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      05-21-2018, 06:55 PM   #1
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I need some financial advise

Seeking the help of random internet people for my situation regarding my car/financial situation. I know a decent amount on this forum work in finance so maybe you can assist.

Last year I rolled over a good amount of negative into an Audi (yes, very bad idea and at the that time I should have bailed but I didn't; lesson learned) and I am pondering whether I should keep the car until the lease is over with (I do drive a decent bit for work so I probably will go over the lease mileage); buy a car with cash and use that as a DD ; or invest $10-15k with a USAA aggressive money market; or dump roughly $15-20k in October to get rid of it and get a car less than $20k. The payments are doable, but I really would rather have less money spent a month.

Currently owe $36k left in the lease, with a residual of $22k. The car is projected to be valued at $30k by the time I decide to bail on it in October. It has less than 10k miles on it still, and I don't plan to drive it much until October as well (I'm in Cali right now and car is sitting back home until I get back later this year).

No matter which way I choose I'm still going to have to pay a decent bit of money; but which choice lessens the blow? I'm leaning towards the get rid of it this year and get another car.

Thanks
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      05-21-2018, 07:43 PM   #2
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Make higher payments every month to lessen the blow at the end. Then go buy a honda civic.

I'm broke so I bought a $1500 civic. I didn't take on a monthly payment. When I bounce back, I'll go get a nicer car.
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      05-22-2018, 11:01 AM   #3
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Originally Posted by rcracin View Post
Make higher payments every month to lessen the blow at the end. Then go buy a honda civic.

I'm broke so I bought a $1500 civic. I didn't take on a monthly payment. When I bounce back, I'll go get a nicer car.
This.

Car payments are one of the worst financial decisions, since cars are depreciating assets (except for classics but that is rarely the case). The exception would be if you can write off the car for business or if you only take on a small loan and use the other money you have set aside to invest.

The smart way to buy a car:
1. Don't buy new
2. Buy with cash
3. Don't spend your whole savings so you have money left over for maintenance and repairs
4. Maintain it well so your invested money goes further

Cars break and need maintenance, so they will only cost more money over time in addition to what you have initially invested into them. Paying interest on a car loan only adds to the total cost of ownership.

You aren't totally in the hole because it will still be worth something when you get rid of it. I know a few people around my age who have bought cars with high interest loans they couldn't afford, the car had a major mechanical problem, and they had to trade it in starting out underwater on their next loan.
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      05-22-2018, 11:27 AM   #4
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Quote:
Originally Posted by CTinline-six View Post
This.

Car payments are one of the worst financial decisions, since cars are depreciating assets (except for classics but that is rarely the case). The exception would be if you can write off the car for business or if you only take on a small loan and use the other money you have set aside to invest.

The smart way to buy a car:
1. Don't buy new
2. Buy with cash
3. Don't spend your whole savings so you have money left over for maintenance and repairs
4. Maintain it well so your invested money goes further

Cars break and need maintenance, so they will only cost more money over time in addition to what you have initially invested into them. Paying interest on a car loan only adds to the total cost of ownership.

You aren't totally in the hole because it will still be worth something when you get rid of it. I know a few people around my age who have bought cars with high interest loans they couldn't afford, the car had a major mechanical problem, and they had to trade it in starting out underwater on their next loan.
Your first two points are way too simplistic. From a basic view point, yes, buying new is generally not good due to the depreciation hit. But this is only really relevant if you like to flip cars in a short period. There is something to be said about buying new in terms of you know how the engine was broken in. You are sure how the car was maintained and overall taken care of. You might get those assurances with a used car...then again you might not. I have bought a used car before and had a generally good experience. It helped that I knew the original owner of the car. I held on to that car for about 15 years. All my other vehicles were purchased new. And all of them were driven into the ground before I got rid of them. One car I had for 12 years before sending it to the scrap yard when it blew a head gasket; didn't want to sink the money into the repair. The other car I had for about 8 years. That car was totaled out by my insurance after hitting a deer. It was a 2006 Ford Focus ZX3 with about 170,000 miles. My insurance paid out just over $5000 back to me. I currently own two motorcycles both bought new; a 2004 ZX-10R and a 2009 848. Both still running and both still looking like they just came off the showroom floor. So it really depends on the intent of the purchase. If you hold on to a new bought vehicle for a long time, buying new isn't such a bad idea as many people make it out to be.

On the second point, paying cash again is too simplistic. If you're able to get a zero or low interest loan, I don't see a problem going that route using other people's money. I've always been able to finance my vehicles at low interest rates. With some cars I put zero down. With the 135i, I did put down a substantial down payment but still financed a good part of it. All the loans I got were at 1.49% interest rate fixed for 5 years. I did end up paying off the loans early usually within 2 or 3 years. I took the money I would have dropped into paying cash into investing.

There's no one size fits all and it really depends on the circumstance. This is the same as those saying pay cash for everything and to cut up all your credit cards. In my situation, this is walking away from 1.75, 2, and 3% cash back depending on the item purchased along with credit card fraud protections and the extended warranty/lost/stolen protections I get with my AMEX. I pay off my balances in full every month.
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      05-22-2018, 11:39 AM   #5
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Originally Posted by zx10guy View Post
Your first two points are way too simplistic. From a basic view point, yes, buying new is generally not good due to the depreciation hit. But this is only really relevant if you like to flip cars in a short period. There is something to be said about buying new in terms of you know how the engine was broken in. You are sure how the car was maintained and overall taken care of. You might get those assurances with a used car...then again you might not. I have bought a used car before and had a generally good experience. It helped that I knew the original owner of the car. I held on to that car for about 15 years. All my other vehicles were purchased new. And all of them were driven into the ground before I got rid of them. One car I had for 12 years before sending it to the scrap yard when it blew a head gasket; didn't want to sink the money into the repair. The other car I had for about 8 years. That car was totaled out by my insurance after hitting a deer. It was a 2006 Ford Focus ZX3 with about 170,000 miles. My insurance paid out just over $5000 back to me. I currently own two motorcycles both bought new; a 2004 ZX-10R and a 2009 848. Both still running and both still looking like they just came off the showroom floor. So it really depends on the intent of the purchase. If you hold on to a new bought vehicle for a long time, buying new isn't such a bad idea as many people make it out to be.

On the second point, paying cash again is too simplistic. If you're able to get a zero or low interest loan, I don't see a problem going that route using other people's money. I've always been able to finance my vehicles at low interest rates. With some cars I put zero down. With the 135i, I did put down a substantial down payment but still financed a good part of it. All the loans I got were at 1.49% interest rate fixed for 5 years. I did end up paying off the loans early usually within 2 or 3 years. I took the money I would have dropped into paying cash into investing.

There's no one size fits all and it really depends on the circumstance. This is the same as those saying pay cash for everything and to cut up all your credit cards. In my situation, this is walking away from 1.75, 2, and 3% cash back depending on the item purchased along with credit card fraud protections and the extended warranty/lost/stolen protections I get with my AMEX. I pay off my balances in full every month.
I agree my approach was simplistic, but everything is situational. I was speaking for what seems like most people's situations.

1. Most people don't buy new cars and keep them for 10 years. Most people buy new because they want the latest and greatest and sell it after 5 years max.

2. A lot of the car buying public has so-so credit and won't qualify for 0% interest loans. If you can get a 0% interest loan without a bunch of hidden junk then by all means go for it since you can use the money saved to invest in other things. A lot of people do loans because they don't have much savings, and therefore wouldn't have cash saved up to invest.
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      05-22-2018, 07:05 PM   #6
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Quote:
Originally Posted by CTinline-six View Post
1. Most people don't buy new cars and keep them for 10 years. Most people buy new because they want the latest and greatest and sell it after 5 years max.

True. On that note however, as of this month I've now had my 135 for 10 years. It helps that it is not my sole vehicle.
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      05-22-2018, 11:01 PM   #7
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How much debt do you have (mortgage, car, student loan, credit card, other)? What are your assets (home equity, if any, checking/savings, investments)? What's your monthly income and typical monthly expenses?

Why is this decision any more difficult than asking the question: am I going to get a higher return on my USAA money market account than the interest rate on my car loan?
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      05-23-2018, 09:08 AM   #8
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Originally Posted by JasonCSU View Post
True. On that note however, as of this month I've now had my 135 for 10 years. It helps that it is not my sole vehicle.
On 11 years of ownership myself! Get something you love new and take care of it!

If you want to be super simplistic like CTinline you can also say that going to the movies, going out to eat, or pretty much anything entertainment related is a bad investment. I would think a lot of people on this forum buy the car as a form of entertainment, not as an investment. To think of it as an investment is wrong IMO.
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      05-23-2018, 09:19 AM   #9
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Like everyone else is saying, buy yourself a $1500 Civic and claw yourself out of the financial hole you've dug for yourself.

I was in a jamb back in the mid 90s when I split from my 1st wife. $400/month car payment and a mortgage that I suddenly needed to afford on my own. Sold the MR2 and bought a used Tercel. Took on a roommate to help with the mortgage. It took a few years to climb out but I did it; you can too.
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      05-23-2018, 10:16 AM   #10
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I've never bought a new car before. Now that I am in a position to, BMW doesn't make anything I'd want and I'm not yet ready for a new GT3.

I've never had a car payment either.
I was 1. busy building up a career 2. throwing my money into real estate 3. never felt the need to buy a new depreciating asset even though I could have easily done so.

Some people must have the latest everything even if they aren't in a good financial position to do so. Be smart with your money, no one else will for you, but they will be happy to take it from you.

Unless OP is making a ton of money, he should either ride out the lease unless he can dump it without losing too much. Then get something he can afford, if that means buying a used car then so be it, or if buying new be prepared to keep it for a while and pay it off.

Swap leases every year, buying new cars every year or two, are games you need money to play. Unless you make alot of money, have considerable assets (Restate, Investments), already saving for your retirement, you probably don't have the money to play those games, don't be ashamed if you have to sit on the sidelines with your "used" car.
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      05-23-2018, 10:20 AM   #11
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Now this is a risky move but could work out. I recently traded in my F30 with 107K miles with about $13K left on the loan for a 16 Mustang GT and a manual with 18K miles $23K out the door so starting from scratch but the previous loan is paid off. However with the condition it is in, the color, and the type of car it is, I would be able to turn around and flip it for more than I am into it because a 'Murican V8 muscle car is more desirable in my area than a BMW. I have had the F30 335i for sale at $18K for awhile but the only real interest were people who could not afford it. BMWs are not real popular where I am at, but muscle cars, trucks, etc have a bigger following by people with money here. Like I said it's risky but possible to flip a different car.
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      05-23-2018, 11:05 AM   #12
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Quote:
Originally Posted by tdott View Post
Unless OP is making a ton of money...
We will have to wait for the OP to comment, but my guess is that he is not making a ton of money as he's asking whether he should be making a car payment or investing. If he were making a ton of money, he would not have to make the choice. He'd be driving the car he wants to drive AND investing, not having to decide between the two.

IMO, if you have to decide between the two, you cant afford to drive what you are driving.

Liquid cash in the bank to cover living expenses in the event of job loss, unexpected bills, medical issues, etc. should be priority 1, followed by saving / investing for retirement at number 2, followed by a house at number 3, followed in a distant 4th by all the other non essential purchases (nice cars, travel, a boat, trophy wife, etc.).
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      05-23-2018, 11:06 AM   #13
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Originally Posted by Hawkeye View Post
On 11 years of ownership myself! Get something you love new and take care of it!

If you want to be super simplistic like CTinline you can also say that going to the movies, going out to eat, or pretty much anything entertainment related is a bad investment. I would think a lot of people on this forum buy the car as a form of entertainment, not as an investment. To think of it as an investment is wrong IMO.


I never realized how literally everyone takes things. The idea is to get yourself out of a financial hole. Paying $1500 cash for a Civic is a better idea than taking on 20-30 grand in car loans for MOST people. I think it is safe to say that people on this board are smarter financially then a lot of the car buying public, which is what I was after.

I agree cars are a form of entertainment for us, and as long as you can afford it, that's perfectly fine. Many people can't and end up in a bad spot. The key is being smart. My sister for example loves taking vacations, but it has gotten to the point where she is so strapped financially that if she gets a nail in her tire on the way to work she wouldn't be able to pay to fix it.
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      05-23-2018, 11:12 AM   #14
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I think it is safe to say that people on this board are smarter financially then a lot of the car buying public...
I'm not so certain of that. It's amazing what you can buy with credit these days....
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      05-23-2018, 11:16 AM   #15
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I'm not so certain of that. It's amazing what you can buy with credit these days....
True.
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      05-23-2018, 12:33 PM   #16
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OP, time to learn that financial advice is worth just about exactly what you pay for it. At least here 'free' means free, not 'I'll dump crap investments on you, and gouge you with hidden fees you don't understand'.
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      05-23-2018, 02:51 PM   #17
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Thanks for the replies. The only thing I'm really interested in is what option in the OP is less of a financial loss. I don't plan to keep the car since I don't really like it. I do want a DD that I can actually keep for 5+ years and am able to stand driving it for that long. A Honda Civic does not meet those requirements since they're too damn boring, so I am willing to pay a bit more. I make enough to save about $2k/mo after all my expenses (food/gas/stuff is included). I don't have too much into retirement right now since I spent a decent bit opening up a salon beginning of last year (which now I won't have due to splitting up with her); but now I'm putting more money away for it. No house right now either, just renting. I will most likely get one after I finish my degree in 2 years and move out of Long Island to somewhere much cheaper with better jobs (currently working at a non-career job/going to school off the G.I. Bill).

Which option is less of a loss: Keeping the lease until it's over and put money into a interest bearing account, or pay off the negative I have on it (which was about $10k) later this year and get rid of it then get a cheaper car I can actually stand keeping for many years, and have more money a month I can save with a less debt/income ratio.
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      05-23-2018, 02:57 PM   #18
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Americans are currently overloaded on debt. We are at a record of household and automotive debt... higher than pre recession levels. Just wait...

FWIW, I spend less than 6% of my NET income on my car payment... not sure how many people can say that (even on here)... that's called being responsible. Then again, I put a 50% down payment on my car.
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      05-23-2018, 03:14 PM   #19
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FWIW, I spend less than 6% of my NET income on my car payment... not sure how many people can say that (even on here)... that's called being responsible. Then again, I put a 50% down payment on my car.
4.2% for me. I also put 50% down. Sounds like you and I are on the same plan.
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      05-23-2018, 03:18 PM   #20
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Quote:
Originally Posted by Wrecker335d View Post
Thanks for the replies. The only thing I'm really interested in is what option in the OP is less of a financial loss. I don't plan to keep the car since I don't really like it. I do want a DD that I can actually keep for 5+ years and am able to stand driving it for that long. A Honda Civic does not meet those requirements since they're too damn boring, so I am willing to pay a bit more. I make enough to save about $2k/mo after all my expenses (food/gas/stuff is included). I don't have too much into retirement right now since I spent a decent bit opening up a salon beginning of last year (which now I won't have due to splitting up with her); but now I'm putting more money away for it. No house right now either, just renting. I will most likely get one after I finish my degree in 2 years and move out of Long Island to somewhere much cheaper with better jobs (currently working at a non-career job/going to school off the G.I. Bill).

Which option is less of a loss: Keeping the lease until it's over and put money into a interest bearing account, or pay off the negative I have on it (which was about $10k) later this year and get rid of it then get a cheaper car I can actually stand keeping for many years, and have more money a month I can save with a less debt/income ratio.
Dump the Audi since it's a lease and you don't even like it. Get out from under that thing. Buy a reasonable Japanese commuter car and start saving up for retirement.

Last edited by DETRoadster; 05-23-2018 at 05:36 PM.
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      05-23-2018, 04:01 PM   #21
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Originally Posted by ASAP View Post
FWIW, I spend less than 6% of my NET income on my car payment... not sure how many people can say that (even on here)... that's called being responsible. Then again, I put a 50% down payment on my car.
4.2% for me. I also put 50% down. Sounds like you and I are on the same plan.
lol if this strategy was followed, bmw would have much lower sales numbers
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      05-23-2018, 05:37 PM   #22
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Quote:
Originally Posted by rcracin View Post
Make higher payments every month to lessen the blow at the end. Then go buy a honda civic.

I'm broke so I bought a $1500 civic. I didn't take on a monthly payment. When I bounce back, I'll go get a nicer car.
Let me know when you want to sell it.
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