UPDATE to my "How stupid would I be to buy a new car?" Post

[itsmeheathermarie]

Been a couple weeks and thought I'd share how it turned out.

First - thank you for all the input, it made me carefully review things and helped in discussions with my spouse so we felt more confident about our decisions. We ended up purchasing a new vehicle but not the one we'd been looking at.

Big THANK YOU btw to those who suggested ignoring using that broken one for a trade-in. That's just what we did and taking it out of discussions made figuring out what was going on financially much easier. Also took the advice to simply walk away when a dealership refused to negotiate with us.

Result:

Purchased a 2020 Buick Encore GX Select

MSRP $31,930 Sale Price $26,165 Rebates $2600 + Additional $2500 GM customer service gave us to use as a down payment on new GM vehicle after we called and witched about how crappy the Equinox (which only had 71,000 miles) turned out to be. Used what would have been our down payment to pay off the Equinox, which we'll now find the best way to scrap out.

So our cost for it was $23,166 after taxes, etc. which we financed at 84 months for 1.9% interest.

Many were concerned about us doing 84 month financing and about whether this would be an affordable cost for us. So here's how it fits our budget and why despite some concerns raised in my first post why I feel this was doable:

OLD Debt payment section of budget (been stable for years):

Credit Card A: $100

Credit Card B: $100

Credit Card C: $125

Credit Card D: $164 (paid off - was using to pay extra on Equinox loan but HVAC system went out so now is paying off replacement HVAC)

Credit Card E: $ 30 (paid off long ago, but we use this as an extra payment on card A)

Credit Card F: $82 (also paid off but we apply this as extra payment on credit card A)

Credit Card G: $125 (paid off but again - extra payment on card A)

Car Loan on Equinox: $109

*********************

New Debt payment section of budget:

Credit Card A: $100 (balance $ 2400 / 8% APR)

Credit Card B: $100 (balance $2800 / 0% APR)

Credit Card C: $125 (balance $3750 / 0% APR)

Credit Card D: $164 (pays off HVAC installation from last week $7,200 / 6% APR)

Credit Card E: $30 (will continue to pay towards A which has our highest APR)

And finally

Payments for Cards F & G, combined with prior Car Loan payment total $316 which covers our new loan payment of $296 for the Buick ($23246 @ 1.9%)

*************

So we're now driving a new vehicle without having to adjust how much we spend a month on debt payments. It will take longer to pay off our cards (and the new vehicle, of course) but we'll still have the cards and the HVAC system paid off in less than 3 years. Which will let us then put all $519 additional a month onto the vehicle at that point - resulting it being paid off 17 months later - so instead of 84 months, it will only be 53 months from start to paid off (a perfectly reasonable time frame - esp. considering we like to drive our cars well into the 150,000 to 200,000+ mile range).

This new vehicle also will let us reduce our repair costs annually so that will build up our sinking fund for next vehicle we'll need eventually, and it meets all the needs for my spouse as far as comfort and ability to carry necessary work tools. The price differences between used and new that met our needs were only about $6000 and by the time we took into consideration the increased risk of repairs needed, the shorter life span, and the higher interest rate, this solution is the one that worked best for us.

Thanks again, for reading all this and accompanying us on our vehicle purchase journey!

Edit to add: All credit card debt was acquired over 7 years ago and we've been paying it down while living on a cash budget ever since - these are just the remaining bits of long ago errors.

 

[resjudicata]

@itsmeheathermarie That 1.9% interest rate is a game changer.

 

[ouad]

@itsmeheathermarie I support your debt journey. What's done is done, but a car doesn't need to cost over 10k to be reliable.

 

[itsmeheathermarie]

@ouad I agree it doesn't - we've been on both sides - this last vehicle was $8k, cost us over $1k in repairs, only lasted 14 months and is now toast.

We can't afford to take another hit like that right now.

On the other hand, the one before that cost $6k, only needed minor repairs and tires, and lasted us over 150,000 miles before becoming unrepairable at 275,000 miles.

The additional $2500 from GM (which we would not have for a used vehicle) and the low interest rate (only available on new) combined with the reliability and our intention to drive it for at least 8 years, preferably 10 to 15 years is what made us decide that it was the correct choice for us.

 

[seang]

@itsmeheathermarie Financially it's a poor decision that you have put a lot of thought and time in trying to justify. Financing a vehicle for 84 months is ridiculous.

However, having a new vehicle for social status reasons if you can easily afford the monthly payment might make it worth it

 

[itsmeheathermarie]

@seang ROFLMAO - social reasons?!??? If only you knew...

Thanks for the unintended laugh. In both our professions, our families as well as our ridiculously tiny social group - what someone drives is absolutely the least thing anyone cares about.

Believe it or not - we have very real reasons for needing a vehicle that meets certain reliability, comfort, and space standards - and so no, a $8k Ford Fiesta isn't going to cut it.

I'm curious though why financially you'd think it'd be better for us to pay $1798.32 in interest on a used car ($16k /48 months / 4.9%) rather than pay a total of $1620.08 in interest (if we do take 84 months) for this option?

Paying more in interest to have something worth less financed for a shorter period of time is what seems a poor decision to me.

It's all good though - you haven't walked in my shoes and I haven't walked in yours so I respect your right to your opinion, thank you again for the laugh, and wish you a good day.

 

[seang]

@itsmeheathermarie The wisest thing is not to finance at all if you are able. Pick a used vehicle that has horrible resale value yet has good reliability scoring. (Easier than you think). You can get a very nice, roomy vehicle in this category for under $10,000 all day. Even if you have to finance a portion you come out way ahead by not being raped by depreciation.
Sorry to put you on the defense, not my intention.

 

[itsmeheathermarie]

@seang I agree that in a perfect world we'd have a enough cash to buy outright like we have before and move on.

I think we're at a different viewpoint though because depreciation isn't an issue for us since we will keep it and drive it into the ground - so we're looking at 200,000+ miles for $24k (rough numbers). Here (may be different in other parts of the country) used vehicles at $10k that would work for us all had over 130,000 miles on them already - so 70,000 miles for $11k. New vehicle is .12 a mile vs Old vehicle at .16 a mile. And that's before I account for the fact I won't have any repair charges for those first 36,000 miles.

90% of the time you'd be completely right. This is the other 10% and I'm aware of it. I actually appreciate being challenged on this in my first post because it made me question myself and make sure we knew what we were doing.

If we were 20-somethings, looking just to drive 20 min to get to work - I'd agree with you. But we're not. Missing full day's pay due to a broken vehicle / having other spouse miss a day's pay as well when having to drive 2 hours one way to pick up stranded spouse / not being able to work due to back issues/leg issues from cramped or uncomfortable seats / time spent off of work hunting for used cars and having them inspected - plus money to have them inspected/ there's lots of costs that aren't easily seen on paper that apply.

So we did the wise thing - minimized our finance cost, minimized our risk and maximized the value we could get for our funds.

I'm not defensive - smile - I'm challenging you to look at it like I did from a wide variety of angles, and maybe consider that there's no one answer that works for every one in every situation.

 

[tim1451]

@itsmeheathermarie Curious why you pay more on your 0% cards than on your 8% card? You should reallocate your monthly payments to be paying down the card with the biggest interest rate.

 

[itsmeheathermarie]

@tim1451 That's a great question.

Honest answer - it's a mind game. Originally I had no choice - back when they were on much higher interest cards, those were the minimums and then in our beginning steps to get out of debt we kept it simple by locking ourselves into to continue to pay those amounts as the minimums even as the balance dropped.

Over time (years) as the balances did drop and we kept renegotiating and transferring to reduce the interest rates, one thing we did was deliberately not combine the debts. We'd tried that before with good intentions of paying them off, but surely as the sun rises, we messed up, paid only the minimum on the consolidated card and made new charges on the prev. paid off cards - resulting in tons more debt.

So as we broke the cycle we chose to keep each debt separate, and to keep with those amounts as the minimum to pay no matter what. (Part of our financial issues is we both work irregular income jobs where we can be making huge checks one month and then nothing the next so keeping our payments level has helped us also work out how to adapt our saving/spending to make payments even when income is near zilch).

And it worked. We're now at the very end of the road of paying off tens of thousands in credit card debt and have that regular budget with savings, emergency funds, etc. despite having wildly varying weekly paychecks.

So it's a mind game - having the weight of all those years and struggles built into committing to that amount for each of those debts keeps the pressure on us to continue.

Plus, those other debts haven't always been at 0% - so it's not like we've been throwing money at them vs the higher rate for years on end. They use to be the higher rate. Plus now there's so little time left (should be paying off the 8% before the end of this year) that it's not that much financial savings to risk switching what's been working.

If we were looking at these lasting longer than that, then yes, we'd change.

 

[malkah18]

@itsmeheathermarie Thanks for the update!

Didn't read your previous post, but why are you paying above minimum on your 0% cards? What are you referring to with cards, EFG?

 

[itsmeheathermarie]

@malkah18 Part of our analysis of why we got in so much debt "back in the day" - was only doing minimums and figuring as long as we could do that we'd be fine. Back then the rates were 18% so needless to say, it cost us plenty.

After we got in deep trouble and came to the realization we had to pay our way out, part of that was keeping the exact same monthly payment even when the minimum went down. We then carried that over when we refinanced down to lower rates. Those monthly payments are drilled into my head and no matter what the economic forecast looks like THAT is what we pay. Spouse and I both have variable income and we have a large family so both income and expenses can vary a great deal month to month - so it creates a guard rail. Something else can be cut if needed because I've 'always' paid that each month and I'm committed to paying that each month. Keeps us from paying lower amount "just in case" then deciding the cash would be better spent on this or that rather than paying down debt.

At this point (down to these balances after being as high as $40k in credit card/medical debt) it's all a mind game.

 

[malkah18]

@itsmeheathermarie That's fair - if you have a system that works for you, that's all that matters.

To make sure I'm being clear, I'm not recommending you pay less to your credit cards - just to distribute it differently. That said, I understand how important it can be to do something mathematically inefficient for the sake of maintaining the ritual, so good job figuring out a system you can stick with.

 

[itsmeheathermarie]

@malkah18 Oh you're right - mathematically it'd be better if we switched things around. Just don't want to rock the boat.

Just like on this new vehicle - the only reason we decided to do it rather than buy a used car was the extra $2500 from GM, the low interest rate, and being able to secure a payment that fit inside our current amount of debt payment.

Now I'd love for us to get another stimulus payment, some O/T, and a few hundred in scrap value for our old vehicle and basically knock a huge chunk of this out. But even if it doesn't, I'm happy knowing I'm still good.

 

[ouad]

@malkah18 I hope you're just suggesting they put more toward the 8% card and not suggesting they pay less overall

 

[jessicalovesjesus1829]

@itsmeheathermarie May I offer you a little advice from a middle-aged person’s perspective? My recommendation is that when you have the current car paid off, continue to make payments to yourself into a separate “car fund account”. Say you own the car for 10 years (120 months), pay off the car in 53 months, and make payments of $316 to your car fund for the remaining 67 months, you will have $21,172 plus interest earned for your next car.

 

[tmanocd]

@itsmeheathermarie Congrats on your purchase! I personally think a new car with a 3 year warranty is worth way more than a used car. We've bought 2 cars used, a 2010 mazda with 30k miles and a 2014 jeep with 10k miles. Was it cheaper? Yes but the jeep has had major mechanical issues. We've paid $3k to rebuild the transfer case, $3k to rebuild the upper half of the engine because of a faulty part (just google pentastar engine rocker arms for a nightmare), and now we are looking at $2k for replacing the 3 catalytic converters and now the rear diff has a leak im sure will equal thousands in repairs. If we bought new, most of the issues would have been covered under warranty.

Personally ill never buy used again. My mazda is amazing and will last 300k miles no issue but this damn jeep is killing me with issues. If it wasnt paid off, i would have driven it off a cliff by now. The mechanic we took it to for the upper engine repair saw pry marks under the valve covers that proved it had major mechanical issues before we bought it. Would we have ever known that? Not without taking the upper part of the engine apart. The dealer did shoddy work, covered it up, and sold it at a low price to move it quickly.

Point is you know where this car has been, the maintenance done to it, and you know any issues (and i mean anything. Any minor noise, engine light, take it in) will be fixed correctly

 

[mia1936]

@tmanocd

Personally ill never buy used again. My mazda is amazing and will last 300k miles no issue but this damn jeep is killing me with issues.

Can't help think the problem there is Jeep, not all used vehicles.

 

[tmanocd]

@mia1936 Its the second lemon of a used car ive dumped thousands into. I've also seen my parents struggle with buying cheap cars only to have to rebuild engines shortly afterward

Oh and i recognize the issues are jeep related. I'll never buy a dodge product again

 

[jeancommunicates]

@tmanocd I’ve had generally good luck with used but these days new cars can be bad at a good price, full of features etc. there is a modest premium paid for new but you end up with a vehicle with a set cost and the aforementioned benefits.