Recent Divine Discussions

Sunday, February 17, 2008

Deal or No Deal: Trading in for a less expensive car

I was posed a very good question by Millionaire Mommy on my new budget post:

"I have to ask, have you considered reducing your car payments by driving a less expensive make/model? Or is your life energy (time price tag) a good fit for you in this category?"

I never considered getting another car. I thought the only way I could reduce my car note was by refinancing my loan to get a lower interest rate and hence a lower car payment. I seriously never even thought about getting another car.

I really would like to look into this. Especially if it means of having my $532 car note cut in half or more. I know so much more than I did when I purchased my car in December 2005. Back then I had just graduated from college and landed a good job and my only concern was to get a nice, reliable car.

I see roadblocks though:

1. I may wind up upside down on my new loan. The Kelly Blue Book trade-in-value of my 2006 Honda CR-V is $15,500 yet I owe $19,157. I could sell my car privately. It's private party value is $18,270. I would still be about $1000 short. Either way, I won't be coming out on top.

2. I love my car. I love the way it is made, the wonderful gas mileage, the feel of it. It is perfect for my lil family. It is big enough to carry the extra stuff we lug around but small enough to easily maneuver through the craziness that is Orlando traffic. I have been searching the net for different types of cars that fit the bill but none are coming close in regards to gas mileage. That is a major factor for me. I don't want to save on my monthly payment just to turn around and spend excessively more on gas.

I am going to check out some dealerships this week to see what offers I get once I figure out what car will suit my needs and wants. I'll make a decision once I know what to expect.

Until then I am open to suggestions, tricks, or tips that may help me out.



Jon said...

Selling your car after 1 or 2 years is the worst time since the first few years have the maximum rate of depreciation, coupled with the minimum rate of principal payoff.

It might still be worth it if you get an old, cheap car, preferably small and fairly reliable, like perhaps a 10+ year old Civic or Corolla. You can find one for about $5k. Add in your $4k loan balance and you end up with an old car for $9k, with a monthly payment of about $250 for a 3 year loan.

I guess you need to ask yourself if hauling stuff around is worth the extra $250-$300/month!

Single Ma said...

$500+ IS a lot for a car payment, no way could I afford that. But my main concern would also be the negative equity. IMO, the damage is done. Whatever you decide to buy, you'll be adding ~$3600 to the new loan. A cheaper, less desirable car may lower your payment for cash flow purposes, but not only will you STILL be upside down, you'll be paying extra for a car you don't even like.

Depending on how determined you are, an aggressive plan would be:

1 - Sell the CR-V private party and pay off the difference with your income tax refund.

2 - Disregard all car "wants" (temporarily) until you're debt free.

3 - Buy a reliable/safe used car (Honda Accord or Civic), finance it through a credit union, use the rest of your income tax refund as a down payment, and negotiate the price based on your newfound knowledge/experience.

4 - Use the $$ you save to pay off your debt aggressively.