@Anonymous wrote:
$384 is my current payment. Its a Honda its very reliable and I am extremely meticulous with how I maintain it as i do all the maintenance myself.
But 384 a month for the next 5 years gives me anxiety. Like thinking I should have been more responsible and just saved money to buy a newer used car outright.
Huh? If $384 gives you anxiety now, what do you think $750 will do? It just might drive you over the edge. 
@CreditInspired wrote:
@Anonymous wrote:
$384 is my current payment. Its a Honda its very reliable and I am extremely meticulous with how I maintain it as i do all the maintenance myself.
But 384 a month for the next 5 years gives me anxiety. Like thinking I should have been more responsible and just saved money to buy a newer used car outright.Huh? If $384 gives you anxiety now, what do you think $750 will do? It just might drive you over the edge.
True, but my logic was 750/1 year is a lot better than 384/5 years.
@Aim_High wrote:
@Anonymous wrote:
@Anonymous wrote:
I want to thank you guys for all your advice. I am now leaning towards scrapping this idea and just continuing to pay down my current auto loan. I already pay an additional $50-100 every month towards principal as DCU makes it very easy to do this on their site.
Do any of you guys in general just feel that financing a car is a bad idea?$384 is actually a responsible payment in today's world. Many people are easily paying twice that.
I'm in the camp that is generally anti car payment except for when it's time to buy a car. But I'll put it off as long as possible. When it's that time, I'll finance something that I LOVE and maintain it well and drive it pretty much as long as possible. I currently drive a 2007 that has been paid off since 2013.
The situation also changes depending on the rest of your financial picture. I'll tell someone coming out of BK or that has a ton of high interest credit card to buy a beater for cash until they straighten everything else out. If the rest of your finanical house is in order, having the payments now on a car you can drive 5+ years once it's paid off isn't such a bad thing.
I've read that the cheapest path for owning automobiles is to buy 5 year old cars that have averaged 10k-12k miles per year for cash, keep them for 2 years, then sell them private party and rinse/repeat. This is supposedly the sweet spot where you're not going to be hit with major maintenance/repair bills, and I honestly believe it's true. I just get attached to my cars and I like knowing absolutely everything about their history.
I think you made a wise decision and congrats on the additional payments each month towards principal. That's a very responsible way to approach the debt. I've paid off my last two car payments way early doing the same thing.
I generally agree with the advice of @Anonymous above, but with some modifications. Financing a car is not (ALWAYS) a bad idea but it depends on your credit profile, your needs, and your budget among other things. And it's all in how you want to structure in the combined costs of buying, operating, and maintaining a car. New or late-model used cars tend to be more mechanically-reliable, may offer warranty coverage, and have lower maintenance risk. Used cars and especially higher-mileage cash cars are cheap to buy but allowance needs to be made for unexpected repair expenses.
Benefits of financing a BRAND NEW car:
* You get the satisfaction of a brand new car, which can be very fulfilling. But that fades quickly over time.
* You know the complete mechanical history and have the chance to make sure the car is properly maintained and driven from mile #1.
* You have a full warranty included for usually at least 3 years or 36,000 miles. Combined with the car being new, this makes budgeting for keeping a reliable car running very predictable. Reliablility is very important for many people who buy new cars, especially if they are elderly, disabled, or not mechanically-inclined to do their own repairs.
* With good+ credit, you may qualify for special 0% or 0.99% or 1.99% financing offers which make the financing much more reasonable. You typically won't find as low rates on used cars, even recent models.
Disadvantages of financing a BRAND NEW car:
* You take a HUGE depreciation on it the minute the ink dries and you drive it off the car lot. This matters less if you keep the car long-term (5-10 years).
* Due to that depreciation there is a risk for HUGE financial loss if you trade in or out of new cars often. (As in, what you were planning to do.) Some people who always keep a car loan would be much better off leasing.
* Many people are 'upside-down' on a new car early in the loan as we previously-discussed. This is due to buying beyond their means, not putting enough down-payment or trade-in value, or taking extra-long repayment periods. Of course, the car dealerships will try to sell you "GAP" insurance to cover such a contingency in case you have an insurance claim during that period. But being upside-down is not only an insurance risk if you have an accident. If you have some other financial hardship such as an unexpected job loss or medical expenses and need to sell your car quickly, you're not in a position to do so without taking a big loss. Lesson learned: Protect yourself. Structure your down payment and loan repayment to minimize the chances of EVER being upside down by putting 25% to 50% down on a loan upfront. And shut-down any car salesman who immediately tries to get you to tell him "what kind of payment you're looking for." You're not looking for a car payment; you're looking for a car!! Be vague. They use this information against you in negotiation and to try to pressure you to close the deal.
Advantages of financing a LATE-MODEL USED car:
* You allowed someone else to take the brunt of the depreciation in years 1-2.
* If you choose carefully, you can still get a car with very-low miles that is "almost new" so you still get some of that 'new car' satisfaction if it's clean and well-cared-for.
* You may be able to get a late-model car with remaining warranty, which helps mitigate your repair cost risk. So while the repair risk and the unknowns of vechicle history are not as strong with a new car, it's still much better than an older used car that is out of warranty completely and has much higher miles. With many dealerships, you may be able to get a 'certified pre-owned' car which has been throughly inspected and often comes with an extended warranty guarantee that is longer than the original warranty period on the car when new.
Disadvantages of financing a LATE-MODEL USED car:
* A used car may not qualify for interest rates quite as low as a newer car, depending on the lender and the age of the vehicle.
* It's used ... so you may not know the full repair history, unreported accident history, or how the car was driven. Some used vehicles were previously flooded or burgularized. I bought a nice late-model low-miles luxury car a few year ago and thought it was in great shape. When I went to sell it a few years later, I took it to some of the nearby dealerships to have it appraised for trade. Everyone started telling me it had major body work.
Finally, one dealership told me they had done the repairs after a major hail damage claim. Some people don't report minor accidents or claims so you may not be protected by getting a CarFax on a used car.
* You'll have less or no warranty remaining compared to a new car, so the repair cost is riskier as a car ages. But you're still better off than with a much higher mile and older used "cash" car.
I agree there are "sweet spots" on used cars. While that 5-7 year point might be the absolute lowest cost and one viable option, the repair risk is higher on a 5 year old car and it is more likely to have had multiple owners, unreported accidents or damage, or other adverse circumstances. And the depreciation slows down considerably after year 2. A five-year-old car will probably have zero factory warranty remaining, so you're completely on-your-own with repairs or issues as soon as you drive it off the lot.
So for the reasons above, I like the recommendation of getting a used car that is 1-2 years old, as low miles as possible (preferrably under 20K), still has at least 12 months factory warranty on it, one owner, very clean like-new condition and dealer-maintained. That is another "sweet spot" on used cars. I would suggest getting a car like that, opting for an extended warranty (which I dislike on most products but find they are appropriate on used cars), and driving the car for at least five years or until it gets 80K to 100K miles minimum before trading. The car I'm driving now was "like-new", dealer-maintained, had 16K one-owner miles, had two years factory-warranty remaining. I saved 33% off the new sticker price.
You don't have to buy the extended warranty the car dealership offers. I got some great low-cost ones through my credit union. You want a "named exclusion" policy which tells you what it DOESN'T cover instead of a policy that tells you what it DOES cover. And watch the deductible-per-repair and the repair requirements, as those may vary. You ideally want a low deductible and allowance for using the repair facility of your choice. If you don't opt for an extended warranty and can't do the repairs yourself, I suggest you put money in dedicated savings account towards car repairs. The older the car, the more money you may need to set aside. I have used my extended warranties and have had them more than pay for themselves. It's good insurance on potentially-costly repairs.
Now, car payments aside, the best way to buy a car ideally would probably be cash, unless you're wanting to put an installment loan on your credit report for history. (If you do you can take out a loan and pay it off much more quickly than the agreement, benefiting from both methods.) But to avoid HAVING to finance, after you're payment-free, put yourself on a car-payment-savings plan where you put that $500 a month you were paying aside "as-if" you were still paying. You can use those savings for repairs and if you don't need them for repairs, use it as a downpayment on the next car.
This is very useful advice. Thank you.