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New Car Questions.
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Posted by: CyberGlitch

I have a few questions I shall ask the all mighty and knowing forum.

My current car is on it's last legs and I am looking at purchasing either a new or used car and can't decide what I want. My choices are as follows get a new car w/ 6 year financing OR get a cheap used car under $5K and start saving for a house that I MIGHT be able to get in that same 6 years.

Heres the problems. First I know the NEW car I really want it's the new 02 Protege5, very nice car for $18K after options. I would have to do 6 year financing to keep my monthly payments under $300/month. Now my wife gets outta school in like 6 months and then we have to start paying those loans back as well. So either way I go I don't think I'll be getting a house in the next 6 years anyways, so I'm thinking go with the new car for now.

Also another curve in the road is that sometime soon my wife and I would also like to have a kid. With my wifes Geo Storm a car seat is not an option so we would also need a better more reliable car, hence the Protege5.

So given the current circumstances what is your advice?

Only reason I haven't really jumped up and got the car yet is b/c I am kinda scared as this would be my first big/long time purchase, I'm only 20 afterall.

Posted by: jradosh

FWIW, I've never purchased a new car and don't feel that I've missed anything. You can save considerable $$$ buying a 3-5 year old car and get the same value (assuming that 'new car prestige value' isn't counted).

Once I watched a "how to save money" show on PBS. Of the top 10 'mistakes' people make, buying new cars was listed as one of them (forget the order). This list was, of course, not for people with disposable incomes. It was for people with financial goals (i.e. retirements, house purchase, child support, etc.)

The show went on to show (with charts and graphs) how it's best to buy a used car and drive it for 10 years. Next example was used car every 5 years. Then the example of a new car every 3 years, leased, was shown. The difference over 20 years between the best case (used/10 yrs) and worst (new/3 yrs) was astronomical!

YMMV
J :)

Posted by: johnmoorejohn

When I started my first job, I was all excited about the new cash flow. I went out and bought a new v6 camry..24K. I can't say I regret it now, but since that decision the house, baby issue has come up. I did get a house and a baby may come sometime soon. I had to do a 5 year finance to keep the monthly low as well. If I could do it again, maybe I should have opted for a $6-10K used car or even a corrolla.

btw, hows your credit? If it's pristine, you may be able to get good financing on your house. Maybe a two mortagage loan, so you won't need much down. 80-10 and 10 down. or even 80-15 and 5 down. That could free up money for a car.....

Posted by: stevel

If you have to go to six year financing, or even five, you're buying more car than you can afford. You'll be "underwater" for the most of the life of the loan and will end up paying far more in interest than you would with a shorter-term loan.

Go for an inexpensive used car and think about buying new when your finances are more solid.

Posted by: CyberGlitch

My credit is crystal clear, but not to much. I just got my first credit card about a year or so ago and now have several dept store cards as well. But all have been paid on time and several already paid off. I guess I don't know much about buying a house and when a co-worker got his he put like $30-$40k down and I was like no way I could ever save that ammount of money up for a house.

The more I look at this car and think about it the more I want it. I keep trying to sell myself out of getting it but I just can't. I have gone out and looked at other used cars and just can't find something I like at a resonable price. I've found maybe 1 or 2 but of course were newer cars and were roughly $10K though and I couldn't justafy that when I could get the exact new car I want for roughly $6-8K more. I dunno, supose I came here for people to sell me out of buying the new car that I want.

Posted by: Demandred

quote:
Originally posted by stevel
If you have to go to six year financing, or even five, you're buying more car than you can afford. You'll be "underwater" for the most of the life of the loan and will end up paying far more in interest than you would with a shorter-term loan.

I got a 5-year loan so the payments would be lower, and I could save more to pay it off early. I'd have already paid it off (after 6 months) if I hadn't bought a house last month.

Posted by: sguthrie

I tend to buy new cars because I'm no good at the doing the mantinence myself, but I also drive them as long as I can.

I would be VERY leary of a six year loan. Even 5 makes me quivery (although I have done that).

Posted by: Michael R

The moment you drive off the lot in a new car your car instantly depreciates in value. If you plan to drive that car for over, say, 100,000 miles then the drive off the lot depreciation is not important. If you buy a "program" used car that depreciation is already factored into the price. Most new car dealers bid for program used cars, that is cars from rental fleets and leases. Much of what you see on new dealers used car lots are program cars. Sometimes you can find a good deal. You should check www.carfax.com before you buy a used car.

I always buy new Honda Accord LX models and drive them for 15 years or 150,000 miles, which ever comes last. If you properly maintain your car at the dealer it should run for years. I don't want to take chances with someone elses maintenance or lack thereof on a used car.

I'm concerned about the length of your proposed car loan. That could cause you to get "upside down." That means that the value of the car is less than what you owe on it. If you wreck it or are forced to sell this could cause you some real serious heartburn.

Take your time!! Shop AHEAD OF TIME for the lowest possible interest rate on the loan. Shop different dealers for the best price. Get the dealers into a bidding war against each other. Don't be afraid to shop out of town because the factory warranty is the same at every dealer. The end of month during a big snow storm is a great time to talk to dealers. Quotas must be made you know. Credit Unions usually offer lower interest rates than banks. Do NOT trust the dealer's loan guy or even the sales dweeb for that matter. Do NOT buy the dealer's extended warranty unless you are a true chicken little.

Posted by: Guyy

I'd stay far, far away from a 6 year loan, or a 5 year loan for that matter.. Go with 48 months, that said there is nothing wrong with a 5 or 6 year if you plan on making extra payments (and do it). That is of course if the 5 year interest rate is the same as the 4 year..

If I were you I'd go used, maybe a Madza 626 or Honda Civic. Both good cars, and not priced to bad. Accords and Camerys are also nice, but in the used market they command more money for the same amount of 'car'.

Posted by: loswald

stevel hit it on the head, if you're counting on a 6 year loan you're getting in over your head...for now anyway. I was recently looking into a car and found this web site particularly interesting...its a good tool for dealing with dealers.
www.carbuyingtips.com

FYI, I ended up getting the Mitsubishi Lancer OZ

nice car for 16K, and the deferred payments are going to be nice since I just drained my life savings on a house, but I know I'll have enough $$ in a year to refinance.

Look toward the future, open a savings account and set yourself up with a budget. start writing down what you spend money on and trim it a bit. I've been saving $500 a month just by trimming...not going out for lunch everyday, not using the ATM...etc.

My wife watches Oprah (thanks to TIVO) and the financial guy she has on from time to time really makes sense...its worth getting his book, if I could only remember his name. One of the things that really hit me was when he said that if a 20 year old would put $7 a week into a savings account for their entire life, when he/she retires there would be a few million in the bank. He really puts things into perspective. I think he also talks about the price of college in 20 years...maybe you better not read that part until after you've had the baby!

Posted by: CyberGlitch

IF I did purchase this new car, my in-laws have already stated they would co-sign on it so I could get the best possable rates. They did call there bank where they got the loan for there new car and just running quick numbers it looked to be roughly 3.9% for 60 months.

I am going to another dealer tonight and see what they can get me and if they will budge a little more on the price. But like I said I'm not positive if this is the right thing to do or not.

The car will be for long term. I'm not someone who will easly buy new and trade it in a few years down the line. I like to stay with what works. Heck I hate to let my 88 dodge shadow go but the maitenance on that thing is just to much to deal with now. So would keep the car most likley until it died or came near the end of it's life span. Like someone mentioned I never liked looking into used cars b/c you're not always sure what you get. I got lucky on my shadow and it's been perfect till the past year or so now. MY brother on the other hand has been threw 4 cars and on his 5th used car now within the last 2 years. At least buying new I know exactly what I'll be getting.

Posted by: loswald

quote:
Originally posted by Michael R

I'm concerned about the length of your proposed car loan. That could cause you to get "upside down." That means that the value of the car is less than what you owe on it. If you wreck it or are forced to sell this could cause you some real serious heartburn.

Another good point...although most banks require it, make sure if you go this route that you get gap insurance....very helpful if you get in a situation described by Michael

Posted by: GoodSpike

The worst thing in the world is making car payments. You'll be upside down in that car for almost the entire loan--locked into continued car payments. The car will seem nice the first year, but it will be a pain after that (even assuming it's a good car, if it's a lemon, it will be worse).

Buying new cars is one of the biggest causes of bankruptcy (go check out filings at the bankruptcy court some time).

Posted by: pjenkins

I'm in a similar boat w.r.t. new vs. used. Here are my theories :)

Getting a car is expensive and not an investment. (unless you purchase rare cars, but that isn't the case here..). So, get it in your head that cars cost money.

Used cars cost money. Used cars generally do not come with a warranty (some do, but certainly not a 10 year old car like mine :)) Used cars require repairs you have to pay for, some more than others depending on the make/model/mileage/age. How much those repairs are depends on a number of factors, including how you drive the car, where you drive the car, how well you maintain the car and a whole lotta luck. Depending on your view, breaking down in a car is either the worst thing that can possibly happen to you or not a big deal, and IMO factors a lot into the new/old car debate.

New cars are a huge waste of money. As others have pointed out, they lose so much value so quickly, that most times you are under water with your loans/leases. It is very hard to get out of a car loan when you are upside down.

New cars make many people feel good. There is just something about picking up a brand new car with 9 miles on it, knowing you are the only one to own it. I've found that this is usually the main determining factor on car ownership. I've owned both new and used, and currently drive a 1991 used car. I really want a new car. I know it isn't financially responsible or the best approach, but human nature can be like that :)

Finally (this thread really has no point now that I read it, just me rambling :)), financing a large purchase for 5 years at a low interest rate is not a bad deal, IMHO. For example, we have a 5 year loan on an Expedition that my wife drives. We decided we are going to keep that truck for some time (well beyond the 5 years if things go well). Given that, it made no sense for me to put a lot of money down on the car, given that Ford had 2.9% financing for 60 months on the vehicle. You have to pay off the car eventually anyway in some form or fashion, so why waste what money you have if someone is going to allow you to pay over time on the vehicle for next to no interest? Again, this theory applies only if you aren't going to want out of the car, as a 5 year loan is a killer on the upside-down part ...

Posted by: GoodSpike

By a truck. They then to be better built, so last longer when only used as a car. And old trucks don't go out of style--they just get cool.

Posted by: CyberGlitch

I know it is an expensive purchase. I knew it would be and the fact that a new car looses value is also a given. For the most part I could car less how much the car costs/will cost as long as I can afford it, in this case of a new car I can. When/If I buy this new car it will be for long past the 5 year financing as long as its still running good and why shouldn't it if it's new?

I guess with that I've said or heard said I think I might end up just buying a new car. I talked to my parents and they said they have always bought a new car as well and kept it for 10+ years at least and do not regret it. Just you have to make sure it's a car you like and that'll last not something that you like just b/c it's cool to have at the time. Something practical and econimcal. My wife and I do drive a lot so we would need a very dependable car but also comfortable and nice. I HATED driving 13 hours to see my parents in my shadow as my back was killing me and I just wanted to chop my legs off.

So I guess if everyone thinks I'm crazy to think that this will be worth the purchase of a new car and still be able to purchase a house 3+ years down the line?

Posted by: jradosh

FYI, some interesting reading...

http://www.rightonthemoney.org/show...ntvw_brand.html

http://www.rightonthemoney.org/show...tvw_amidon.html

http://www.calcbuilder.com/cgi-bin/...1.cgi/Kiplinger

J :)

Posted by: RickStrobel

quote:
Originally posted by CyberGlitch
I dunno, supose I came here for people to sell me out of buying the new car that I want.

You can't afford a new car!

You said it yourself...you need a 6 year loan to be able to afford the payments. Now, your inlaws want to cosign for you. Don't know that I'd go to them often for financial advice -- unless they're willing to help you get into a house ASAP, not a car.

Start getting excited about buying a house. The longer you wait the harder it gets. Home prices keep going up. The sooner you get in the sooner you can start riding the appreciation wave. Once you've got your first house you're set.

If you buy a new car now it will be at least twice as long before you can get a house.

Would recommend you be different than the rest of the masses. Learn to spend less than you make -- every month. You don't need all those credit and store cards.

I've been reading Rich Dad, Poor Dad's Cash Flow Quadrant. The author reveals the true game of money: who is indebted to whom. That's all there is to the game. The car dealers, department stores, credit card co's, banks, etc are all expert at playing the game. They're pros and play the game every day professionally. (Yeah, you play football with your buddies occasionally, but how successful would you be trying to tackle Marshall Faulk?).

My bottom line: All decisions are based on emotion and justified with logic. You don't need a new car. You want a new car. If you can step back and analyze the facts, and remove the emotion as much as possible, it's easy to see that the intelligent choice is to get a pre-owned car, or even stick it out with your existing car in order to accomplish higher goals -- i.e. home ownership, starting a family.

Posted by: redrouteone

Two tips that I have.

Look for a program car. They are usally a couple of years old, but you save a lot of money. Back in 98 my dad bought a 96 Pontaic Bonneville, with 24K miles. Saved 13K over buying it new, and it still had a manufactures warranty left. Most the work he has done on it has been the normal mantaince.

Second, look for one of last years model that never sold. People looking to buy a new car are not going to buy a 2001 when they can get a 2002. When I was thinking of buying a truck a last year, I found a 2000 that did not sell. It was 5k less than new. I was extended cab fully loaded, fiberglass running board and custom paint job. The reason it did not sell. It had a manual tranny. Wich was what I was looking for.

Posted by: loswald

quote:
Originally posted by CyberGlitch
So I guess if everyone thinks I'm crazy to think that this will be worth the purchase of a new car and still be able to purchase a house 3+ years down the line?

I only have 3 years on you, but I want to let you know that when I was 20 I had the same dilemma. I bought a used car and put up with it for 3 years. at the end of those 3 years i had saved enough to put 20% down on a new house. i bought the house for 100K and I am only making $445/mo mortgage payments.

Here is the good part~

with 20% down on the house I was able to take out a home equity loan for my first car, a used $10k car. It's new enough to still be very nice, but it has gone through the initial depreciation. Since its a home equity loan my interest is only 5%, but the interest is tax deductible. AND...I have a really nice, band new home to call my own.

Think about this...if you put $2000 into your dodge to make it run perfect, new seats...hey, even a Maaco paint job...you'll still be ahead of buying a new car....after 3 years you'll probably be $5000 ahead with depreciation and interest. Thats real money!

Posted by: jsmeeker

Wow.

Such anti-new car sentiment. You guys are all un-American! :)

I have bought two new cars in my life. The first was when I got my first job out of school. Well, actually, that was a lease. A new Civic. When that expired after 3 years, I bought a 1998 Accord V6 EX Sedan. Loaded. I nice step up. Next month, I will make my final payment.

I never looked at my cars as an investment. Its a transportation device. However, I want my car to be reliable, comforatable, and functional. I got that out of both of my new cars. I plan on hanging on to the Accord for several years. It has about 26,000 miles on it.

What do you miss when you don't get a new car?? You miss that new car smell! :)

Posted by: pjenkins

jsmeeker, don't you find it comical that you said "un-American" when you buy Japanese products :)

Posted by: Rcrew

Lots of good reading here. And this probably boils down to a very personal choice, with some serious evaluation.

Nothing I've read here said if you've started even the smallest long term savings program. Believe me, $20 a month beginning at age 20 can be hugh in the end.

So here's some words given freely to me once. I think I have the quote correct. Usually when I'm thinking about this kind of purchase, or any big financial transaction they come back to me:

"Don't let your wants become your needs.

Because soon your output will exceed your inflow.

And your upkeep will become your downfall."

Rob

Posted by: aciurczak

there isn't an incorrect statement in this thread. it definitely saves money to avoid new cars. that said, how many million new cars are sold in the US monthly?

everything costs money. everyone makes money. hopefully you make more than the stuff you need. even better, you make more than the stuff you want.

if you prioritize the new car over your other wants, then don't feel bad about the new car. just understand that the financial numbers people are throwing around about the true cost of this and that, are probably right.

it is important to me to never get stranded. a new car doesn't guarantee this, but as long as i keep it properly maintained, the chances of car trouble for the first 5 years are pretty low. in fact, i've never been stranded in 13 years of driving new cars. now, if you actually figured out what it costs to be stranded, and come up with the premium you pay for a new car, i have no doubt it would make financial sense to get stranded a few times a year and pay for a taxi and a tow truck. but it's not for me.

figure out what you can afford, avoid a 6 year loan (god that's a long time), and make your own choices. and working on earning more is always a good corollary to working on saving more.

Posted by: Guyy

I agree with most every thing here, when I got out of school I bought a used Mazda 626, great car. Never had any problems, 4-door and air bags so cheap insurance. Good gas mileage and all that. But of course not the most fun in the world, so a year and a half ago I went out and bought a new 2000 Toyota Celica. Fun car, but in no way practical :)

But hey sometimes the smart decision is no fun! Of course I had no delusions about driving this car for ever and in that way I'll get my money out of it.. Its got a bit of toy factor in it, but some does having 3 tivos! (and only one TV) Just don't think a sports car or a huge SUV is a wise choice, buy them 'cause you like them not because they are practical..

Posted by: Convert

Okay, some advice from a very old grasshopper....

My last three vans have been new, and I've kept each of them for ten years (uhhh, at least I'm planning on keeping the current one for ten years, too). I find that the amount of needed repairs has been extremely low, especially when compared to previous experience with used cars. I mean low as in less than $600 per van.

On the other hand, I started buying new vans a long time after I was twenty (I don't even remember being twenty). Before that, I couldn't afford to buy a new car. When I was twenty, I waited more than a year to buy my first one. And there were a lot of maintenence costs on a used Spitfire. Just ask Peter Egan.

This is the rock and the hard place. You can't save/make money unless you already have it. Think long and hard about your current fixed expenses, and be prepared to spend only what you have left over for payments.

Posted by: CyberGlitch

I don't feel bad about making a new car purchase. I can justify its purchase as well with how much it'll be used and the reliablity I can usualy count on with a new car. The only thing thats throwing me a curve ball if we wanna have a child, while that child could live in the apt for a few years after that it would be good to have a house. All of these are something that I do need to have, not really a new car that is a want I know but a justifiable one.

I havn't looked into the house market either. So maybe I should look around and see what I may be able to get and get excited about a new house to make me forget about the new car and wait till my completly dies.

Supose it isn't a pipe dream from what ppl here and my parents said that I might be able to get a nice little starter house for under $600/month although I could afford more.

Why does life have to be some complicated and stress full? I just don't understand it, although who does. To ever man his own!

Posted by: askewed

Why not lease a Saturn or some other cheap ass car like that. Those Saturn ads say $202 a month. Take a short lease and see where you are at the end.

You�ll get:

A new car with a warrantee
Low payments $7200 OOP in three years is a joke it�s so low! Why pay 5k for used when $7200 gets a warrantee?
And the prestige of a Saturn (joking)

Then get your house pay your loans and you�ll have plenty of cash to buy an actual car when the lease is up. Just don't have a kid.

Posted by: geko29

quote:
Originally posted by pjenkins
jsmeeker, don't you find it comical that you said "un-American" when you buy Japanese products :)

Except that unlike 70% of "American" cars, Accord and Civic are actually MADE in the US. :p

Posted by: askewed

quote:
Originally posted by geko29

Except that unlike 70% of "American" cars, Accord and Civic are actually MADE in the US. :p

I'll buy another "American" car as soon as someone makes a good one. Till then My MDX & TT are the cars for me. Go sit in an Envoy then an MDX tell me you care who made it...

Posted by: jsmeeker

quote:
Originally posted by pjenkins
jsmeeker, don't you find it comical that you said "un-American" when you buy Japanese products :)

Not really.

My Accord was made in the USA., largely out of USA made components.

Posted by: RickStrobel

quote:
Originally posted by askewed
Why pay 5k for used when $7200 gets a warrantee?
And the prestige of a Saturn (joking)

Shouldn't that be all one sentence? I mean, you're joking about the whole thing?

In three years a $5,000 used car will probably be worth $2,500.

In three years the Saturn will be worth $0.00 (to you, to the bank it's worth several thousand).

Posted by: askewed

quote:
Originally posted by RickStrobel

Shouldn't that be all one sentence? I mean, you're joking about the whole thing?

In three years a $5,000 used car will probably be worth $2,500.

In three years the Saturn will be worth $0.00 (to you, to the bank it's worth several thousand).

But you get the comfort of not worring about maintenance and still drive a new car. You never know what you get with a used car the maintenance alone could cost a couple of grand not to mention the time and trouble. If you can't come up with $200 a mnt you have bigger problems than needing a car.

Posted by: Guyy

quote:

I don't feel bad about making a new car purchase. I can justify its purchase as well with how much it'll be used and the reliablity I can usualy count on with a new car. The only thing thats throwing me a curve ball if we wanna have a child, while that child could live in the apt for a few years after that it would be good to have a house. All of these are something that I do need to have, not really a new car that is a want I know but a justifiable one.

I still think it makes better sence to buy a few year old car, a Honda with 20-30K miles on it is just starting it's life. But new cars are fun, so there is something to be said for that..

One idea is this, you ever looked at Hyundai's? There are by no means a wonderful car, a Honda is much nicer, but a Hyundai is cheap and with a 10 year warrenty it's not a bad deal. I have a few friends that have bought them new and cheap and have just driven them a ton with pretty good luck, any problems they had were covered under warrenty.. So really its a good basic car..

Posted by: stevel

It makes sense to buy new if you can afford it. My current car and three previous cars were bought new - the last one I paid cash for, the one (eleven years) before that I had a three-year loan on and about 20% down.

I'll say it again - if you have to finance for more than four years, you can't afford it. (And if you need a special "deal'. such as jsmeeker's friend got, you also can't afford it.)

Save your money, buy something cheap and reliable. (Such as the '92 Accord wagon I bought for my son who just got his driver's license.) Maybe it won't be sexy, but having the collection agencies at your door isn't sexy either. You have plenty of time to buy the car of your dreams.

Posted by: doom1701

Everybody else has made some really good points, so I won't repeat them. I will just add two things:

My first car that I purchased (I inherited a station wagon from my parents out of high school) was a 1 year old program car--a Pontiac Sunfire. It had about 25,000 miles on it (it had been a rental car). It was probably a little more than I should have paid per month (and I made the mistake of a 5 year loan), but it was still a good decision. I held onto that car for almost 4 years, and never had any trouble with it except for during the factory warranty period. The car was in excellent condition, and definately felt like a new car.

Secondly, if you are to a point where you have to have a new car, but you have to have a 5 or 6 year loan, then don't get the loan. Lease it. Unless you put a ton of miles on your car (over 15k per year), it's actually going to be cheaper to lease. I figured it up for my truck (yeah, probably another vehicle that was beyond my means)--over the three year lease term (with 12k miles per year), the money I "threw away" on the lease would be much less than the combination of interest and depreciation on the truck. Here's the numbers:

Cost: $22k
Lease Payment: $300
5 year loan payment: $450 (8%)

Lease, paid in over 3 years: $10,800
Loan, paid in over 3 years: $16,200
So, the lease saved me $5400 in payments over three years.

Equity after 3 years (figuring $15k residual value):
Lease: nada
Loan: $5150

So, even if I could get the full value out of the truck if I sold it three years later, I would still be out $250, compared to total outlay with a lease. The numbers are completely different if you can handle a 3 or 4 year car loan--the loan is definately in your favor. But 5 year loans barely keep up with depreciation, so they aren't worth it.

Posted by: Rcrew

Another note on your process.

These days it is very possible to buy a home with zero down payment. And that can include financing your closing costs.

Two options are the 100% loan, or say a 90% first mortgage, and a 10% 2nd mortgage. There are many combinations.

I'm sure there will be advice follow-ups about PMI, best interest rates etc. All worthy of discussion and consideration.

My main point is, IF you are interested in being a home owner, do not overlook all the possibilities. Don't let the concept of a 'down payment' get in your way.

Lastly, if you're really intent on taking on debt, remember qualifying for a home loan is more difficult than a car loan. In other words, you can probably get a car loan even if you have a home loan. Not necessarily true the other way around.

Rob

Posted by: laria

I second the leasing recommendation. I am on my second 3 year car lease (I just turned 26). I will be leasing another one come March. The payments are a lot lower and you get a new car. I'll probably buy a car after this next lease is up...we just got our offer accepted on a townhouse, so I can stop saving for that now. ;)

Posted by: Squeak

quote:
Originally posted by CyberGlitch

Supose it isn't a pipe dream from what ppl here and my parents said that I might be able to get a nice little starter house for under $600/month although I could afford more.

Completely depends on where you live.

$600 a month with no down-payment with insurance and taxes and PMI will get you a 70,000 house at 7%.

In Ohio, there are houses that sell for 70,000 -- they are usually 1000-1200 sqft in 2nd tier school districts

Posted by: Jim West

In general I think it is a good idea to buy a lettle less house than you can afford, a lettle less car than you can afford, etc. If you do this you will have some excess to invest in something (real property, stock market, etc.) or for emergencies.

I have had pretty good luck starting out with used cars (several years old), then program cars (usually one year old), and sometimes a new car (after my financial situation permitted me to pay cash).

My last purchase was a new Toyota Camry last year, and so far I have been pleased with this car. Our second car is a 1996 Chevrolet Lumina which was a program car. We have also been pleased with it.

It is easy to rationalize the need for a new car, but be certain you can afford one before you take the plunge.

Jim West

Posted by: jradosh

In a case of good timing, there's an article in today's Washington Post about the second-hand car market ("better now than ever" is the basic message). FYI,
J :)

Washington Post Article

Posted by: fcrews

I've had great luck finding new 1+ year old cars still sitting on dealers lots for sweet prices. Example in November, I picked up a loaded 2000 Dodge 3500 Pickup Quad Cab Long Bed, 6 Cyl. Turbo Diesel, loaded for $20K, had less than 500 miles on it, and came like a new truck, full factory warranty. This thing had over $40K on the sticker, and a kelly blue book is like $26K. Someway it had gotten lost in the shuffle on the car lot and when I pointed it out to they they freaked and said make us an offer.

Posted by: loswald

fcrews,
a little/lot off subject...check out http://www.bullydog.com for some really cool cummins stuff...like propane injection.

I saw it on horsepower TV last weekend and the numbers were very impressive

Posted by: Mike Farrington

I really must echo the wisdom of those who suggested buying a used car. A good 3-4 year old car can be very reliable without breaking the bank.

Now, I have no idea what you make, but here are my suggestions (assuming your are a about three years from home ownership):

Step 1 - Start clean
----------------------------
-Pay off all your credit cards ASAP. Preferably before starting step 2.

Step 2 - Fund your retirement young
--------------------------------------------------
-Take 15% of your pre-tax income and put it into a 401(k) (or similar retirement fund)
-Take $250/mo (each of you) and put it into a Roth IRA.

Step 3 - Amnesia
--------------------------
Forget about the income money in step 2, act like you make that much less than you do.

Step 4 - PMI avoidance
-----------------------------
Save $150/mo or more (each of you) for 3 years.
This will yield over $10k for a down payment on a house. Or, a down payment and some move-in money for furnishings and stuff. Avoiding the PMI is important. If you put away away an amount equal to your projected monthly payment, then you'll already know what it's like to live with a mortgage payment.

Step 5 - Now how much car can you afford?
---------------------------
Assuming all of the above, how much of a monthly payment can you afford? Now you'll probably see that it just isn't as important to have a new car. A few years down the line, when you have some home equity maybe. But even then, you have to start thinking about your child's/children's education(s).

Then again, you might want to buy a house now while the rates are still low. You will probably get hit with PMI payments.

Even though you're young, you shouldn't put off your retirement savngs. If you don't budget for it now, then you might never start saving. The younger you start saving, the more time that money has to grow.

-Mike

P.S. Good think you're already married. I'm doing wedding cost analysis for myself right now.

Posted by: jradosh

quote:
Originally posted by Mike Farrington
Step 2 - Fund your retirement young
--------------------------------------------------
-Take 15% of your pre-tax income and put it into a 401(k) (or similar retirement fund)
-Take $250/mo (each of you) and put it into a Roth IRA.

-Mike

A very good, concise post. The only thing I can think to add is this (for step 2) to encourage the 401k contribution.

Most employers will also contribute matching funds into the 401k. Some will match all (not as frequent as it once was), some will match the first x% (usually 6%), and some will match less.

Regardless of how much they match, any matching contribution is like getting free money. In fact it is not 'like' getting free money... it is getting free money!

J :)

Posted by: RickStrobel

quote:
Originally posted by jradosh
In a case of good timing, there's an article in today's Washington Post about the second-hand car market ("better now than ever" is the basic message). FYI,
J :)

Washington Post Article

Did you notice how many government employees were buying Lexuses???

Posted by: Squeak

quote:
Originally posted by Mike Farrington

Step 4 - PMI avoidance
-----------------------------
Save $150/mo or more (each of you) for 3 years.
This will yield over $10k for a down payment on a house. Or, a down payment and some move-in money for furnishings and stuff. Avoiding the PMI is important. If you put away away an amount equal to your projected monthly payment, then you'll already know what it's like to live with a mortgage payment.

I don't know about you, but $10k is not a whole lot for a downpayment -- esp if you want to not have PMI. 10k with no PMI will only be a 50k house -- hard, but not impossible to find.

Posted by: Mike Farrington

quote:
Originally posted by Squeak

I don't know about you, but $10k is not a whole lot for a downpayment -- esp if you want to not have PMI. 10k with no PMI will only be a 50k house -- hard, but not impossible to find.

True, but I didn't want to scare the poor kid. Seriously though, you're right. They should be saving more like $800/mo if he wants to avoid the PMI. That should avoid the PMI on a $150k house. I don't know what the housing market is like where he lives, but where I live $150K barely gets your foot in the door.

Of course, getting the 20% to avoid the PMI may be a little too ambitious. Buy he should definitely start saving for at least a 5-10% down payment. I wasn't able to do 20%, so I'm now stuck with a $100/mo PMI.

-Mike

Posted by: 511PF

Get the used car buddy. Trust me on this one. You want to start saving for that house ASAP. You'll also enjoy the extra income you'll have for the next 6 years. $100 a month times 72 months is $7,200. That goes a ways toward a nice down payment on a house. It also means that spending a little of that money could mean a nice weekend vacation, a new TiVo or a lot of other things you would like.

I went down this road while in college. I picked the debt road, and you wouldn't believe the price I am paying for it now.

Posted by: Rcrew

I would agree, PMI avoidance is a good thing.

But don't let it get in the way of your buying as soon as practical.

There are ways to remove PMI if you get stuck with it. In an appreciating real estate market, after 2 or 3 years, you can request it's removal. If you have the 80/20 equity through appreciation, you may get it removed.

Now having said that, don't ignore other very viable combinations. 80% 1st mortgage that gets you a good rate, and no PMI, with other combinations to come up with the remaining 20%. The most extreme of which is a full 20% 2nd mortgage. Or 5% of your own money, with a 15% 2nd.

To get back to the original topic of this thread, can you resist the new car desire? What's your peer pressure like?

And re-mentioning retirement savings, others have suggested it too, with large numbers. I'd say, pick a number and start doing it now. Get into the habit, even with a small monthly amount. And of course if you do work with a company that does 401k matching, leap on that now.

All, in all, YMMV, IMHO, etc. Find a good used vehicle. Rob

Posted by: knownzero

FWIW, I lease me car, i've always has really old cars because I couldn't afford much (76 olds Gutless :) 81 Caprice, 85 Dodge Omni...) and I used to have to put on average of $100 to $200 a month into maintaining them and finally made the decision just to jump in on a 3 yr lease for a base model 97 Mitsubishi Galant and I never had a problem with it, I think the only money I put into it was an oil change avery 3k miles. Plus I got a killer deal when the 98's came out because they wanted to get rid of it, I think I paid $219 a month with $1100 out of pocket, and owed nothng at the end. Now I've got a 2001 Galant ES V6, stickered at $21k and got it for $319/mo and only had to go $450 out of pocket for it. Couldn't be happier with it, no problems, but I also don't put a lot of miles on it (biggest consideration for a lease). It's a good way to go if you don't want to hassle with maintenance and don't mind not owning it. But if you want to own it, go with a used Civic or something, they hold values well enough and usually last for a long time....

Posted by: doom1701

When we bought our house, I got what they called an 80/15/5 mortgage. We only had 5% down, but we were given a no fee home equity loan for 15%, giving us a total down payment of 20%, and no PMI. Greatest move I made when buying the house, as the extra $75 a month that would have been going to PMI is now primarily going towards principle.

Posted by: Flogduh

quote:
Originally posted by Michael R
The moment you drive off the lot in a new car your car instantly depreciates in value.

Not if you buy a Porsche 911!!! :D

No, I don't have one....:(

Posted by: CyberGlitch

I do wanna thank everyone for their input here. I've been thinking about this for a like the past few weeks since my car started going on life support.

I like the new car and so does my wife, again it didn't help when my in-laws say/drove it and said they wife they didn't buy the van. After quickly looking at houses for sale in this area online I think I do needa look at the bigger picture and start looking into a house then a car later or a used one as soon as mine dies.

Now does anyone have some nice links to sites like the ones about buying a new car for buying a house what to expect and what to know? I know nothing about houses and when all the numbers came in I would stand there with a smile on my face shaking my head yes. :p

Posted by: laria

quote:
Originally posted by Squeak
I don't know about you, but $10k is not a whole lot for a downpayment -- esp if you want to not have PMI. 10k with no PMI will only be a 50k house -- hard, but not impossible to find.

In this area (Seacoast NH) you cannot even get a mobile home/trailer for $50k!

Posted by: Mike Farrington

quote:
Originally posted by CyberGlitch
Now does anyone have some nice links to sites like the ones about buying a new car for buying a house what to expect and what to know?

Here is an online calculator I've bookmarked. It has come in very handy. It's nice to have something just to run some numbers through.

http://www.jeacle.ie/mortgage/

As far as general How-To sites, I really don't know which ones are best. I got so lost in a sea of websites that no single site stood out above the rest. Although, I must admit that my first "for dummies" book was of help. Actually, I think it was the "Complete Idiot's Guide to Home Buying". It's nice to be spoon-fed a subject you know nothing about. I'm not saying it's the best book out there, but it helped me learn the basics.

-Mike

Posted by: doom1701

It's older and not as fancy as Mike's, but here's a calc I use for all loan calculations:

http://www.southland1.com/cac~1.htm

Really, with a house, there isn't a lot you need to know. A lot of the details (such as property taxes) vary quite a bit by location, even within your area. A good realtor can fill you in on all this kind of information.

Most sites that give tips on how much house you can afford are dead wrong. If I had gone by there calculations, I could have "afforded" a house akin to barryb's living standards :) Our house is approximately 1.5x our yearly income. I'd recommend sticking more around 1.25 if you can, unless you have no other monthly commitments. If you can make a large down payment, just use that number to figure up your loan amount (in other words, you make $50k per year, 1.5x that is $75k, but if you can make a $25k down payment, then feel free to jump at the $100k house).

As for what to look for, that's a very personal thing. Get out this weekend and start going to open houses. It doesn't matter if the house is not in your neighborhood, price range, or tastes. You might go into a dump and think "I'd like to have a basement like this", or you could go into a million dollar home and realize "I like this color for the living room". When you first start looking, don't take anything into consideration--just look at every house you can. It's the only way to figure out exactly what you want.

Posted by: loswald

cyberglitch,
My wife and I started by going to every open house we could find time for. Whether or not you can afford it, its not a bad idea to start there just to get a feel for it. When you look at the "highlighted features" it starts to give you a sense of whats important.
The next step would be to find an agent. On every sale they have a selling agent and a buying agent, but if you go in without a buying agent the seling agent will do both...make sense so far? This is something you don't want...you want someone that is going to look out fr your best interest and no on elses. It is the norm for an agent to get 3% for buying and 3% for selling, so it will cost the same either way.
We found our agent while looking at open houses...but didn't call him until we had the money saved to actually consider buying a house in the very near future.
With that said, if you find a good agent, he/she should be able to help you with any issues as well as give you sound advice. This is important because laws/rules/taxes change for every township.

Posted by: loswald

one more thing...when the time comes....
before you close on a house put up the money for a pre-sale whole house examination by an outside party. It will cost you $100-200 but is worth every penny. They should check everything from workmanship to wiring to outlets, water pressure, leaks...etc.

If they don't find anything wrong then it peace of mind, if they do then the $200 will seem like spare change

Posted by: Doh

fool.com, the motley fool website has a pretty good section on the whole housebuying process. (You can also usually afford a bigger mortgage payment than you think because the interest, which is most of your payment in the beginning, is tax deductible).

Posted by: laria

quote:
Originally posted by doom1701
Most sites that give tips on how much house you can afford are dead wrong. If I had gone by there calculations, I could have "afforded" a house akin to barryb's living standards :) Our house is approximately 1.5x our yearly income. I'd recommend sticking more around 1.25 if you can, unless you have no other monthly commitments. If you can make a large down payment, just use that number to figure up your loan amount (in other words, you make $50k per year, 1.5x that is $75k, but if you can make a $25k down payment, then feel free to jump at the $100k house).

And most banks will certainly approve you for way much more. I am approved for a home loan that is about 4x my salary. We are buying a house that is a little over 3x my salary. When both of us are working again it will be more in line with what it should be (probably about 1.25-1.5), but since my boyfriend is unemployed right now, we are going into the mortgage with only my salary. Despite all that, including property taxes, condo fees, and principal/interest, each of our half of the mortgage is going to be about equal to or $100 less than we pay for our current rent payments. So really nothing is changing in how much money we owe each month, just now we will own something at the end.

Posted by: CyberGlitch

Thats what a co-worker here was telling me. I'm currently paying $640 for rent and when I mentioned getting a car he said buy a house b/c that would cost roughly the same if not less then what I'm paying for rent right now. So I guess that got me in the state of mind at looking into what I can/can't afford for houses. Also would have to save up a lot more for a down payment but that shouldn't take but several months.

Posted by: GoodSpike

quote:
Originally posted by jradosh
In a case of good timing, there's an article in today's Washington Post about the second-hand car market ("better now than ever" is the basic message). FYI,

I didn't read the article, but it's what I would expect after months of zero percent financing on new cars. There should be a huge stock of used cars out there.

Posted by: doom1701

quote:
Originally posted by Karyk

I didn't read the article, but it's what I would expect after months of zero percent financing on new cars. There should be a huge stock of used cars out there.

Actually, it's more due to the HUGE popularity of leasing over the past few years. I don't know exact percentages, but I'd be willing to bet that at least 50% of all new cars going off dealer lots in the past 5-10 years have been leases. After three years, those cars come back to the lot to be sold as used.

Before leasing became so popular, people would get 5 year car loans, and usually hold onto the car for at least that long, more often longer. But very few people hold onto a leased car after the fact, which leads to a larger number of new car "sales", but also a glut of used cars in the market.

When my truck lease expires, I'll probably go looking for a full sized truck that was a lease return. Probably get a really good deal on a truck that is in almost new condition.

Posted by: Rcrew

CyberGlitch, you're obviously web savy. Don't know what area you are in, but there is likely a local web/e-mail based service available.

In my area I found a service, free, where I set the parameters of what I wanted, price, size, location. Then every time a new listing came up that matched, I received an e-mail with all the information.

You still need to get out and drive/look. No substitute for that.

Finding an intelligent reliable agent isn't a slam dunk either. But IMHO, if they are using technology to boost their business, that might indicate they are current.

You should definitely have your own agent, looking out for your interests, and helping to write any offers you make. A great one will make a difference.

And, as for whole house inspectors, take it with a grain of salt. I'd say, do it, but my experience was it's more expensive, like $400. Be present during the inspection, and ask lots of questions. Read the report thoroughly, and if they suggest trade specific supplementary inspections, do that too.

Rob

Posted by: GoodSpike

quote:
Originally posted by doom1701
Actually, it's more due to the HUGE popularity of leasing over the past few years.

Now you did it. Forcing me to read the article. ;-)

They attribute it to the zero percent financing and rebates. October was apparently the best sales month in history and slightly over half traded in their vehicles. I know Ford and Chrysler were not happy with GM for continuing to extend that program, and that Ford lost a huge amount of money (5 Billion?), so it was apparently selling cars.

Leasing has been around for years (I remember the salesperson trying to convince the person in the next office that leasing was better when I was buying my truck back in 1988). It makes some sense for people who don't keep cars very long. For others it locks them into a lifetime of car payments (which is why the person in the next booth did not want to lease). Dealers like leasing because it allows them to hide the true cost of the car a little easier (which is probably why the salesperson was pushing it so hard).

Posted by: RickStrobel

quote:
Originally posted by loswald
The next step would be to find an agent. On every sale they have a selling agent and a buying agent, but if you go in without a buying agent the seling agent will do both...make sense so far? This is something you don't want...you want someone that is going to look out fr your best interest and no on elses. It is the norm for an agent to get 3% for buying and 3% for selling, so it will cost the same either way

Be aware that both agents represent the seller. That means if you get a regular agent as described above they are legally required to represent the sellers interest. Find someone who will represent you as a buyers agent. That way your interests are more truly represented.

Posted by: Romera

quote:
Originally posted by CyberGlitch
Now does anyone have some nice links to sites like the ones about buying a new car for buying a house what to expect and what to know? I know nothing about houses and when all the numbers came in I would stand there with a smile on my face shaking my head yes. :p

The Minnesota Attorney General has a home buyer's guide. IIRC it contains only general information and is not limited to Minnesota. It may be a place to start to get ideas.

Home Buyers Handbook

Good Luck

Steve

Posted by: GoodSpike

quote:
Originally posted by RickStrobel

Be aware that both agents represent the seller. That means if you get a regular agent as described above they are legally required to represent the sellers interest. Find someone who will represent you as a buyers agent. That way your interests are more truly represented.

This is the traditional view, which was rather fictional. No longer necessarily true here in Washington state. Probably varies from state to state.

Posted by: doom1701

quote:
Originally posted by Karyk

Now you did it. Forcing me to read the article. ;-)

They attribute it to the zero percent financing and rebates. October was apparently the best sales month in history and slightly over half traded in their vehicles. I know Ford and Chrysler were not happy with GM for continuing to extend that program, and that Ford lost a huge amount of money (5 Billion?), so it was apparently selling cars.

Leasing has been around for years (I remember the salesperson trying to convince the person in the next office that leasing was better when I was buying my truck back in 1988). It makes some sense for people who don't keep cars very long. For others it locks them into a lifetime of car payments (which is why the person in the next booth did not want to lease). Dealers like leasing because it allows them to hide the true cost of the car a little easier (which is probably why the salesperson was pushing it so hard).

Ever had one of those days when you just keep shooting your mouth off, and just can't stop? I sure am--I definately should have stayed at home today (I had the phone in my hand, ready to call in sick, but no, I'm too dedicated).

Well, just to defend what I said, my best friend told me of an article he read last summer (before all the 0% financing) saying that leasing companies were beginning to reconsider the relatively high residual value on many vehicles, because there was a glut of used cars in the market and the leasing companies couldn't recoup the residual of the vehicle at auction. So there was a tiny bit of truth in what I said... :)

Posted by: GoodSpike

quote:
Originally posted by doom1701
Well, just to defend what I said, my best friend told me of an article he read last summer (before all the 0% financing) saying that leasing companies were beginning to reconsider the relatively high residual value on many vehicles, because there was a glut of used cars in the market and the leasing companies couldn't recoup the residual of the vehicle at auction. So there was a tiny bit of truth in what I said... :)

There was a mention of that in the article too. Funny thing is that assuming they did lower the residuals (to encourage more people to keep the vehicle), those lowered residuals might now be too high again!

Seems like it would be in their interest to make the residual lower so that they don't have to deal with the car. They'd just have to build that into the lease payments, which would make the payments only slightly higher (but I guess they're so interested in selling new cars that "slightly" higher is too high).