cancel
Showing results for 
Search instead for 
Did you mean: 

Check Financial Soundness of Decision

tag
smc733
Valued Contributor

Check Financial Soundness of Decision

Hi All,

 

I'm not sure if this is the best place for this post, but i'm hoping to get some insight.  My 6 year old compact car with ~95k miles is in need of a $1,500 repair, along with ~$1,200 in deferred maintenence that will be due in the next year.  I don't particularly like the car, it's cramped for my 90 minute commute (mostly traffic, I put about 18k miles a year on it).

 

I have an opportunity to trade it in on a 2016 midsize w/24k miles with a difference of $9k financed.  I don't have exact FICOs, but they range from 805-812 depending on the bureau being pulled.  My only debt is a mortgage ($200k) and student loans ($60k), payments on the loans are ~$450 a month.  HHI is $140k.  Non-investment liquid cash is around $70k.

 

I see posts around here buying much more expensive cars on lower HHI, but I do also know that cars are one of the great money pits in this country.  My question is, what are everyone's thoughts on this purcahse, relative both to maintenence costs versus a newer car, and whether or not this should be an affordable purchase on current HHI?

BofA Cash Rewards VS - $25k | Citi Double Cash World MC - $18.9k | Amex BCE - $50k | Discover it - $50k | Chase Freedom Unlimited VS- $10k | Barclay Ring $5k |
Message 1 of 11
10 REPLIES 10
Anonymous
Not applicable

Re: Check Financial Soundness of Decision

Personally I'd angle for a 2015 with fewer miles as the depreciation would possibly get you a better deal on a car that will last just as long, but this deal sounds great to me -- is it precertified with a decent warranty remaining or is it straight used?

 

You may get a better deal on a precertified car with a captive finance bank.

 

Looks solid to me.  Don't overspend on a form of transportation.  People are insane to spend 30% of their gross income on a car.

Message 2 of 11
smc733
Valued Contributor

Re: Check Financial Soundness of Decision

That's actually what's swaying me into the decision.  The 2016 is $2,600 below NADA.  It's a CPO one-owner, no accident.  The dealer has changed brands and is trying to clear remaining inventory.  Comes with a 12 mo, 12k mile bumper-to-bumper warranty, 100k powertrain.  I don't think I could angle for a 2015 any cheaper (looking outside this deal, there's 2015s selling for more).

 

NADA is $16k, getting this car for a touch over $13k.

 

I know in theory this car will still be more money than fixing the one I have, but I have serious trouble bleeding several thousand dollars into an aging compact car.  I agree and hate the thought of overspending on transportation.  I really wanted to run my paid-off compact into the ground, but this repair is the kick in the other direction I think.

BofA Cash Rewards VS - $25k | Citi Double Cash World MC - $18.9k | Amex BCE - $50k | Discover it - $50k | Chase Freedom Unlimited VS- $10k | Barclay Ring $5k |
Message 3 of 11
Anonymous
Not applicable

Re: Check Financial Soundness of Decision

I would say don't walk, run and close that deal out.  I generally tell people to plan and plot for a perfect used car for at least 30 days, checking NADA and Carfax, etc, until they find one.  This soulds like you've done the groundwork.

 

Also, not to sound like a car dealer, but how much value do you put on peace of mind in having a vehicle with some warranty, as well as not breaking down when you need to get to work?  If your current vehicle is at the end of its useful life, you can't assume it will cost just $3000 to keep up.  You know how vehicles are: once they start to fail, it may lead to more failures soon.

 

I would say jump in and just do the deal.  If your emergency nest egg is big enough, you can always pay down the current car quickly enough.  I'd personally say don't loan an LTV over 80% and then monitor the trade-in value and keep your loan balance no higher than 80% of the trade-in value so you always have equity if you need to change vehicles down the line.

 

There's nothing wrong with spending a bit more on peace of mind, if you can afford it.  Your numbers tell me you can.  $450 a month is under 5% of your net take-home income, and some part of that $450 goes towards equity, so maybe you're talking about 2% of your net income towards something you drive at least 400 hours a year?  Not even a single concern in my mind here.  2% of your income for peace of mind and comfort in the equivalent of 10 work weeks of time a year?  Done deal.  Vacations cost more for just 1 week of peace.

Message 4 of 11
Anonymous
Not applicable

Re: Check Financial Soundness of Decision

I would say go for the deal, sound's like a great opportunity and a great decision on your part. I would stay away from a 2015 or older with the same mileage or less because NADA gives huge mileage addition's to vehicles like those with lower than average miles. Once you start racking up miles on a 2015 or older you will lose alot of value in your vehicle compared to what you paid for it.

Message 5 of 11
smc733
Valued Contributor

Re: Check Financial Soundness of Decision

This is good to hear, thanks for replying and sharing your perspective.

 

The car that I have now has not been as reliabile as I had hoped (I bought a boring econocar specifically for this reason).  That's honestly my biggest fear, not knowing what else uncovered is waiting to cost me more money.

 

The $450 is actually my student loans, the car will be $150 a month.  My liquid nest egg is $70k, the amount borrowed will be just over $9k.  The other good thing is the trade in value is actually higher than the purchase price (according to NADA, ~$300), so I'd be starting with several thousand dollars of positive equity.

 

Very true, I spend a combined average of approximately 3 hours in the car per day going to and from work a week. (15 hr a week, 2.5 days a month).  It would be nice to have some leg room and back support.  I've locked the car in with a deposit, will go finalize things tomorrow.

BofA Cash Rewards VS - $25k | Citi Double Cash World MC - $18.9k | Amex BCE - $50k | Discover it - $50k | Chase Freedom Unlimited VS- $10k | Barclay Ring $5k |
Message 6 of 11
Anonymous
Not applicable

Re: Check Financial Soundness of Decision

600 hours a year is the equivalent of taking off 15 weeks of vacation time.  I wouldn't blink at it for only $150 a month.  Even at 3x that I wouldn't blink at it.  Definitely a solid deal.

 

Also is the warranty in addition to the remainder of the original factory warranty?  Get that all in writing.

Message 7 of 11
smc733
Valued Contributor

Re: Check Financial Soundness of Decision

The warranty is 12 month, 12,000 mile from the date of purchase.  The 100k is up to the car's mileage, so I'd have about 76k of coverage left.   (It's good for 10 years from original sale date, I'll hit 100k well before then).  It's a CPO warranty from the manufacturer (Hyundai)

 

EDIT:  The 12 mo/12k mile is bumper to bumper.  The up to 100k is powertrain.

BofA Cash Rewards VS - $25k | Citi Double Cash World MC - $18.9k | Amex BCE - $50k | Discover it - $50k | Chase Freedom Unlimited VS- $10k | Barclay Ring $5k |
Message 8 of 11
Anonymous
Not applicable

Re: Check Financial Soundness of Decision

Sounds great to me!  I'm not familiar with Hyundai's CPO program but I'm guessing it's competitive since they have one.  Drive happy!

Message 9 of 11
Gunnar419
Valued Contributor

Re: Check Financial Soundness of Decision

Another big GO FOR IT here. It sounds like a very reasonable deal on reasonable terms, complete with CPO. You can clearly afford it and clearly have good use for it. It's not like you're looking at buying a Tesla Model S when you make $30,000 a year or something. Smiley Happy

 

Yah. Go and enjoy your new vehicle. Thanks for trusting your MyFICO family to give advice, though.

Message 10 of 11
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.