Thinking Long-Term About My Vehicle
September 26, 2014 11:53 AM   Subscribe

I have a good, reliable car that costs (in my opinion) too much money. I am not currently making the payments on this car, but I will start doing so soon. I am thinking of selling the car and getting a cheap one - but my mother (who is currently making the payments) adamantly believes that this would be a terrible financial decision. I can't see how she could be right.

The car loan payments are a little less than $300/month, and the insurance is about $1500/year; currently half of that is paid every six months. At the moment, I am responsible solely for gasoline; my mother pays for the rest. The car is under warranty, and I am not allowed to do any work on it or else I will void the warranty. "Work" includes changing the oil. So really, the only things I can do to the car are fill it as it empties of fuel, washer fluid, etcetera.

I have recently received my bachelor's degree and am job-searching. When I am gainfully employed, I will take maybe a month or two to build up a bit of a savings cushion in case of emergencies, then take on the car payments myself. I want to save for graduate school (which I want to attend in three years at the absolute most) and I am thinking of cutting costs by selling the car. Currently, we owe slightly less on the car than it is worth (according to, to the tune of about $1500. My mother has offered to buy the car from me for $5000 and keep it herself, payments and all. I am fairly sure she can't actually afford this, which is only somewhat beside the point.

Let's say I do this, and take the $5000 to spend on a used car. Let's assume I get a car in decent shape (can you get a used car in decent shape for $5000? I'm undereducated on the market). Would potential repair costs, loss of fuel efficiency (my current car gets ~38 average mpg in the warmer months, and ~29 average mpg in the winter), possible insurance increases, etcetera end up costing me more in the long run than my current car? I can't imagine a used car costing $250+/month in repairs from the outset, especially since I could do some basic repairs myself rather than being required by warranty to go to a mechanic for everything.

But I really don't know, and I don't want to make a terrible decision here.

Other relevant information:
- Even if I do keep my current car for a while, I do not plan on keeping it for the long-term. When I can, I want to save up and buy outright (or nearly) an all-electric vehicle, now that there are some non-luxury options out there. So I'm not thinking of either vehicle as more than an investment of the next few years.
- The $5000 offer from my mother may have been an in-the-moment thing; she has been known to offer help in various forms (monetary or otherwise) one moment and then claim she never did so when I come back from thinking it over and ask for the assist. So I may well be getting a car of even lesser value than the $5000 I mentioned above if I do decide to sell my current car; I may only have whatever I get on the [sale price - remaining loan] equation, plus a little savings.

Thanks for any and all advice!
posted by Urban Winter to Work & Money (24 answers total)
It's hard to answer this question without knowing how much the car is worth and how much you currently owe. I think the calculation is a lot different for a $10k car with $8500 owed on it than a $20k car with $18500.

I have a feeling that financially speaking, you are right. However you mom might have a point about less easily quantified things like the fact that this is a known to you, reliable, vehicle.

Knowing all the numbers could help determine how much that fudge factor would matter.
posted by sparklemotion at 12:04 PM on September 26, 2014

Keep the car if you can afford it and save the money that you were planning on using for another car as a rainy day fund. When you have enough saved up for dream car, give this car to your mom. I sold my car thinking I didn't need it and it was a hassle to keep. I ended up making ~1000 after the sale. I only owed ~5000 and it was a great known to me completely reliable car. After moving, I'm going to have to buy another car hopefully if I can find a decent one in the ~5000 range. Sadly, if I had found a way to make it work I would have kept my car and owned a decent newish car with low mileage, easy to maintain and great mpg. Keep the car, I know I would have if I could do it again. It sounds like the same situation you're describing. Good luck!
posted by lunastellasol at 12:06 PM on September 26, 2014 [3 favorites]

If your mom's offer remains valid, you can absolutely get a decent used car for $5000. For fuel efficient cars, look at compacts in the 5- to 10-year-old range: Ford Focus, Honda Civic/Fit, Nissan Sentra/Versa, Toyota Yaris, etc. Then you won't have a car payment and the only additional expense you'll have is car insurance, vs. taking on the car payment as well, which is a pretty significant additional expense.

You'll have to do the math based on how much you drive, how much do you save in gas by having the high-MPG car vs. having something lower? Older cars tend to not get mileage that good (though we did have an '85 Subaru once that got about that.... but a car that old these days would probably require quite a bit in parts/repair pretty regularly).

Also, your insurance costs seem really high to me. Maybe it's just that you're demographically and geographically in a high-risk area, but I pay less than $900 per year for very good coverage on two cars. Maybe try shopping around for a better deal on car insurance.
posted by rabbitrabbit at 12:10 PM on September 26, 2014

Response by poster: I won't thread-sit after this, I swear.

The car is worth about $13600, and I owe about $12000.

I should have stated outright in my initial post: I want to take the ~$300/month and put it toward saving up for grad school. The car I really want can come after my education.
posted by Urban Winter at 12:15 PM on September 26, 2014

I admit that I'm stumped as to what newish car could net you 38 mpg and cost so much to insure. Please share if so inclined. Your mother is almost certainly overpaying unless there are special circumstances. I pay less than $700/yr to insure a 2008 Volkswagen in Chicago (through Progressive).

Unless you foresee not needing a car when you start graduate school, I would stick with the known quantity and keep the car---at least until the warranty runs out. Even a good $5,000 car is going to be a lot closer to the end of its life than the $13,000 car you have now. All else equal, you will come out on top by making this car last as long as it possibly can.
posted by ndg at 12:38 PM on September 26, 2014 [1 favorite]

I admit that I'm stumped as to what newish car could net you 38 mpg and cost so much to insure.

I'm assuming you own your VW outright? In the OP's case, they are still making payments, and are mandated to have a higher level of coverage than if they owned the car free and clear.

The rate cited by the OP is what I was paying 14 years ago in CA for a new car, nothing fancy, and with my perfect driving record and my being older/more experienced driver than the OP. $1500/year is totally feasible.

OP, can you give us more info to help you think through the numbers?

Make/model of the car?
Current miles the odometer?
Length of your potential commute?
Where you live, and where you anticipate going to grad school?
posted by nacho fries at 12:57 PM on September 26, 2014

Here's the thing, has anyone actually OFFERED you that $12,000 for your car? Because that's theoretical.

I spent my youth in beaters that stranded me in terrible places at terrbile times. I now drive newish Hondas.

My suggestion is see what $5,000 buys you and decide from there if it's something you're even willing to think about once you've seen it.

Also, you can't work on most modern cars. They all have computers. Oil changes at my dealer are $21.00 so you're not losing a shit ton of money on that.

But the car will probably need a new set of tires, a timing belt and other things as it ages. That's just a fact.

I spent $4,000 on my 7 year old Honda Accord, motor mounts, new tires, timing belt/water pump, etc. So there's your $250 per month right there.
posted by Ruthless Bunny at 1:14 PM on September 26, 2014

Have you considered refinancing your loan through a credit union to get a better interest rate and lower payments? Seconding Progressive has cheaper insurance. Including the Snapshot discount. OP it sounds like you're frustrated in the situation due to wanting to save for grad school and thinking your car payments are holding you back. If you need a vehicle for daily life, stick with what you have and maybe consider a part-time job to save for grad school?
posted by lunastellasol at 1:16 PM on September 26, 2014

The car is under warranty, and I am not allowed to do any work on it or else I will void the warranty. "Work" includes changing the oil. So really, the only things I can do to the car are fill it as it empties of fuel, washer fluid, etcetera.

If it is a newer car, I can't imagine what else it might need. Anyway, because of Magnuson-Moss, you cannot void the warranty by doing work yourself. You may not get warranty service on things you modify (add a new stereo, etc.), however.

Another factor you are missing is that there are transaction costs. Right now, you have a car, licensed and insured and all of that. If you sell it and buy a new one, you will have to pay taxes, title and registration fees, etc. Depending on the state, the could easily be 4-500 dollars at least and possibly quite a bit more.

Personally, I would keep the current car. It's reliable, it gets decent mileage and a 5000 dollar car won't necessarily save you enough to make it worth it, and certainly may end up costing more.

When I started school, I traded in a beater for a new car - because a fixed monthly payment on a reliable vehicle is far more desirable than surprise repair expenses on a car. Way easier to budget for, and one less distracting headache so I could concentrate on school.
posted by Pogo_Fuzzybutt at 1:21 PM on September 26, 2014 [5 favorites]

Either way you go, let your insurance know you've graduated, are employed and should definitely get a lower insurance rate. If they don't offer you a lower rate, shop around. $150 a month on a car worth $13000 is absurd.

When is the warranty up? What is the interest rate on the car? You've got about 3 years of payments left on it, how old is the car now? What was the purchase price? What is the interest rate? Something about that $300/mo payment isn't adding up to me. Is $300/mo also a service plan? Did your mom trade in a car that was "underwater" and roll it into the new car loan? Did she get a criminally high interest rate?

That said, divesting yourself of this car could clear up some cash flow, but it might not be substantially better for you in the long run. A decent $5k car is going to be a beater. I would take that $5k, and a loan for another $5k. A decent $10,000 is going to be easier to find. Find a good mechanic you trust and pay a few hundred bucks for him to check out the car you're considering purchasing.

Shop for that loan at a credit union. If you don't have bad credit (just no credit) you can get 3-4%. Take 5 years to pay it, build 5 years of on-time payments in your credit history. It'll have a crazy low monthly payment, like $90. Until you turn 25, you might still have $100/mo insurance, but it is a big drop after age 25, so have hope there. The driver is the bigger liability than the $10,000 car at that point.

So, you've effectively traded a $13000 car for a $10000 car with unknown variables, but a substantially lower monthly cost. I can't say if you end up ahead or not, with out knowing local taxes, transaction fees, and interest rates.

But, if you take that extra cash flow, and save up, you will be more financially secure, even if you have 2 more years of debt/payments. Part of your savings will be a car repair fund, because it will need repairs eventually, and will die eventually.

Your other option is to refinance the car loan. You have positive equity, so you should be good there. Again without details of the interest rates, terms, etc, I can only speculate that you'd get a lower monthly payment.
posted by fontophilic at 1:30 PM on September 26, 2014

I'm assuming you own your VW outright? In the OP's case, they are still making payments, and are mandated to have a higher level of coverage than if they owned the car free and clear.

I do own the car outright, but the insurance premiums were the about the same while I was still making payments. I didn't reduce the coverage. We don't know the circumstances but I maintain that $1,500/yr sounds awfully high to me and warrants re-examination.

OP, you didn't ask this, but I might point out that the maximum amount of money you would save from banking the $300 payments before starting graduate school in three years is $10,800. Subtract from that whatever repairs your $5k car needs and you may or may not still be in the black. Even in the best case, it's not likely to make a huge dent in the financing of an advanced degree. Keep the car and save yourself the headache.
posted by ndg at 1:32 PM on September 26, 2014 [1 favorite]

Yeah, $5,000 could get you a perfectly fine and reliable car. I bought my now 20-year-old truck for $2,000 just over 10 years ago, and it's still running fine. Outside of normal maintenance like oil changes and new tires every 4 years, I've probably put about $2-3,000 into it in repairs. So, I've been lucky in that respect, but you might not be that lucky with a used car--it's all so unknowable. Also, my truck is a TOTAL beater, which is fine by me, but is kind of a reality if you're going to go the less expensive route (and you might be fine with a crappy-looking car that works).

$12,000 may seem like a lot, but in the grand scheme of things, maybe not really. It probably makes just as much sense to keep paying it off and then drive the thing into the ground. A car is an expense no matter what; it's not like there's tons of savings just waiting to be had in this situation, imo. Of course, if you don't really like the car itself, then you should sell that shit, because it really is just a car and life is too short!
posted by bennett being thrown at 1:43 PM on September 26, 2014

I can't imagine a used car costing $250+/month in repairs from the outset

Ha ha, this is a joke, right? People above have suggested a few brands/models of cheap used cars -- now look up what a set of tires, a new transmission, and a timing belt might cost on one of those. Or wheel bearings, brakes, coils, fuel pump, and exhaust manifold repair, say.

It's unlikely to be handed that kind of repair bill in one go, but used cars are definitely a crapshoot and there's no guarantee of turning your current car payment into pure profit.
posted by Dip Flash at 2:15 PM on September 26, 2014 [1 favorite]

Response by poster: To answer some specific questions:

Make/model of the car?
2013 Ford Focus
Current miles the odometer?
Length of your potential commute?
Currently I drive an average of maybe 20-25 miles/day. I try to drive very little, but it's balanced somewhat by the fact that if my friends and I take trips it's usually in my car because I am the best driver among us and get the best gas mileage.
Where you live, and where you anticipate going to grad school?
The Albany NY area. Not sure where I'll be going for grad school; it's highly dependent on what kind of assistance the school in question would be offering. If I get nothing, probably the University of Buffalo.

I am a 24 year old male; will be 25 in six months. My driving record is clean of moving violations. I've been in two crashes, both of which were acknowledged as not being my fault.

Other details regarding financing and whatnot are total unknowns to me.
posted by Urban Winter at 2:26 PM on September 26, 2014

The idea of your mother paying you $5000 for a car on which $12,000 is owed and is worth $13,600 makes no sense. She would still owe $12,000 on it. You should not let her do this.

If she wants to give you $5000 for you to buy another car, then there's the question of which car, and how much more your current payments are over insurance + maintenance alone. Maintenance is hard to think about since it comes in big chunks instead of monthly, but $100/mo isn't a bad place to start. Insurance should be less, but if you are a young male (riskiest humans on the planet!), then not by much.

The other option is for you to proceed as planned (you take over the payments), and then she needs a car. You haven't said anything about her resources or driving needs, so those are things to consider separately.

Selling the car outright, with a gain of ~$1500, leaves you both starting from scratch.

The biggest 'loss' on a new car is driving it off the lot; it sounds like you are still close to having bought the car recently, and if you sell the car outright, you (and/or your mother) will then realize or pay that loss; if you (or she) keep the car for a longer time, you spread that loss over a longer time. This is likely why she doesn't want to sell it outright, and she's right.

It also depends on the rate of the loan, but that's starting to get into weeds.
posted by Dashy at 2:33 PM on September 26, 2014

I wouldn't do this unless you're driving a truly extravagant car, or you'd be getting a special deal on a car worth much more than $5000.

Because $5000 isn't a lot for a car, and won't get you much car. Whatever you end up with will certainly be less reliable than what you're currently driving and need replacing much sooner.

FWIW a 2013 Ford Focus doesn't sound like a truly extravagant car. I'd keep it with a plan to continue driving it well into grad school, rather than trading down for a beater that will almost certainly need replacing before you start grad school. (Or worse, it croaks right as you start school and you end up taking on a bunch of debt you could've done without.)
posted by Sara C. at 3:31 PM on September 26, 2014 [1 favorite]

I agree. Knowing it's a Focus, that's a good investment and you ought to stick with it. I've got a 2002 Focus that feels as solid today as it did when I bought it 11 years ago. It's long since paid off, and my repair/maintenance costs were nonexistent until maybe a year or two ago, and are still extremely low (>$500/yr). I love my Focus.

You might still want to look into refinancing and do some insurance rate comparison shopping, to make sure your rates are as low as possible. Find out what the interest rate is on the loan, and if it's above 4% see if you can get the loan refinanced into your name -- that way you'll start building credit, too.
posted by rabbitrabbit at 3:51 PM on September 26, 2014 [1 favorite]

Don't turn your knowns into unknowns, especially since you're hardly losing money in this situation as-is with your ma's help.

Keep your head up and find a good job.

By the time you get your first paycheck, you'll be wondering why exactly you wanted to waste so much time and energy to (maybe not even) save a few bucks to fix a problem you didn't even have.
posted by oceanjesse at 5:24 PM on September 26, 2014 [2 favorites]

I tend to buy 5 or 6000 cars, and I budget about 1000 per year for repairs. Generally they run for about two years with no trouble and then have something catastrophic happen that costs 2-3000 dollars.
posted by lollusc at 5:31 PM on September 26, 2014 [1 favorite]

I live in the Albany area, and my husband is an auto mechanic. Our joint opinion is that it is highly unlikely you will find a reliable car in upstate NY at the $5k or less Mark - the winter driving and the Salt is brutal on cars. Cars at that price point are rust buckets that will pick your pocket regularly with maintenance. Keep the Focus.
posted by Ardea alba at 6:53 PM on September 26, 2014 [2 favorites]

I like the phrase "don't turn your knowns into unknowns"; it's very applicable to cars.

Since you're keen on driving electric in a few years, I vote you stick with this car until you can trade it in on the electric model you want. You'll get good reliability, good efficiency, and a known maintenance history.

I just leased a Focus Electric and did a lot of research into the plug-in car market. In three or four years everyone expects there to be more selections, more range, and less cost.
posted by Kakkerlak at 6:55 PM on September 26, 2014

$5000 is like, the get in the door price on a decent car nowadays, ever since cash for clunkers and the contraction of the used car market fucked everything up.

it's HARD WORK to get a good car for 5-6k now. it took me literally a couple of months of constant searching, inspecting, test driving, etc. And i have a rudimentary interested amateurs amount of knowledge of how to look for crash damage and maintenance issues. It was seriously a second job.

The vast majority of cars in that price range will have close to 100,000 miles. the very unusual ones that go quite quickly if they're any good at all will have over 50,000. You will immediately be shocked and disappointed at what's out there and available, and how many times if it's a dealer they're trying to steer you into something that actually costs more than that.

You will either end up with something much more basic(like a yaris, versa, etc. the tiniest econobox cars) that still has double or triple the mileage, or an older car in a similar size/price bracket as what you currently have... that has closer to 100k miles than not.

Basically, i'm saying it's a losing proposition to try and buy a $5000 car. Other people have brought up the points about taxes/fees etc you have to pay as well, making it really more like a $6-7000 car.

I'll also note i'm coming at this from an area where we don't salt, and although it's very wet, rust isn't so much of an issue. It's STILL a hard game to play here. And one that i would never willingly jump in to again if i already had something nicer, even if it was annoying me to pay what it cost to keep the known quantity car.

The car you have, as described, will likely be good for another 10 to 15 years if you don't fuck it up and don't ignore maintenance. Personally, i'd just drive it until it explodes at this point.(or more, requires some shit replaced that's totally not worth it by then. like a new transmission at 200k miles, or something)

There might be a point in trying to refinance or something, but i think you're actually in a fairly decent position here.
posted by emptythought at 7:10 PM on September 26, 2014 [4 favorites]

I don't know - people in the US seem extremely cautious about buying used cars, but that's all my husband and I have ever done and haven't had major issues. Our current car is a Honda Fit that we bought for $6500 used. The only issues we've had are minor - we had to replace the lock on the trunk. You're really unlikely to be hit with the kind of repair bills that would make spending $12000 you don't have on a new car worth it. Do the math - and be prepared to spend a bit more on repairs than with a brand new car - but you'll probably still come out ahead.
posted by peacheater at 9:15 PM on September 26, 2014

I started grad school with a car that was $4,500, in good shape, and should have been perfectly reliable! Then it overheated and would have needed an engine replacement. This car was replacing an older car that also failed (and caused a huge headache because I was planning to attend a conference). I am still in grad school and now have about $13,000 left in payments on a new car. It's highly reliable, it's under warranty, I've driven it to internships and conferences without a hitch, and I wish I'd bought a new car years ago instead of wondering when the next catastrophic failure was going to kill my beater car of the year.
posted by nicodine at 6:05 AM on September 27, 2014 [1 favorite]

« Older Sacramento meeting place?   |   Custom Switch Panel for a Tacoma Newer »
This thread is closed to new comments.