Buy a new car or refinance my existing

maflynn

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May 3, 2009
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Ok,

I'm in a quandry over what to do. As some may recall, I mentioned from time to time, my wife has been out of work, and unfortuntealy who unemployment status continues :(

Anyways I have a fairly new truck (2008 honda ridgeline) that has a fairly high car payment. Given my financial situation I'm considering to trade it in next week (as the president's day sales are pretty decent around where I live) or refinance the auto loan. I just started looking into this option.

Option 1. Trading it: I'll have to pay sales tax and may put up some cash as a down payment. The upside of this, is IF they give me the blue-book value, I'll be ahead of the game. I'm planning on getting a honda civic or a Ford Fusion sedan. If I play my cards right, its quite possible to save about 200 dollars a month

Option 2. Refinancing: I'll lower my payments and keep my truck. Downsides are that I may not get a term or interest rate I like and in all likelihood I'll be paying for a vehicle for a very long time. Plus the loan value may eclipse the blue book value, and if I got in an accident, the insurance company may not give me enough money to pay off the loan. I'll be on the hook for that then.

Neither option is really enticing, since I'm moving down from a truck to a base line car, I may not get a lot in trade in or wheeling and dealing. The loan option may mean that I'll be paying for the truck for 7 years (2 years already and another 5 for the new loan).

Thoughts, opinions and/or suggestions.

btw, I thought of selling it privately which I might in the spring, but given my family situation, we cannot be w/o two cars so while I may be able to sell it for more $$, its not a feasible approach but one I may explore this spring.
 

eawmp1

macrumors 601
Feb 19, 2008
4,130
5
FL
Sell it and buy a cheap used car (new cars are horrible investments - where else can you spend your money and have something that is worth 60-70% of what you paid the day before). Get rid of auto payments if you can.
 

Teh Don Ditty

macrumors G4
Jan 15, 2007
11,308
5
Maryland
What is the Blue Book price of the Ridgeline? (Which you won't get because auto dealers go by the Blackbook which under values your car) How much and how long is left on your loan?

Most insurance companies have GAP insurance, but you can also get that when taking out a loan.

Also, what's the difference in loan percentage rates? Current rate and rate if you were to refinance.
 

iShater

macrumors 604
Aug 13, 2002
6,967
370
Chicagoland
I'd go with the first option. That way you reduce your payments and you might be able to save $$ on gas and possibly insurance. Call your agent and find out the costs of insurance.

I'm tempted to also suggest getting a gently used car, if you end up with any extra $$ in your pocket, it can help you out in other areas.
 

Gregg2

macrumors 603
May 22, 2008
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Milwaukee, WI
Another downside to the truck vs. a small sedan is that the costs of insuring it, and feeding it are higher. But, maybe you could "rent" it to friends who need to transport something larger than their vehicles can.

My car buying philosophy has evolved into "cash for cars". I haven't paid the bank a monthly car payment for years. I do budget a "car payment" every month, but it goes into savings until I'm ready to buy. I've advised my son to save that car payment money once his first car loan is paid off instead of allocating it to something else. I think you come out better in the long run by going without something you've been going without anyway, and not paying double (with interest) for cars.

Extended periods of unemployment throw a wrench into the plan, but I try to get back on track as soon as possible. So, I'd vote for the option that has the lower interest payments.
 

maflynn

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I'm not married to new cars but I may get a great rate and/or deal next weekend. I'm in no rush, but car dealers generally have great sales on president's day so I'll see if I get any bites. I'm kind of leaning for the first option.

I'm waiting to hear back from wells fargo regarding refinancing. I need more details to help make an educated decision.
 

Teh Don Ditty

macrumors G4
Jan 15, 2007
11,308
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Maryland
Can you join a local credit union? They generally have lower rates and some will even let you refinance over the value of the car.

The local credit I used to work for finances 115% Loan To Value (LTV). It's worth a shot.
 

GoCubsGo

macrumors Nehalem
Feb 19, 2005
35,743
141
Rates on used cars are generally higher. I would seek out the refi option first. If you've had it for a year now then I suspect you have what? 4 more years left on the loan? Perhaps you can refi for a lower rate @ the same term. It really depends on what your rate is today. I'd hate to see your Ridgeline go personally but then again I get the point. For me I'm getting about 18 miles on average per gallon, a Fusion would get better and the Civic even more. I would actually look into a 2008 Accord as well if I were you and stick around the Honda family. The 2008 Ridgeline is still sought after and has good resale value. I hear many buying the 2008 in lieu of the 2009 because they preferred the grille, believe it or not.

If the refi option doesn't yield the results you want then take option 1.
 

maflynn

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The 2008 Ridgeline is still sought after and has good resale value. I hear many buying the 2008 in lieu of the 2009 because they preferred the grille, believe it or not.

If the refi option doesn't yield the results you want then take option 1.
I do like my truck, and as I mentioned, I'm waiting to hear back from wells fargo. There are advantages and disadvantages to both and there isn't really any killer advantage regarding either choice.

I'll update this thread as I find more information :)
 

notjustjay

macrumors 603
Sep 19, 2003
6,040
111
Canada, eh?
One thing to consider is that your insurance, gas, and maintenance costs will be much lower with a small car than with a truck or SUV. When are you next due to buy new tires for the truck? That'll be a hefty chunk...

I leased a compact SUV, a Toyota RAV4, and when the lease ended I was very torn between keeping it or downsizing a step to something a bit smaller. I ended up giving back the RAV4 and buying a used Matrix. Frankly, it's a decision I regret because the gas savings were not that significant (the RAV4 turns out not to be a guzzler, comparatively speaking) and I gave up the larger cargo capacity and 4WD. However, I did notice that my insurance was cut in half from $125 to $65 monthly.

I have a coworker who bought a used VW for $1000 cash. Every time I park next to his car I can't help but marvel that he made basically one car payment and was done, while I still have a loan to pay off. (Granted he might have paid more to service it but it seems to be running well.) So perhaps one option is to buy a cheap clunker in good shape so you have a vehicle, then sell the truck privately.
 

kmaute

macrumors 6502
Oct 5, 2008
301
2
USA
Sell you truck privately and pony up the cash or sign a small note for the difference with a local credit union. Buy a $500 beater.

The interesting thing about a $500 beater is that once your family is employed once again, you can sell the beater for $500. Then you can buy a used car in cash and begin to work your way out of debt.

Car payments are the single largest destroyer of personal wealth in the American society. The average annual car payment is ~$5,000 - which, incidentally, is the individual contribution for a Roth IRA. Which do you think will pay off more later in life?
 

Sun Baked

macrumors G5
May 19, 2002
14,874
57
The President's sale usually has some good, aka smoking deals, on used cars on the lot.

Looking at the sub 8-10k beaters are always an option, used Buicks and Mercury vehicles always sink like a brick and should be able to get something under 50k for 6-8k off sale. So a sale might get something a bit newer.

And anything built in the past few years with less than 75k should give you another 50-75k of relatively pain free miles. As long as you change the trans fluid a bit more often.

---

And the reason to key in on Buick and Mercury, is they tend to be the two car lines with rock bottom insurance costs ... as well as decent Consumer Reports ratings of their care and feeding.
 

samiwas

macrumors 68000
Aug 26, 2006
1,575
3,518
Atlanta, GA
Just don't do what my dad did. When I was 16, almost 20 years ago, I didn't have quite enough money to buy my car (an old used mazda), even after all the relatives had kicked in the birthday money. So, unbeknownst to me, my dad borrowed money against my life insurance, which is all well and good.

The problem is that he never told me...as I don't think he wanted me to know that he had to do that (well, he didn't have to, but you know what I mean). The bigger problem was that he basically forgot about it. The bill for life insurance only comes once a year, and he'd just pay the bill...never paying attention to the fact that there was an interest charge on there.

So 17 years later, he finally turns the policy over to me to start paying it. With that, I inherit the cost of my car...17 years ago. I could have paid that easily within a few months back then, but instead we paid for 17 years of interest and still had to pay the loan. So that car more than doubled in cost!

I understand though, because after he turned it over to me, I kept forgetting about it. Took me two years to finally say, "wait a minute," and pay it off!!

Argh.
 

maflynn

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May 3, 2009
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Update

Ok, while this cannot be considered an exhaustive search, I've found that the many places that offer refinancing for car loans have exceedingly high interest rates. For example, wells fargo quoted me 8.65% That high of rate really means its not a feasible option.

I did find out that my local credit union offers better rates but when I joined them last year they royally messed up my account, debit card and fees. I have little confidence in them as it stands so while the rate would be better, I'm not so sure I'd be better off with them

I'm going to check out the dealerships saturday and monday. If nothing comes of that, I'll check out some more banks on the refi front.
 

Teh Don Ditty

macrumors G4
Jan 15, 2007
11,308
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Maryland
^I'm guessing you don't bank with the CU anymore? If anything if you still have a small account there, you're better off taking their much lower rate (my guess is by at least 3%). Most banks will not finance the entire amount of the car.
 

maflynn

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May 3, 2009
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^I'm guessing you don't bank with the CU anymore? If anything if you still have a small account there, you're better off taking their much lower rate (my guess is by at least 3%). Most banks will not finance the entire amount of the car.
You guessed right ;)

It took in excess of two months to get checks, they kept telling me they're on the way w/o really checking to see of the order was placed (which it wasn't) They then kept messing up on the type of account it was. They also started charging me fees on my no fee account because I used the debit card too much
 

Teh Don Ditty

macrumors G4
Jan 15, 2007
11,308
5
Maryland
You guessed right ;)

It took in excess of two months to get checks, they kept telling me they're on the way w/o really checking to see of the order was placed (which it wasn't) They then kept messing up on the type of account it was. They also started charging me fees on my no fee account because I used the debit card too much
Miserable. Are there any other CU's nearby? Like I said above, just maintain the bare minimum on the account (generally a $5-$25 savings account) and then just get the loan on the cheap.

Is it a bit of a PITA to go to 2 banks, yes? Is it worth it to save 3% or more on an auto loan, absolutely.
 

senseless

macrumors 68000
Apr 23, 2008
1,762
152
Pennsylvania, USA
Great advice. If you hold back for just a few years, you can have a lifetime free from car payments. That's got to add up.

Another downside to the truck vs. a small sedan is that the costs of insuring it, and feeding it are higher. But, maybe you could "rent" it to friends who need to transport something larger than their vehicles can.

My car buying philosophy has evolved into "cash for cars". I haven't paid the bank a monthly car payment for years. I do budget a "car payment" every month, but it goes into savings until I'm ready to buy. I've advised my son to save that car payment money once his first car loan is paid off instead of allocating it to something else. I think you come out better in the long run by going without something you've been going without anyway, and not paying double (with interest) for cars.

Extended periods of unemployment throw a wrench into the plan, but I try to get back on track as soon as possible. So, I'd vote for the option that has the lower interest payments.
 

Gregg2

macrumors 603
May 22, 2008
5,809
344
Milwaukee, WI
If you hold back for just a few years, you can have a lifetime free from car payments. That's got to add up.
You bet it adds up! You can see it adding up in your bank account as soon as you start making "car payments" to yourself. And, you get the interest! Then, when you pay cash for a car for the first time, you continue saving for the next one, and it only takes half as long to save enough as it would to pay off a new loan.

One slight modification: "...hold back for just a few more years,". When starting out in the employment world, those are lean years. If you survive them long enough to pay off your first car loan, you can probably survive for a couple more years at the same "standard of living" while you are building wealth for a lifetime.
 

Jaro65

macrumors 68040
Mar 27, 2009
3,703
563
Seattle, WA
You bet it adds up! You can see it adding up in your bank account as soon as you start making "car payments" to yourself. And, you get the interest! Then, when you pay cash for a car for the first time, you continue saving for the next one, and it only takes half as long to save enough as it would to pay off a new loan.

One slight modification: "...hold back for just a few more years,". When starting out in the employment world, those are lean years. If you survive them long enough to pay off your first car loan, you can probably survive for a couple more years at the same "standard of living" while you are building wealth for a lifetime.
Now THERE is some wise talk! Very Foolish of you. :)
 

Jaro65

macrumors 68040
Mar 27, 2009
3,703
563
Seattle, WA
Um, ok... if you say so! :confused:
This was a reference to the www.fool.com and their overall "live below your means" approach. They refer to themselves as Fools, and any financially wise decision is thus referred to as "Foolish." That first capital letter makes all the difference. :)

In other words, I was commending you for your wise advice.
 

Gregg2

macrumors 603
May 22, 2008
5,809
344
Milwaukee, WI
And you just expected everyone to know that? ;)

Thanks for the compliment. My financial advice column appears monthly in the Onion. :p
 

stubeeef

macrumors 68030
Aug 10, 2004
2,702
2
I paid of my 2nd mortgage 2.5 years early last week.
I will payoff a credit card debt (last one) in April.
I have been taking the payment from the 2nd mortgage and putting in savings, and will put the $$ from the CC payments I have been making ($1000/month) there next. The 2 will combine over 12 months and I will payoff my new van in 2 years vice a 5 yr loan.
I have been listening to Dave Ramsey lately and have modified things to fit my situation. Getting prepared if either me or my wife loses our job.
Since you are already in a position that is difficult take the previous advice.
Sell the truck privately, if you can clear $500 go buy a beater. Screw what your neighbors and family members think, just do it. Later you will look like a genius. Save every $$, kill every bill, and get a part time job if you can. We use coupons and shop Walmart, I went to Ooma for a voip phone, and am considering taking the cable to basic and stopping the 4 hours every other week maid that my wife has had since she started working. I guess I will do those 4 hours and save the $$$.
If you have not heard of Dave Ramsey get to the library or a used book store and learn the freedom of debt.
Good luck, sorry about your wife's job, oh but for the grace of God go many here.

A wise receipe for a wealthy life.