Author Topic: When to replace the car?  (Read 7461 times)

Guitarguy

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When to replace the car?
« on: May 11, 2012, 03:58:02 PM »
Hello all. My fiancÚ and I are in a bit of a pickle and I'm trying to be mustachian about finding a solution:

She drives a 2000 mustang with 160,000 miles and we're wondering when to replace it! I was looking at some ford fiestas, which can be had used for $12,000-13,000 with roughly 15,000-20,000 miles.

Here's the breakdown:


Avg US driver= 15,000 annual miles
Gas= $3.50/ gal (roughly)

Using those stats from FHWA.gov gives us....

Four year fuel cost mustang $9545

Four year fuel cost fiesta (or similar car that gets 37-40 mpg hwy)
$6,562

Roughly saves $3,000 in gas
over 4 years

Minus the interest on loan of $13,450 (roughly the cost of a used small car) @ 2.99% rate (total lifetime interest is $850) =

Net gain of $2,150 saved on fuel and a car that's 10 years newer. Doesn't factor in the annual repair savings of driving a newer car.

Monthly cash flow comparison
1,250 miles/ month
Mustang $198 gas
Fiesta $136 gas.  
$60 gas saved per month

$296 car payment- $60=
$236/ month

Break even when?
1st year fuel- $2386 vs $1640
$746 savings
2 years $1,500 savings
3 years $2,238 savings
4 years $3,000 savings

We are already planning on budgeting $200 a month for your car fund, so we're are only paying $36 extra on a monthly basis for you to drive a 2011 used car with 14,000 miles vs. 2000 car with 160,000 miles.

We also save $3,000 in fuel over the next 4 years. However, we do have a loan obligation so if we lose a job then we're at risk of not being able to pay.

smedleyb

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Re: When to replace the car?
« Reply #1 on: May 11, 2012, 04:19:09 PM »
Guitarguy, quick question:

How many miles does your wife drive per year?

grantmeaname

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Re: When to replace the car?
« Reply #2 on: May 11, 2012, 05:11:04 PM »
Why can't you buy something in the 2007-2009 range with more miles on it, and pay for it in cash instead of with a loan? What do you need to get a 2011 for?

To [mis]quote MMM, if paying all your money for a car is a bad idea, paying more than all of your money for a car is a terrible idea.

Guitarguy

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Re: When to replace the car?
« Reply #3 on: May 11, 2012, 05:35:25 PM »
She drives roughly that amount. Perhaps more like 16 or 17,000 after we move closer to her college. I am the only working person at the moment, so paying all cash for her new car isn't feasible. I have only been out of school for 6 months and this far have 3,000 in savings but that isn't enough for a decent used vehicle. The main reason we want to get her out of the mustang is because it hasn't been very reliable and it's worth less than 1,000 at this point.  We'd probably be able to save on insurance as well? Not sure.

JoeK

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Re: When to replace the car?
« Reply #4 on: May 11, 2012, 05:44:52 PM »
If you have to take out a loan, you will not save money on insurance - exactly the opposite.  Insurance will cost more because you'll have to get collision coverage.

You already have $3000 in savings.  Instead of getting a loan with $296/month payments, keep the mustang and put the $296/month into savings to pay for repairs for the mustang and save up for a "new" used car once you have some more money available. 

If you're moving closer to her college, couldn't you move to within walking or biking distance?  That could be another consideration as well.

Bank

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Re: When to replace the car?
« Reply #5 on: May 11, 2012, 05:47:29 PM »
I would think seriously about getting something older (in the 7 year range) with higher miles.  Cars are so well made today that a 7 year old car with 80,000 miles on it could easily get another 100,000.  This is also the type of car MMM generally recommends, for what it's worth.  Just do your research to make sure you get one that has a reputation of aging well.   That would cut the size of your car loan in half.

The only thing I would add to your impressive quant exercise is that you may have underestimated the gas cost.  Most of the forecasts I've seen predict considerably higher than $3.50/gallon.  Make the business case for getting a new car even stronger.  Given the high cost of gas plus the good rate you can get on a loan plus the maintenance issues on the Mustang --- I think you should definitely get rid of it and trade up to something cheaper and more reliable.  Insurance costs will go up, but not by enough to offset the real fuel and maintenance savings.

Good luck!

Guitarguy

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Re: When to replace the car?
« Reply #6 on: May 11, 2012, 06:27:29 PM »
I would think seriously about getting something older (in the 7 year range) with higher miles.  Cars are so well made today that a 7 year old car with 80,000 miles on it could easily get another 100,000.  This is also the type of car MMM generally recommends, for what it's worth.  Just do your research to make sure you get one that has a reputation of aging well.   That would cut the size of your car loan in half.

Good luck!

Thanks! I think it would make sense to go for an older car or even keep driving her current car for a few years. I wish I knew of a car that got 37+ mpg highway and was also 5 years old, but I don't think there are many 2007 cars that do that? Ideally we could purchase a 2005 honda insight, but I can't find any.

We can't move closer because we just signed a lease. We also work/commute in opposite directions, so any movement closer to her college will be offset by a longer commute for me to work. I also do not have the luxury of finding a job that is closer because I'm lucky to have a job at all in this economy with zero work experience in business. After a year or two of my 30+ mile commute, believe me, the first thing I'll do is transfer closer or move closer to work and bike. Unfortunately, for the next year, this just can't happen.

smedleyb

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Re: When to replace the car?
« Reply #7 on: May 11, 2012, 07:01:35 PM »
Thanks! I think it would make sense to go for an older car or even keep driving her current car for a few years.

Bingo.

JoeK

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Re: When to replace the car?
« Reply #8 on: May 11, 2012, 07:04:04 PM »
There are plenty of 2007 (and earlier) cars that get 37+ mpg on the highway.  Just go to fueleconomy.gov and browse around.  Honda Civic, Toyota Corolla, Toyota Yaris, just to name a few. 

There's just no way that it makes sense from a financial perspective to get a newer car with a loan when you can get a reliable older car (or just keep the mustang).  Keep the mustang for at least 6 more months (or even better, wait until you actually get hit with a large repair bill - it may last longer than you think), putting aside the money allocated for car payments, and then spend the $5000 on a used, fuel-efficient car and you'll be in good shape. 

Guitarguy

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Re: When to replace the car?
« Reply #9 on: May 11, 2012, 07:51:43 PM »
Thanks guys :-) I knew I was over-thinking it. We'll keep the car and stick the surplus in savings.

Bank

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Re: When to replace the car?
« Reply #10 on: May 12, 2012, 05:59:02 AM »
Keeping the car is also an option, but given your numbers (I haven't checked them, and that 2.99% interest rate sounded optimistic) it seemed as though you would be saving way more on gas than you would be paying in interest.  I personally hate consumer debt, but from a financial standpoint it makes sense to go with the more efficient car even if it means a loan if those numbers are right.  Just my two cents. 

windawake

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Re: When to replace the car?
« Reply #11 on: May 12, 2012, 07:05:59 AM »
My 1999 Ford Escort I've had for 8 years gets 30mpg. I'm certain there are cars that are a couple years newer that get way better than mine. You just have to be okay driving something little (mine's a two door).

shedinator

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Re: When to replace the car?
« Reply #12 on: May 12, 2012, 09:07:05 AM »
I'd suggest locating a fuel efficient vehicle at a discount car dealership, then taking your vehicle to a different dealership- ideally one that guarantees giving you the most $$ for your trade- and trading it for cash. return, and use $$ from trade for fuel efficient vehicle. If there happens to be a place that offers the lowest prices and highest trade values, so much the better. That's how we moved from a Jeep Liberty to a Scion xA for precisely $100.

menorman

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Re: When to replace the car?
« Reply #13 on: May 12, 2012, 11:29:14 PM »
I would think seriously about getting something older (in the 7 year range) with higher miles.  Cars are so well made today that a 7 year old car with 80,000 miles on it could easily get another 100,000.  This is also the type of car MMM generally recommends, for what it's worth.  Just do your research to make sure you get one that has a reputation of aging well.   That would cut the size of your car loan in half.

Good luck!

Thanks! I think it would make sense to go for an older car or even keep driving her current car for a few years. I wish I knew of a car that got 37+ mpg highway and was also 5 years old, but I don't think there are many 2007 cars that do that? Ideally we could purchase a 2005 honda insight, but I can't find any.

We can't move closer because we just signed a lease. We also work/commute in opposite directions, so any movement closer to her college will be offset by a longer commute for me to work. I also do not have the luxury of finding a job that is closer because I'm lucky to have a job at all in this economy with zero work experience in business. After a year or two of my 30+ mile commute, believe me, the first thing I'll do is transfer closer or move closer to work and bike. Unfortunately, for the next year, this just can't happen.
VW has been making diesel Golfs/Jettas/Passats for decades, so 2007 models do exist. I'm not 100% certain on the Passat, but I know both the Golf and Jetta TDI get consistently in the 40s on the highway. The only drawback to those is that the secret is out, so they hold their value better than the dollar. In addition to the diesels, there's the usual set of recommendations of Civic/Corolla/Sentra/Fit etc. that have long been known as gas sippers and also adorn the MMM approved list. Some of those will see in the vicinity of 37 mpg highway, even if the official EPA estimate wasn't that high. Driving style will also play a role in fuel usage. But moving on to the current situation, the fact that the current vehicle has 160k miles and still runs makes it seem unnecessary for you to spring for a practically brand-new car if you're serious about saving money. As someone else already mentioned, modern cars are more reliable than ever so finding something a little older with between 50k and 75k on the odometer seems to be a more stable idea for you. Even assuming she drives the 17k a year that you said she does, it would still take a good 5-6 years to get another 100k on it which would be at the mileage position you're in right now, but hopefully a much better one financially to be able to take better options.

judgemebymyusername

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Re: When to replace the car?
« Reply #14 on: May 14, 2012, 05:46:11 PM »
If you all haven't heard of it, you should take a look at fuelly.com. It's an easy, quick way to see what other people are getting for gas mileage with any vehicle.

JoeK

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Re: When to replace the car?
« Reply #15 on: May 15, 2012, 10:50:14 AM »
Keeping the car is also an option, but given your numbers (I haven't checked them, and that 2.99% interest rate sounded optimistic) it seemed as though you would be saving way more on gas than you would be paying in interest.  I personally hate consumer debt, but from a financial standpoint it makes sense to go with the more efficient car even if it means a loan if those numbers are right.  Just my two cents.

The cost of purchasing the car needs to be accounted for too.  If I have a car that's worth $1000 and gets 20mpg and I trade it in for a car that costs $8000 and gets 30mpg, it will take a long time to recoup that $7000 difference in gas savings.  Since the car depreciates over time, that extra $7000 is a part of its cost of ownership, too.  The interest rate is not really relevant in this case - even if it were 0%, it still might not make sense financially to make the purchase. 

Bank

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Re: When to replace the car?
« Reply #16 on: May 15, 2012, 11:23:14 AM »
Keeping the car is also an option, but given your numbers (I haven't checked them, and that 2.99% interest rate sounded optimistic) it seemed as though you would be saving way more on gas than you would be paying in interest.  I personally hate consumer debt, but from a financial standpoint it makes sense to go with the more efficient car even if it means a loan if those numbers are right.  Just my two cents.

The cost of purchasing the car needs to be accounted for too.  If I have a car that's worth $1000 and gets 20mpg and I trade it in for a car that costs $8000 and gets 30mpg, it will take a long time to recoup that $7000 difference in gas savings.  Since the car depreciates over time, that extra $7000 is a part of its cost of ownership, too.  The interest rate is not really relevant in this case - even if it were 0%, it still might not make sense financially to make the purchase.

It should even out.  The car with the lower basis (value) has a shorter useful life.  Annual depreciation + repairs on an older car should roughly equal depreciation + repairs on a newer, yet still well used, car.  And annual cost of ownership is what you really should be comparing. 

New cars typically experience accelerated depreciation early on, but the type of cars (in the 7 or 8 thousand dollar range) were were talking about for this poster should not experience noticeably accelerated depreciation.