It was quieter, tighter, and more impressive than some of my GM company trucks were at two years and 1/4 the mileage. Problem was the guy wanted $5K for it, and new that somebody was going to give it to him, if he was patient, it just wasn't going to be me.

SDREMNGR

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Re: Trading in perfectly fine newer car for older
« Reply #17 on: May 17, 2014, 09:51:08 AM »
You did good.  I applaud your action.  Not many people could give up the new car.

I personally wouldn't pay off the car loan in such a hurry.  It's only 1.75% and the money could be better put to other investment uses.  If you do the math, It only comes to a few hundred collars at most.  But if you don't have anywhere else to invest it, by all means, but you say you have a mortgage.  Wouldn't that be a better place to put extra money?

In most cases the answer is probably no. A car is not an asset, even if you own it outright. It's a tool that needs to be repaired, maintained, insured and feed continuously., IMHO in the case of continuing to pay for a rapidly depreciating product, just because the money is "cheap" it doesn't add up. If liquidating the car can produce $5K in free cash, look where you will be 24 months down the road by keeping it. First the car could easily depreciate by that amount in that time period, so your "investment" has lost $5K. Next on a 60 month, 1.75% loan, the payments would of been $2090. Now, admittedly, very little of this would be interest, but still it's money that went to a depreciating asset, so your down roughly $7K in two years. If you free up that $5k and invest it at 5% in an index fund your up $513 for a total of $5515, or ahead by roughly $12K. Maybe I'm totally wrong on my thinking, but it seems logical to me?

You are completely mixing up 2 separate ideas.  The fact that the car is a depreciating asset has nothing to do with whether paying off the car loan at 1.75% is a better idea than paying off a higher interest rate mortgage.  The OP is not asking whether or not she should sell the car.  That option is not on the table.  She is wondering whethers he should pay off the car loan or do something else with the money.

Using the same logic that you used on the OP, I would recommend to you to stop eating for next 2 years and invest the money in an index fund.

Too many people on this forum are irrationally fearful of debt.  Debt, if used wisely, is one of the greatest tools in the world for creating wealth.  People have a hard time understanding and utilizing this gift from the money gods.  The OP essentially has a collateral loan for 1.75%.  There are fortune 500 company CEOs that would give you their 1st born if you gave them a sizeable loan for 1.75% interest. 

I have often used low interest credit card loans for various purposes of leverage and I am suggesting to the OP that she should think of better uses of the money because I'm sure there is one if she thought hard enough.  One of my very first real estate deals was an arbitrage where I found a property to buy for our company's investment group and we had lined up a buyer at a price that would yield a 60% return in about 2 months.  Each investment share was $25k and as a 22 year old, I had about $10k in the bank but I had a shit ton of credit.  I fortuitously received a 0% loan with 2% transaction fee check offer from one of my credit cards and I used it to write a check for $20k and made $15k and paid off the loan which cost me $400.

While not everyone has such a nice little arbitrage opportunity available to them, the arbitrage could be something as simple as paying down another loan that is higher priced.  If their risk appetite is higher, they could invest it in the market.
« Last Edit: May 17, 2014, 09:54:28 AM by SDREMNGR »

paddedhat

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Re: Trading in perfectly fine newer car for older
« Reply #18 on: May 17, 2014, 10:17:35 AM »
Sorry but all the "arbitrage" opportunities in the world fail to out weight that issue of depreciation here. The question the OP asked was the value of trading down. In keeping with that thought, does it make sense to eliminate car debt entirely, put cash in your portfolio, and have a payment free transportation appliance, or is it better to continue to make a needless car payment because it can be done with cheap money. The cheap money being applied to a mortgage VS a car is a straw man argument. Given the opportunity to eliminate a car loan debt, It doesn't matter how cheap the money is, it's the right move. Two years after the fact you didn't suffer two years worth of rapid depreciation, blow $2100 in needless payments, and you have 5K invested, or used to eliminate other needless debt.

BTW, you totally miss the overall vibe of this place. There is no irrational fear of debt. There is a deep understanding that "stupid" debt has no place in our lives. Debt used to wisely increase net worth is a whole other issue. That can vary from liberal use of CCs to earn cash back, to borrowing huge sums to acquire investment property. Now, if somebody stumbles in, looking for a pat on the back for snagging a 1.75% HELOC to pay for their new Porsche,  they might be a bit offended when those "irrational debt avoiders" voice their opinion.

SDREMNGR

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Re: Trading in perfectly fine newer car for older
« Reply #19 on: May 17, 2014, 11:22:32 AM »
Sorry but all the "arbitrage" opportunities in the world fail to out weight that issue of depreciation here. The question the OP asked was the value of trading down. In keeping with that thought, does it make sense to eliminate car debt entirely, put cash in your portfolio, and have a payment free transportation appliance, or is it better to continue to make a needless car payment because it can be done with cheap money. The cheap money being applied to a mortgage VS a car is a straw man argument. Given the opportunity to eliminate a car loan debt, It doesn't matter how cheap the money is, it's the right move. Two years after the fact you didn't suffer two years worth of rapid depreciation, blow $2100 in needless payments, and you have 5K invested, or used to eliminate other needless debt.

BTW, you totally miss the overall vibe of this place. There is no irrational fear of debt. There is a deep understanding that "stupid" debt has no place in our lives. Debt used to wisely increase net worth is a whole other issue. That can vary from liberal use of CCs to earn cash back, to borrowing huge sums to acquire investment property. Now, if somebody stumbles in, looking for a pat on the back for snagging a 1.75% HELOC to pay for their new Porsche,  they might be a bit offended when those "irrational debt avoiders" voice their opinion.

You are still not making the point you are trying to make.  Paying down a low interest loan is a separate issue from the usefulness of a car or whether the OP should own the cheapest possible car available.  And the rate of interest DEFINITELY MATTERS.  If I were to indefinitely have access to 0% loan (much like banks do today) then I would borrow infinite amounts of money and never pay it back.  All money use in this world is on a comparative basis.  There are no absolutes.  If I had a 10% loan but could lend it at 12% would I do it?  And would I make money on it?  YES, IT'S CALLED A BANK!.  Making the spread is what banks and lenders do to make money since the beginning of history of money.

Again, you talk about buying a Porsche to supplement your point but no one is saying that they should buy a Porsche.  Seemingly, the next step in your argument logic will to be call me a poopyface and that your dad can beat up my dad.  The question is on whether to accelerate the payback of a loan.  SOME people on this forum are irrationally anti-debt to the point that they would pay back a 1% loan just because they don't like having a loan.  I am supporting the viewpoint that wise and controlled use of debt, which includes control of payback rate and wise use of funds, is what wise investing is all about.  Obviously, you are set in your mindset so I am not trying to convince you, I am trying to answer the question posed by the OP.

SDREMNGR

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Re: Trading in perfectly fine newer car for older
« Reply #20 on: May 17, 2014, 11:29:56 AM »
Two years after the fact you didn't suffer two years worth of rapid depreciation, blow $2100 in needless payments, and you have 5K invested, or used to eliminate other needless debt.

One suffers depreciation regardless of whether an asset is paid off or if it's still financed.  The only cost that matters in this case is the interest rate and cost of borrowing.  At 1.75% interest and balance of $7300, the interest payment for the year would be roughly $127 not doing the amortization math.  That is the only cost that matters in this case because we are assuming that she is not going to get a different car.  Paying off the loan in full today only eliminates interest debt, it does not eliminate depreciation.

RapmasterD

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Re: Trading in perfectly fine newer car for older
« Reply #21 on: May 17, 2014, 02:04:27 PM »
SDREMNGER -- If it's any consolation, I completely get your point and agree with you. We have a 1.9% car loan. I could easily pay it off. I absolutely will not do so.

Thanks for sharing your perpsective, Poopy Face.

rmendpara

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Re: Trading in perfectly fine newer car for older
« Reply #22 on: May 17, 2014, 02:22:49 PM »
Assuming the maintenance/gas wasn't hurting your budget, I would have kept the car and just made sure to own it through 100k+ miles. Short term gains/losses just aren't worth the hassle, unless of course you have a cash need and need to sell something to get things right.

There's nothing wrong with getting a quality car. I personally wouldn't want to spend under $20k on a car (used, for sure), to get a reliable car with some entry-level luxuries and MOST IMPORTANTLY, a car that doesn't cost an arm & leg to maintain.

After all, the purchase price is only the initial cost of your car... operating it is much, much more over the long term.


feelingroovy

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Re: Trading in perfectly fine newer car for older
« Reply #23 on: May 17, 2014, 05:35:44 PM »
Couple of points on the thread that seem to be flashing caution in my cynical mind.

Anyway, a few months after that, we sold it to a used car dealer for $18,500.


This may of been a great deal, or not.  Depending on many factors, especially if it was traded for the Prius? Trade-ins are a great way to really screw the buyer.

Nope.  We bought the prius off Craigslist from an archeologist who was on his way to a two-year dig in Turkey. 

Then we sold the Forester.

And I realize we could have kept that Forester for 15 years.  But I had never had car payments before in my life and realized having them sucks.  I didn't want to pay $365/month for four more years plus the $250/month in gas.

Now I spend about half that in gas and no payments (We did have a loan on it at first, but paid it off quickly).  Still have an incredibly reliable, comfortable car, and are quite happy with it.

I also agree we probably could have gotten another $1000-1500 or so if we could have sold it privately, but it was worth it to us to get it done and move on.  It only cost us $1500 (plus tax and title) to own it that year.  Sometimes you take the loss and move forward.

paddedhat

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Re: Trading in perfectly fine newer car for older
« Reply #24 on: May 17, 2014, 08:10:39 PM »
Couple of points on the thread that seem to be flashing caution in my cynical mind.

Anyway, a few months after that, we sold it to a used car dealer for $18,500.


This may of been a great deal, or not.  Depending on many factors, especially if it was traded for the Prius? Trade-ins are a great way to really screw the buyer.

Nope.  We bought the prius off Craigslist from an archeologist who was on his way to a two-year dig in Turkey. 

Then we sold the Forester.

And I realize we could have kept that Forester for 15 years.  But I had never had car payments before in my life and realized having them sucks.  I didn't want to pay $365/month for four more years plus the $250/month in gas.

Now I spend about half that in gas and no payments (We did have a loan on it at first, but paid it off quickly).  Still have an incredibly reliable, comfortable car, and are quite happy with it.

I also agree we probably could have gotten another $1000-1500 or so if we could have sold it privately, but it was worth it to us to get it done and move on.  It only cost us $1500 (plus tax and title) to own it that year.  Sometimes you take the loss and move forward.
Sounds like you did great. One thing that made the whole deal work really well for you is the absolutely stupid, almost depreciation free resale value that some of the small SUVs enjoy. My wife killed a three year old CRV in a deer collision. It had 75K on the odometer, and the insurance paid 82% of the original purchase price. We were stunned, since there is no way that I would ever think of dropping $20K for a high mileage, three year old basic SUV, but that's where the market is. Good luck with the Prius, it was a good move.

paddedhat

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Re: Trading in perfectly fine newer car for older
« Reply #25 on: May 17, 2014, 08:13:50 PM »
Again, you talk about buying a Porsche to supplement your point but no one is saying that they should buy a Porsche.  Seemingly, the next step in your argument logic will to be call me a poopyface and that your dad can beat up my dad.

Class. I bet you are still beaming at this masterpiece. Does your mom still make you turn the computer of at eight, every night?

Crabricorn

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Re: Trading in perfectly fine newer car for older
« Reply #26 on: May 17, 2014, 10:18:57 PM »
Yup. A car is a rapidly depreciating asset. BTW I love this topic and relate to it. The biggest face punch BY FAR that I give myself is buying my wife a brand new Lexus SUV last summer when my 13 year old car died and I commandeered her 13 year old car. It was before discovering this forum.

I face punch myself ever time I see it in the driveway. And I refuse to trade it down. Divorce would be more expensive than losing 25K over five years. So we will drive it until it is dust. My goal is that my daughter will get it as her first car. She celebrates her fourth birthday in July.

You'll definitely be able to pass it down. I have a toyota highlander (which is a cheap dupe for one of the lexus suvs) that's 11 years old w/ 122k miles and it shows no signs of slowing down (no major repairs only standard maintenance so far). We sometimes joke about using it for 20 years - but it's not really a joke b/c I plan to drive it as long as possible! Before this car I had a honda that I drove for 200k miles. If you take care of it, it'll last!

SDREMNGR

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Re: Trading in perfectly fine newer car for older
« Reply #27 on: May 18, 2014, 09:02:55 AM »
Again, you talk about buying a Porsche to supplement your point but no one is saying that they should buy a Porsche.  Seemingly, the next step in your argument logic will to be call me a poopyface and that your dad can beat up my dad.

Class. I bet you are still beaming at this masterpiece. Does your mom still make you turn the computer of at eight, every night?

No.  She knows it's better to leave it on and set it to hibernate.  Any other topic relevant questions?