How to pay for new or used car

[CathyA]

My Van is 14 years old with 165,000 miles. I was hoping for it to last a couple more years, but the transmission is starting to have trouble and there are lots of leaks.......one of which would require a new timing belt also. These repairs would come close to $8,000 easily. Plus, I need new tires and my wheels are bent and the tires can never be rotated.
The bottom of the doors are starting to rust too.
The Honda service rep was honest enough to tell me that I should stop putting money into it, 'cause it's not worth it.
So......I'm thinking about buying a new or used van.

We have a Home Equity Line of credit that is at -0- balance now. It has an interest rate of 3%.......which is good.
I'm thinking, hypothetically, if a replacement costs $30,000, I could use about $12,000 from a savings and finance the rest through our Home Equity line, and pay that back as quickly as I could.
DH thinks we should finance the whole thing through Home Equity, since the interest we pay there is tax deductible. But DH is always too willing to borrow.........and I am not.
DH always over-estimates how much you actually get in a tax deduction. It's my understanding its just a percentage.

The money I would take from savings is only earning something like .45%.

Anyhow.....what's your opinion on what would be the best way to go?
Thanks!

[ApatheticNoMore]

Well 8k definitely does seem too much for repairs, you could get something used in good condition for not much more (granted I've never owned a 30k vehicle in my life - I drive small cars) So the home equity loan even with it being tax deductible means a rough estimate your paying maybe 2% interest rather than 3% (just the part you save in taxes, your still paying interest). Well if you have an investment that's going to pay more than 2% with very little risk (munis or long term treasuries is all I can think of might) then I guess you could do that instead, but it won't be savings accounts or CDs obviously, if all you're earning is .45% then paying at least part of it cash makes more sense.

[Spartana]

If it were me, unless I absolutely needed a van, I'd look at buying a used car rather than put $8000 into an old van that has many problems. Could probably find a good newer used car for that price - and probably a really nice newer used car for the $12,000 youy would put down for a new van. However if I absolutely needed a van I'd buy a used one. $30K for a new vehicle, even a van, seems high to me but I've seen newer (2012 and 2013) used vans (usually Dodge Grand Caravans are cheapest but they also sell other brands) on sale thru Hertz used car sales for around $15,000 - $18,000 with all the bells and whistles and around 25K - 30K miles on them. Most are still under factory warranty too plus Hertz's one year warranty. As for buying it on credit...well I'm anti credit myself but if you need a vehicle now and can't wait to save the money then the home equity line seems good. Hate to advise anyone to put their home on the line for a vehicle - especially such an expensive one - but if you are OK with that risk then why not. Again, I'd first decide if you really needed a van and if not go with a less expensive used car. Hertz also finances at 2.9% for it's car loans (no I don't work for Hertz or have any vested interest in them) and it doesn't require putting you house on the line for a new vehicle.

[awakenedsoul]

I bought my used Kia Rio through Enterprise for $6,000. back in 1995. It's been an excellent car. Suze Ormann says that if you can't pay off an auto loan in three years, you can't afford it. At the time, I financed my car over five years, and I had some trouble making the payments when the economy tanked. I did it, but it was stressful. I paid the car off early, and just put a new engine in it last year.

It sounds like a lot of money to me. How do you feel about spending all that money? I would trust your gut. I don't plan to borrow money again. I hated the feeling. But, now that the car is paid off, I love it. I also ride my bike and take the bus as often as possible, so that the car will last.

[jp1]

If you end up going with a new car you should also look at the manufacturer financing deals. Crunch the numbers with both the home equity financing and the manufacturer financing to see which makes more sense since often they offer really good rates. Unless they are willing to reduce the price if you don't finance through them it may make more sense to use them.

[mschrisgo2]

I was just looking at the currently available cars from Enterprise... I have a 2005 Town & Country now that I paid $10,000. cash for in early 2006 when it had 34,400 mi. It now has 200,000! I had to replace the water pump a few months ago, and I don't intend to put more money into it, though the engine is still good. But anyway, Enterprise here in California has Town & Country vans for $20-22,000. and they all have right about 20,000 miles. Hmm, about 25% less than you're talking about, and they have all the bells and whistles, too.

Personally, I'm eying a 2014 Kia Soul+ and I think I'm waiting until I can get it from Enterprise- used a few miles, and several thousand dollars less for me to pay. I love the flexibility of the van, but find I don't use all that space any more. And I'd like lots better gas mileage; the Soul is almost double the T&C. And I know several people who have bought from Enterprise and have nothing but good to say about their experiences, even the cars ended up needing major warranty work.

[Spartana]

mschrisgo2 - You also might want to check out a Mazda 5 touring model. It's sort of a mini - mini van in that it is a smaller version of a three row seat van. The rear seats can be removed and the middle seats folded down. It has the sliding side doors and rear lift door like a mini van also. Bit bigger than the Soul too (longer but about the same height). My only problem with it is that, even though it has a 4 cylinder engine, it gets pretty crappy gas mileage. Maybe 25 mpg tops. They have them on sale at Hertz (Hertz seems to be cheaper than Enterprise in my area) for around $12K to $16K depending on the mileage. I also rented a Dodge Journey once and it was really nice and roomy. Seats didn't come out but they folded down - plenty long enough for my 5'10" body to sleep in when camping. They have a v-6 and a 4 cylinder model. But like the Mazda 5, even the 4 cylinder gets terrible gas mileage (also around 25 mpg tops) but it is a MUCH bigger vehicle than either the Mazda or the Soul but also more expensive ($15K to $17K for something with about 25K or more miles on it). The Dodge Grand Caravans go for about the same price (I just looked at a bunch from Hertz) but are much bigger, all the seats remove but gets even worse gas mileage. You can get a Grand Caravan for around $20K that has only 10,000 miles on it. Less cost for higher mileage vans. Here's an example of some in my 'hood:

https://www.hertzcarsales.com/vehicle/details/14275022
https://www.hertzcarsales.com/vehicle/details/14174715
https://www.hertzcarsales.com/vehicle/details/14294745
https://www.hertzcarsales.com/vehicle/details/14285866

I'm looking for a mid sized car myself (Elantra sized) but look at used vans a lot.

CathyA - Is there any reason you need a van or can you get by with something smaller - car or small SUV?

[pinkytoe]

If you must have a van, I would second the look at a Mazda 5. They are very reasonably priced compared to other vans. A friend just bought a barely used one and I think they paid around $14K. If so, you could just stretch your savings a bit and pay cash. I will need to buy a car soon but I am waiting until I can pay cash - I hate car payments more than any other kind of debt but that's just me.

[Blackdog Lin]

Just thinking out loud here, from my personal perspective.....yup, you're gonna need to replace the van. It would cost too much to maintain.

But do you really need a $30,000 replacement? Do you really need a "new" one? Could you maybe get by by shopping around for awhile and finding a $15,000 replacement? A used one with lower miles on it? So that you could pay cash down for most of it, and only have to finance a little?

That's what we're gonna do this year. 'Cause I can't stand the idea of going into major debt for a fancy new vehicle. Cathy, we're simple living people. We don't need $30,000 vehicles. :)

[lmerullo]

I hate to get into a short of cash situation. If paying the $12K from savings was liquidating cash on hand then I wouldn't do it. I would finance the full purchase price at the lowest rate - might turn out to be through the manufacturer if you buy new and extend out for almost forever - and then pay more than the minimum to get the car paid off sooner.

We bought our 2012 vehicle two years ago New and we could finance for 7 years. if we didn't get the $10K out of our trade and financed the whole price it was enough to go 10 years ( I think that's also the position you would be in, 7 with cash down and 10 at fully financed). I'd go for ten - keep the savings intact but pair the regular payment of say $350 from budget with another $350 or more out of the $12K. This way, if your financial future changes you have most of your savings intact and can cut down to the minimum repayment with less strain to your budget. And if your financial situation improves, just prepay more aggressively.

Don't forget to check your local credit unions too. We paid off the car in 1.5 years from the manufacturer ( makes my credit score go up) and then two months later ended up financing the car again to buy a motor home. Car loans get much better rates.

[JaneV2.0]

I second the suggestion of considering a late model used car. I bought mine from Enterprise with 30K miles (I think it has 35K now), financed it through my Credit Union at a low interest rate for three years (I think), made a large down payment (about 40%), and paid it off in about a year and a half. If making a $12K down payment from saving isn't a stretch (Is this rainy day savings?) it's probably worth it to shorten the payoff period.

[CathyA]

Thanks for all your suggestions everyone! I'm going to drive my car really gently, and hopefully I have a few more months to consider what to do.
Thanks again!

[Teacher Terry]

We recently faced the same thing. My 14yo volvo needed $4000 repair just after doing a couple before that. So bought a 2010 HOnda accord with 34,000 miles. I would buy a newer used one and put a big down payment.

[pinkytoe]

Somethig else to think about too (practical me) is how many more years you think you will be driving.

[Teacher Terry]

My Mom made sure she lived on the bus line for when she could no longer drive. That never happened-she was able to drive safely until until she died at 89 and her sister now 90 is still driving during the day only. You just never know. Every time she bought a car she said it would be her last:~)

[cx3]

CathyA,it sounds like you got your repair estimates from a dealer. I know a guy down here in the southern part of Indiana that will rebuild your tranny for I'm guessing $1500. He's rebuilt three for me. Last one has been a few years thats why I'm guessing price. I know a couple of inexpensive mechanics too.Don't currently have a body guy,last one retired.Let me know if I can be of assistance.