Saving for a Car–Sage Advice Part 3

handshake-4011416_1920

Op-Ed by Paul Wimsett and AR Bunch

Following on from the information Sage Advice #2…

A car is one of the biggest expenses we have at any one time and a source of constant frustration. Sure, home ownership will come with lots of things that need fixing from time to time, but cars are moving things full of moving parts. It’s a whole other level of ability to destroy itself from the moment you buy it.

Good advice starts with this…get a high yield savings account especially for the car and label it, “fix or replace.”

You may decide to trade-in your current car, or sell it for cash, to help with the down payment for the next car, but that’s not adequate. You don’t want to be financially destroyed by unexpected auto breakdown. These things happen at the worst time.

Searching the market to get the right account for this. It might seem over-cautious but owing for a car is one of the ways that debts accumulate over time. No one here is legally qualified to give you financial advice, but we’ve done enough research to know that savings accounts do exist, that give a slightly higher interest rate in exchange for limiting the number of times you can access it per year. That’s what you want.

Putting as much down as you can will reduce your monthly payment, which is turn lets you squirrel away a little bit toward your next down payment. The idea is to turn some of the money you pay in interest on a car loan into money you’re paid interest on when saving toward your next car loan.

Obviously your going to potentially dip into this account for big repairs but that’s not something you can include when doing the math. (Just consider the decision to fix your current car as delaying the purchase of the next car so your adjusting the timetable buy the amount you’re taking out of savings now.) So for the purpose of doing the math work only with saving toward your next purchase.

Doing the math:

A quick word about maintenance; you should try to keep your car at least five years, which shouldn’t be difficult with regular oil changes and tune ups. (Do not take oil changes/tires/gas etc out of your repair fund—those are operating expenses.)

percent-226316_1920Even though your car SHOULD last five years, assume that you’ll need at least the down payment for new one in two years. There is no telling what sort of car you’ll buy in two to five years, or what it’ll cost, so look at the newest model of the same car you own now. What’s the price of a 2020 Honda Civic, for example? $21,650

What’s price will that car be when you buy it 3 to 6 years from now?

Some models depreciate better or worse than others and an individual car might fair worse than others of the same model. Most cars depreciate about 20% in the first year and 15% each year after that so that 90% of the value is gone in 10 years.

At this rate our Civic should sell for about…

2023 $12,514
2024 $10,637
2025 $9,042
2026 $7,686

The fast way to double check the numbers is to compare to KBB.com when the time does role around. But for the sake of pedicting we’re we’ll use these numbers.

Price will have fallen in half by the year 2024 which is why we’re recommending buying a car 3 to 6 years old. Whenever possible put 20% down and take out a 60 month or shorter loan.

$10,637 x 20% = $2,128

To save that in 2 years just divide it by 24 months = $88.65/ month.

Other Car expenses:

Look to budget for car-related expenses, insurance, roadside assistance, taxes & registration and so on. What is the best way to pay these bills? Would it work out cheaper monthly, quarterly or yearly? Obviously the bills come when they come, but be sure to increase the size of your regular savings to account for saving toward those expenses.

Try to limit your expenses, which is easier to say than to do! Experts we know say that household accounts are where money tends to evaporate and your efforts will be in vain if you leave the heat up on vacation, etc.

Secrets to Saving:

The secret to success is automating your savings. This sounds a bit glib, but there are ways your bank can automatically move money to saving each month so you don’t have to think about it.

Know the bank’s rules on overdraft should you have to take one out.

Other sources of Money for a Car:

Some folks have been able to take out a second mortgage, leveraging the equity in their house instead of financing car? The logic behind this, is that borrowing larger amounts of money results in a lower interest rate. On the downside, your house is essentially securing your car.

As we mentioned in part one of sage advice, if you are buying your first car, you’re probably involving “the Bank of Mom and Dad,” but beware of the stress in family loans can put on relationships. Find out how much are they willing to spend and ask if they need something in writing?

Overall Budget Considerations:

Experts say you shouldn’t spend more than 20% of what you take home on your car. You might have to play this one by ear though, for a low paid job 20% might not be a lot.

Keep in mind cars are a handy tool, but a terrible investment. So don’t make sacrifices to have a nice car. A lot of this advice has been boring common sense, more than sage advice, but it’s a good idea to think logically about cars.

Advertisements

First Car Buying–Sage Advice Part 2

toyota-967011_1280

Op-Ed by Paul Wimsett and AR Bunch

As a follow up to the last article, what’s the best standard advice or conventional wisdom around what car to buy, as a first car. Well, if you are a teenager with an unrealistic sense of financial responsibility (which is actually a trend these days), then we do have some advice for you.

If you chose a car that has sold well for a long time you’ll probably find a make & model that hasn’t built a bad reputation and you’ll be able to find parts for it for many years.

You should also think about buying a car that’s already been broken in, and lost the rapid depreciation you get when a new car is now slightly used. So right now you’re looking for model years 2013 to 2016. If you have a good steady job, try to buy them 3 years old and sell them at 6 years old. The best selling car by year were:

Best Seller 2012 & 2013

#1
Ford F-Series
763,402 645,316 18.3%
#2
Chevrolet Silverado
480,414 418,312 14.8%
#3
Toyota Camry
408,484 404,886 0.9%
#4
Honda Accord
366,678 331,872 10.5%
#5
Dodge Ram
355,673 293,363 21.2%
#6
Honda Civic
336,180 317,909 5.7%
#7
Nissan Altima
320,723 302,934 5.9%
#8
Honda CR-V
303,904 281,652 7.9%
#9
Toyota Corolla/Matrix
302,180 290,947 3.9%

Chart by Good Car Bad Car

Best Seller 2014  & 2015

#1
Toyota Camry
429,355 428,606 0.2%
#2
Toyota Corolla
363,332 339,498 7.0%
#3
Honda Accord
355,557 388,374 -8.4%
#4
Honda Civic
335,384 325,981 2.9%
#5
Nissan Altima
333,398 335,644 -0.7%
#6
Ford Fusion
300,170 306,860 -2.2%
#7
Hyundai Elantra
241,706 222,023 8.9%
#8
Chevrolet Cruze
226,602 273,060 -17.0%
#9
Hyundai Sonata
213,303 216,936 -1.7%

Chart by Good Car Bad Car

Best Seller 2016

  1. Ford F-Series: 820,799. +5.2%. Ford.
  2. Chevrolet Silverado: 574,876. -4.3% …
  3. RAM Trucks: 489,418. +8.7%. …
  4. Toyota Camry: 388,616. -9.5%. …
  5. Honda Civic: 366,927. +9.4%. …
  6. Toyota Corolla: 360,483. -0.8%. …
  7. Honda CR-V: 357,335. +3.4%. …
  8. Toyota RAV4: 352,139. +11.6%

So putting it all together the first thing you’ll want to do is decide if you want a truck or a passenger car, but that’s a topic for a different sage advice post. For now lets ignore the trucks. The list really looks more like this…

#1 Toyota Camry

Tie for #2 Toyota Carolla & RAV4, Honda Accord, Honda Civic, Honda CR-V, & Nissan Altima.

There is one other factor, which is expert opinions on what was a good buy at the time. Without taking time to justify this opinion, since it is an “Op-ED” lets include the chronically under-rated, Ford Fusion, Hyundai Sonata & Elantra.

Now that you have a list or potentials, you need to start test-driving. This is where it gets dicey. The best way to test the cars you might want is to go to a car lot determined not to buy. (Literally, come up with some terrible thing you will do to punish yourself if you break down and buy something and tell a friend about it.)

But go where all the cars are and sit in them to figure out what fits you. That way you have narrowed it down to just a couple models and a small age range when you start looking for the right deal to make.

Once you have picked the right model and year you’re ready to establish the right price. This is easier than ever, fortunately, and it doesn’t require knowing a car curmudgeon like us. Any car is a good deal, depending on your needs and abilities. Can you fix minor problems yourself? Is your job one that will let you come in a little late if you get broken down unexpectedly. Really, you want a safe car, but maybe you can skimp on the super safe features a little because you’re a teenager who hasn’t learned that life is a thin flame in a hurricane of wind and rain.

money-1425581_1920Then its just a question of paying the right price for the exact vehicle. What makes it a bad deal is paying what comparable cars are worth when the car before you is not a good representation of that model. There is only one way to know the car you’re buying is priced right, and that’s getting it inspected. You need an expert who works for you, not the car lot, to examine the vehicle.

Its unbelievable how compelling car dealerships make it sound that they have inspected the vehicle and wouldn’t sell it if it weren’t good. Of course they inspected it. Of course they got rid of the junk. They bough it blind at auction! The first thing they did is check to see if they got a steal or got burned. Of course they turned around and re-auctioned the worst of the ones they bought. None of that means the car they kept is priced accurately for the condition its in! It helps a little if they give you a year warranty, but lets be real, they tend to warranty the parts that aren’t likely to go out or that their mechanic can visually inspect. It’s your job to know what you are buying. Don’t skip parts of the process because the dealer makes you feel foolish for asking.

Back to the question at hand, how do you know the right price? A good inspection service will come to the dealership or home of any car publicly listed for sale and inspect the car. It’ll include a test drive. It’ll also include a the use of carfax and other internet investigation which examines the history of the car, with KBB.com to show where that particular car lands compared to other cars of its make and model, that have sold locally, in the recent passed. Its the combination of all the information that can give you the actual value of the car before you–which is powerful information to have when negotiated the price you want to pay.

Look for Next Monday’s Sage advice to learn about cars and savings.

The First Car Buying–Sage Advice Part 1

curly-1648262_1920.jpg

Op-Ed by Paul Wimsett and A.R. Bunch

Let us talk directly to some of you on those of you late teens for this blog, with the voice of a couple car experts instead of your over-protective parent…which I’m sure have already weighed in.

There comes a point in your life as a teenager where you have “come of age” and require your own mode of transport. Though you may be tempted to look for a sports car, or even something like an SUV these aren’t recommended. Just like your “rents” have been preaching, the best type of car is a simple, late model, mid-size passenger cars. Here’s why…

This is about more than just trying to break away from being ferried around by our parents. It’s bigger and more symbolic than that; it’s a machine which can take you (within reason) wherever YOU want to go. Instead of, stand here at this time and I’ll get you, it’s be home by a certain time. The subtle difference is huge because now you are responsible for everything it takes to hit the mark and all the free time that responsibility creates. Therefore, the fastest way to more freedom with your car is to impress your parents with your car buying decision.

Making a good choice in purchase:

What you might not immediately consider are airbags but if you are learning to drive, they are definitely a good idea. Go for side air-bags as well. You might also look for an anti-lock braking system, just to be on the safe side. When you voluntarily pick a safe car, it signals your parents to worry less about you.

The first car might be one that we stick with quite a few years. After all, how long will it take before we can afford a new one? That being the case you can’t just buy the cheapest car you see, chances are that it will only break down. No, it needs to be relatively inexpensive, but operable.

You can avoid a lot of haggling with pros (car dealerships) by shopping private sales online. To avoid scammers, robbers, and worse kinds of creeps, mention that you’re going to have the car inspected by a mobile service like Tire Kickers. Be ready to pay in cash to make the purchase a simple transaction and bring someone with you who has some life experience. (Aunt Sally the x-marine will do nicely).

Obviously, never digitally hand over a deposit for a car you haven’t seen, just because the guy says he’s had a lot of interest—there’re actually a lot of decent cars out there so don’t worry.

Here are two pieces of advice that will serve you well in life–Don’t show your fear & haggle a little. There seller probable has more experience buying/selling cars that you do, but they don’t know that for sure until you open your mouth. Just nod and agree with what they say, and if the amount’s too high and they won’t haggle, the best thing to do is move on. Always haggle a little, because it actually reduces the remorse after the fact—wondering if you over paid. Just because they’re asking more than the car is worth doesn’t mean they need to come down in price, they might fail to sell it to several more people before coming to that conclusion. Sales fall through for dumb reasons all the time. Don’t let it get you down, just move on to the next car.

You’re probably noticing a theme to this section—don’t fall in love with the car before you buy it. That’s literally the job of a car salesman at a car lot—get you to fall in love with it before you talk money. So think logically about your car until you own it, then fall in love with it.

Is color important to a car? NO! go back and re-read the last paragraph! Holy cow, did you already forget the lesson. If you’re excited about the color you are not buying right. Look at the engine, the interior, the acceleration, the fuel economy, how suitable a car is for your needs. Then you can work out if it is the right color or not. (One exception: you can turn a car down if the color is too awful.)

What your Parents Aren’t Thinking:

Most teens assume that their Mom or Dad is primarily concerned with price. They don’t want you to overpay, but they don’t want you to drive an ancient gas guzzler either. Sometimes you might have to adjust your ambitions. Don’t worry about your parents; it’s probably you who will have to keep up with payments.

I know we just said to pay cash for the car, why are we talking about payments?

There is a way to finance a car and pay cash if you can pull it off. Some of the smartest teens we’ve interviewed were able to make an arrangement with their parents. They worked and saved up most of the down payment for their vehicle purchase. Then they looked around for the general type of vehicle they wanted and went to their parents with an offer. Match the down payment and co-sign a personal loan. This sort of loan isn’t tied to the vehicle. If you stop paying your parents will have to make the payments. Many banks won’t consider an unsecured loan because they want the title to the car as collateral, but with your parent’s signature and a sizable down payment some of them will. This allows you to take the amount of money you need out of the loan to buy the car in cash.

Paying cash gets you the best price on a car, usually, and by owning the title you can potentially reduce the cost of your insurance.

The key here is picking a car that your parents are impressed that you chose and try and keep to any agreed budget.

Good luck in buying your new car and here’s to safe driving out there.

PS if your parents don’t agree to help you buy a car you have only two recourses. 1) find ways to get better grades, a promotion at your job, and act more responsibly. 2) use your down payment money to buy a motorcycle…your parents will change there mind about the car…

motorcycle-4182173__480