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Maybe I'm talking myself into getting a loan and buying new ... two things I said I wouldn't do.
I paid off my last car over 8 years ago. I decided that I would not ever do a car payment again. However, I've recently been looking at a new (to us) minivan because that car is now 12 years old with 150,000 miles on it.
After researching, it seems like a Kia Sedona is the best bang for the buck because with 4 kids we need a minivan. It's reliability is actually pretty high now a days. However if I go that route, I would go certified pre-owned so I could get the 10 year warranty, because after all it is still a Kia. I can get a year-old Sedona with about 20,000 miles for an out the door price of about $23,000. I could pay cash for that.
I was going to do that, until I found a leftover 2016, but still new, model that the dealer will let me have out the door for $27,500. He will also let me finance it at zero percent for 66 months. My monthly payment would be about $416.
Given that I currently save $600 a month into my car fund and budget $200 a month on repairs for my high mileage cars, I could swing that $416 payment easily and still build up my fund by a couple hundred dollars a month. So by the time the 66 months are up, my car fund would be about $13,200 higher than it is today plus the small amount of interest I earn. I could even put that money in a 5 year CD and get more interest.
It would also in essence increase my emergency fund. Yes, my monthly obligated outflow would be $400 higher, but that $23k I wouldn't deplete now would add a good 4-6 months of emergency fund even at the higher level. I currently have an emergency fund that would last me about 6 months.
So bottom line ... am I rationalizing my way into buying a new car, and getting a car loan (two things personal finance experts preach against), or is this a sound strategy?
I paid off my last car over 8 years ago.
that car is now 12 years old with 150,000 miles on it.
I decided that I would not ever do a car payment again. However...
However... have you been tucking a couple hundred aside each month since then?
96 months... $200 a pop ... you would have $19,200 available now.
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...it seems like a Kia Sedona is the best bang for the buck...
I can get a year-old Sedona with about 20,000 miles for an out the door price of about $23,000.
I could pay cash for that.
Because you saved car buying money and/or enough generally that writing a $20,000 check
won't disrupt your financial planning in any significant way if at all? Cool. Good for you.
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I was going to do that, until I found a leftover 2016, but still new...for $27,500.
He will also let me finance it at zero percent for 66 months. My monthly... about $416.
Tasty... How much with 48 month financing?
And you do know there is no such thing as "free financing"... right?
It's built into the price being charged.
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Given that I currently save $600 a month into my car fund and budget $200 a month on repairs
Truly? That's a lot of saving even for parsimonious me and $200/mo for repairs is outrageous.
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I could swing that $416 payment easily...
and still build up my fund by a couple hundred dollars a month.
I could even put that ($23,000) money in a 5 year CD and get more interest.
Ding Ding
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So bottom line ... am I rationalizing my way into buying a new car
Since this is in the economic section, on that basis, I say save up to buy your car with cash. If I were going to justify my decision to buy what I wanted, i would say getting a safe vehicle to transport your family in comfort takes precedence over a good economic decision.
Perhaps I missed something. How much $ do you currently have in your car fund, and in your emergency fund? Or are they one in the same? All you said is you save $600 per month for a car fund.
If you have $23k sitting in a car fund that is separate from your emergency reserves, you could consider paying cash for the new car. However, it all depends on your other finances. I would recommend plopping out that much cash unless you have full emergency reserves and a bit extra for cushion.
Perhaps I missed something. How much $ do you currently have in your car fund, and in your emergency fund? Or are they one in the same? All you said is you save $600 per month for a car fund.
If you have $23k sitting in a car fund that is separate from your emergency reserves, you could consider paying cash for the new car. However, it all depends on your other finances. I would recommend plopping out that much cash unless you have full emergency reserves and a bit extra for cushion.
Sorry if I was clear. I have separate funds. Emergency fund has about $20k. Car fund has about $23k. Since paying off my car 8 years ago, I first aggressively funded the emergency fund. Once that got up to $20k, I switched to a car fund. I also purchased a commuter car with cash a couple years ago.
So my question boils down to do I want to part with that much cash at once? I could get a cheaper car I suppose, but we tend to keep our cars a long time ... more than 10 years. So I'd rather get something new-ish and low miles rather than something high miles that will need to be replaced in 5 years.
Also, after this, we will be a three car family ... one newish family car, one commuter car for me, and and the old family car. My oldest just turned 15, and I want to use that one as the "training car" for her.
Sorry if I was clear. I have separate funds.
Emergency fund has about $20k. Car fund has about $23k.
In that case... I'd say your EF isn't large enough.
Shift the entire $23,000 car fund into the EF (laddered CD's etc)...
and you're beginning to get close to having enough.
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I could get a cheaper car I suppose, but we tend to keep our cars a long time ...
If the car will be getting a high number of annual miles... new is justified.
With a fully fleshed out EF ... you have no choice but to do the car loan.
My only concern with new is the term of the loan... 66 months is a long time.
Get that loan term down to the 50,000-60,000 miles of use range and it works.
(iow you don't want a loan payment at the same time you have major wear/servicings due)
I think spending over 50% of your total cash at once on a car purchase is a mistake. You would be better off financing. Maybe put $10k down and finance the remaining $13k for 3-4 years. Your monthly payments should be much lower than $400. More like $200. Then you can keep saving towards the next car.
First cash is cash, calling it a car fund or emergency fund makes no difference it's all the same. Second, interest rates are incredibly low on an historical basis, if you're invested in equities you've been far exceeding the cost of an auto loan over the last several years. If you have the cash stashed in a CD or interest bearing account then it'd be different.
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