Money Crashers » Cars

Is Your Car Payment Destroying Your Life?

Erik Folgate — Wed, 04 Nov 2009 04:34:59 +0000

You’ve heard me get on my soap box in the past about car payments and how they can soak up a lot of your monthly income. I really don’t like car payments, and I don’t think you need one to have a reliable car that serves your transportation purposes. As Americans, we’re obsessed with having nice, new cars. We have been taught from a young age that car payments are inevitable. You buy a car on credit, you pay the payment for five years, then you sell it. Follow that cycle, and you’ll actually never own a car outright. Here is an email that I received from a reader recently.

I am in a dead-end situation..I am paying for student loans,credit cards, and my expenses including a car payment of $636 monthly. Last year, I had 2 part-time jobs and a full-time job making 30K, and then i quit both part-time jobs to study. I can’t deal with living paycheck to paycheck with no emergency. I traded in my Honda Pilot EX-L fully loaded to a Honda Civic Ex-Navigation to reduce costs in gas. On the Honda Pilot I owed 20K and the dealer gave me 15K for it. The Honda Civic cost me 25K plus the upside down of the Pilot and the finance charges left me with a loan of 35K. I took that other loan and now in this recession with a job that only pay $26k a year I see myself living paycheck after paycheck, and I hate it.

First, I am not treat this reader as a spectacle, but their situation is a perfect example of how a car payment can strangle your finances and your life. $636 a month is almost HALF of this reader’s monthly take-home pay, and there is no way that he/she can keep paying this payment and continue to live. The easy answer to this situation is that he/she needs to sell the car as QUICKLY as possible. Obviously, he/she won’t be able to break even on the sale, because there is negative equity from a previous car, and depreciation to factor in from the new car. What you need to do is go to a local community bank or credit union and ask for a personal loan for the difference between what you owe on the original note and the amount you can sell it for. So if you owe $35k and all you can sell it for is $22k, then you’ll be left with an unsecured loan of $13k and a much lower payment. Have 3 or 4 garage sales and scrounge up $1,000 to buy yourself a “beater” car that will get you from point A to point B. The embarassment of driving a $1,000 car will help teach you to never go out and get a $35k car loan when you make $30k.

Car Loan Rule of Thumb: If your car loan is close to half or more of your yearly take-home pay, then you need to sell the car. If it’s less than half, then you should be able to pay it off with aggressive debt payments. Related Posts:

Is Your Car Payment Destroying Your Life? is a post from: Money Crashers

Should You Sell Your Car to Pay Off Debt?

Erik Folgate — Thu, 23 Jul 2009 19:22:41 +0000

I listen to the Dave Ramsey show sometimes on the way home from work. It airs from 3pm to 6pm in Orlando. I often hear questions from people asking if they should sell their car to help pay off their other debts. There are a couple of things to consider here:

The owner still owes money on the car, but it is worth significantly more than what they owe

The owner does not owe anything on the car.

A significant amount of the owner’s debt is their car loan, so if they sell it, it will speed up their plan to become debt free.

The Answer . . . It Depends

Like many questions asked in personal finance, the answer depends on your situation. Here are two scenarios, one makes sense to sell the car and the other does not make sense to sell it.

Scenario #1: You have $15,000 in debt (other than your house), and you owe $10,000 on a car loan and $5,000 on a credit card. You have $2,000 in the bank, and you could sell the car for roughly $12,000. In this case, your car represents 66% of your debt, and you could buy a $1,500 to $2,500 car after you sold that one to get you from point A to point B. This scenario would make sense to sell the car, because you could be out of debt very quickly, still buy a cheap car, and use that car payment money to pay off the rest of your debt.

Scenario #2: You don’t owe anything on a car that’s worth $5,000, you only have $1,000 in savings, and you have $30,000 in credit card and student loan debt. In this case, it wouldn’t make sense to sell a $5,000 car, buy a cheaper one, and put $3,000 toward $30,000 in debt. That’s only a 10% reduction in your debt. If you’re looking for ways to speed up your debt elimination, think of ways to increase your income.

The point is that it needs to be really worth it to sell the car in order for it to make sense. The only other scenario where it makes sense to sell the car is if you own a car that is worth 50% or more of your income. If you make $40k and you own a $25k car, you need to get rid of it quickly! Even if you’re upside on the car loan, the payment is destroying your budget.

Don’t waste money on cars. So many Americans throw away money to high interest on car loans for cars that aren’t necessary. Nice cars are a status symbol. Do you want to LOOK like you have money, or would you rather have money?
Related Posts:

Should You Sell Your Car to Pay Off Debt? is a post from: Money Crashers

The Car Allowance Rebate System And Scams to Avoid

Erik Folgate — Wed, 01 Jul 2009 03:48:05 +0000

The Car Allowance Rebate System was signed into law last week, but there are already scammers out there trying to phish information from consumers looking to trade in their old cars. Here are some things you need to know to avoid these scams:

If you come across any website that uses the term “cash for clunkers”, it’s not official by any means.
The program will not get started until late July or early August, because regulators have up to 30 days to figure out a system for distributing and collecting vouchers.
Avoid websites and “dealers” that ask for personal information or ask you to pre-register for the program.

Information about the real program:

Allows up to $4,500 for a qualified trade-in to purchase a new car that gets better gas mileage than the trade-in.
The purchase price of the new car must be less than $45,000
Trade-in vehicles must be newer than 1984, get no better than 18 miles per gallon, and be registered and insured for the past year.
You won’t get any more than $4,500 from the dealership, so make sure that your trade-in isn’t worth more than that. Don’t apply for the program unless you know that the car is worth less than $4,500 on the private market.

Here is a chart for the Car Allowance Rebate System qualifications. And remember, the mileage you get on a daily basis does not matter. The program will judge mpg based on the government data at FuelEconomy.gov.

A 5 Step Plan For Buying A Used Car

Erik Folgate — Tue, 12 May 2009 22:36:13 +0000

Right now is a great time to buy a used car, because new car sales are lagging from the current state of the economy. Car dealerships know this, so they are focusing their attention on offering great deals on used cars with various promotions. I recently saw a TV commercial for a Toyota dealership boasting a Corolla for under $11,000, and I thought, “wow, that’s a good deal”. Then, I realized that it was for a 2007 Corolla, not a 2009. It was one of those types of car commercials that you would normally see for a new car where the car is driving down a highway somewhere in the hills of California. It tricked me into thinking that they were advertising a new car. Buying used cars a little different than buy a new car, so here is a step-by-step guide to help you on your search for a “new” used car.

Do Your Research. You need to narrow down your used car search to three car models, then learn everything you can about that particular model. Do not step into a car dealership or talk with a seller on Craigslist or Autotrader until you know what car you are looking for and everything about that car. You must be an informed buyer when it comes to buying a car.
Know your target price. Look at your finances and look at KBB.com or NadaGuide.com to figure out the most you are willing to pay for the car and the least amount a dealer or seller would be willing to sell the car you are considering to buy. Somewhere in the middle of these two prices is your target price.
Figure out financing. Are you going to pay cash? If so, negotiate the heck out of the deal, because cash is king when it comes to making a large purchase. If you need to finance a portion of the car, go to your local credit union. They typically have the best loan products for used cars at very competitive rates. My best friend recently bought a used Toyota Yaris from a private owner and got a 4.75% interest rate!
Make a list of dealers and private sellers to visit. Make a short list of dealers and private sellers with the best deals of the cars you are interested in. Check out websites like Angie’s List and Yelp.com for reviews of car dealerships.
Know when to walk away. This is the most important part about looking for a used car. If the deal doesn’t seem right or you don’t trust the salesman/seller, walk away from the deal. The moment the dealer has you emotionally involved in a deal or a particular car is the minute they win the negotiation battle.

Buying a used car is like chess. Make sure you are always in a position of strength. Do any of you have any more tips for buying a car or a story to tell about a recent purchase? Share it with us in a comment below.
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A 5 Step Plan For Buying A Used Car is a post from: Money Crashers

How To Buy A Car In A Private Sale

Erik Folgate — Fri, 20 Mar 2009 01:45:33 +0000

Recently, my best friend bought a used Toyota Yaris from a co-worker. Before he bought the car, he asked me for my advice about how to go about doing it. There a few questions to ask yourself before you start looking for a new/used car:

What condition is your current car in?

How much do you anticipate spending on repairs to your current car?

How much money do you have to spend on a new car?

How much of a car can you afford?

My friend owned a 1996 Saturn (don’t know what model), and it’s worth about $1,500. It doesn’t have air conditioning and there are were some major repairs and maintenance possibly looming if he kept the car for another year or two. When considering getting a car loan for the first time, calculate roughly how much you could spend in interest. If the interest is similar to the amount you could put into your existing clunker, it makes sense to purchase the newer car.

My friend and his wife have an above average household inicome, but they live in Los Angeles, so the cost of living is also higher than normal. If he would have come to me and said he was considering purchasing a $25,000 car, I would have told him he’s crazy. If the amount of your cars is anywhere near 50% or more of your yearly take home pay, you’ve got problems. Instead, he wanted to buy a modestly priced Toyota Yaris that is fuel efficient and very reliable. He was not out of line to be thinking about purchasing it to replace his existing car.

My Recommendations

Since it was a private sale, I recommended that he save up enough money to pay for some of the car in cash and cover taxes and registration fees. Then, I told him to find a local credit union with private sale auto loans at a cheap interest rate. So, he did exactly that and more. He found a credit union right near his house, and he qualified for a loan for 4.75 percent. For the life of the loan, he’ll only pay $1,300 in interest, but he plans on paying it off before the end of the loan terms. He coordinated with the seller to come meet him at the credit union, sign the paperwork, and he had a new/used car at a great interest, a great price (because he didn’t deal with a dealership’s inflated prices), and he helped a guy who needed to get out of his existing car loan. The process was much more simple than he thought it would be buying from a private seller. When possible, I recommend buying one to two year old cars from private sellers, because you can often negotiate with less hassle and find better deals than at a dealership. Related Posts:

How To Buy A Car In A Private Sale is a post from: Money Crashers

Money Crashers Is On the Cutting Edge For Fuel Economy

Erik Folgate — Tue, 09 Sep 2008 23:36:10 +0000

About six weeks ago, my buddy Tim did a video post about hybrids, and he touched on the point that cars from the early 90’s such as the Honda Civic and Geo Metro could get 50 to 60 miles per gallon, yet today’s hybrids only get about 40 to 50 miles per gallon. What makes these hybrids so special?

Apparently, the media is catching on to this fact. The Los Angeles Times wrote this article about a guy that uses a 1992 Honda Civic and gets 61 miles per gallon!

So, is the hybrid thing a scam? Are they charging thousands of dollars more for a technology that doesn’t improve fuel economy more than 16 year old cars?

Money Crashers reported this to you FIRST, and we’re proud of it. We’re looking out for you. Related Posts:

Money Crashers Is On the Cutting Edge For Fuel Economy is a post from: Money Crashers

The 5 Best Cars For College Students

Erik Folgate — Fri, 29 Aug 2008 05:40:05 +0000

Okay, so Smart Money came out with their 5 best cars to buy a college student. First of all, I would never buy a college student a new car. But, if you’re rich, and you don’t mind dropping $15k on a car that will hardly ever be maintenanced, get ragged out, and probably be in a couple of fender benders, then go right ahead. Anyway, here is there list, with my cute little comments.

Best Value: 2008 Mazda 3. These cars have decent value, but Mazda’s are notorious for always being in the shop. I’d steer away from these.

Safest: 2008 Subaru Impreza: It’s probably a safe car, but it should’ve been under the category of “coolest”. It’s got all-wheel drive that comes standard and a very peppy engine. These cars are hot, and Subaru is a very underrated car company.

Best Fuel Economy: 2008 Ford Focus: Seriously, why would you ever recommend a Ford? Sure, if you want your kid to be stranded on the side of the road when they come home to see you, go right ahead. These cars are junk. It gets 25 mpg in the city, and 35 on the highway. If you remember my posts from my buddy Tim, you can find a used Saturn that blows away the MPG on this Focus.

Most Reliable: 2008 Honda Fit: These are pretty cool little cars. I’m a big fan of honda. You can drive them for 300,000 miles, and still sell it for $2,000. I’ve never driven in one of these, but it seems like this is the perfect category for it.

Coolest: 2008 Volkswagon Rabbit: I’m speechless. Coolest? Okay…whatever you say. This should have been the Impreza. I’m not a big Volkswagon fan. Parents, please don’t buy a volkswagon for your son. He’ll get made fun of by his frat buddies. Plus, I’m biased against them, because a girl hit me when I was in college. She ran a stop sign, and almost ran me into a street light. My back will never feel the same.

There you have it. What are your thoughts? Anyone who owns these cars with differing opinions or more comments about them?

College Savings Tip: Live Without A Car

Erik Folgate — Fri, 15 Aug 2008 12:37:19 +0000

This might sound crazy to some of you, but I knew plenty of people who made it happen. The only drawback this is that it makes it tough to hold a job during college. I think all college students should working during their college career, but many jobs are either on campus or right around the corner. My senior year, I worked as a computer technician on campus, and I lived five blocks from campus. I drove my bike to work every day. Here are five reasons why living without a car can save you some significant cash.

Gas is $3.75 a gallon. Need I say more?
Insurance premiums for young people are outrageous. You’ll easily spend $75 to $100 a month on car insurance.
Car maintenance is extremely costly, and most young people drive old cars. Oil changes, new tires, new alternator, new radiator, and new batteries. I replaced all of those during school, and I cringed every time that I did it.
Parking is never fun at large universities. Parking passes ran $75 to $100 a semester for on-campus passes and some apartment complexes near campus charged for parking passes as well.
You won’t be tempted to go home as much. I know mom and dad want to see you, but going home is expensive. Not having a car won’t tempt you to make unnecessary road trips.

Seriously consider buying a good bike and get familiar with the bus system. I owned a car, but I still frequently road my bike, because finding a parking space on UF’s campus is impossible during peak hours. I also used the bus system frequently, because it was free with our student ID. You will seriusly save some cash if you can find a way to make it work for you.

How To Get Free Gas (Seriously!)

Erik Folgate — Wed, 30 Jul 2008 12:47:35 +0000

I end my three part post party with a reality check. If you were wondering if the end times were upon us, the following should set you straight:

GasforFree.com is your answer to rising pump prices, and will also visually pollute commutes across America. And though I may sound like I am above putting graphics on my car for gas money, IÃ¢â‚¬â„¢m not. I scoured this site for information in the hopes of never having to pay for gas as long as my black/gold paint job holds the vinyl stickers on my Saturn.

My Ã¢â‚¬â„¢96 vintage disqualifies me from the savings, but maybe you will qualify.

To get free gas you must:

Ã¢â‚¬Â¢ Own a vehicle that is between a 1998-current model year. (they take classic cars too)
Ã¢â‚¬Â¢ Drive an average of 1250 miles per month. (Urban Areas, University Campuses, and High traffic areas earn bonus points)
Ã¢â‚¬Â¢ Be the registered owner of the vehicle.
Ã¢â‚¬Â¢ Have a valid driverÃ¢â‚¬â„¢s license.
Ã¢â‚¬Â¢ Have valid insurance.
Ã¢â‚¬Â¢ Have a clean driving record.

I would also mention that you may have to be ok with your vehicle plugging the local topless joint at your childrenÃ¢â‚¬â„¢s soccer games.

So maybe this isnÃ¢â‚¬â„¢t the best way to beat the system, but itÃ¢â‚¬â„¢s good to know you have some options. Obviously, the current way we do energy business isn’t working. Erik may not agree with my hippie views on this one (I recently moved to Los Angeles) but these high fuel prices may be just what we need to leave fossil fuels for good. Usually, major market trends start with a group of well connected evangelists who find and adopt new ways to practice and, thus, preach it. I don’t have the answers re: global warming, MPGs, free market woes, and why the media loves BO, but I know that we MoneyCrashers can be the crazy street preachers that come up with innovative ways to beat broken systems.

Who knows. You may just see Erik’s face on every shirt in Urban Outfitters someday.

Check out more of Tim Cox’s writing at TimNCox.comRelated Posts:

How To Get Free Gas (Seriously!) is a post from: Money Crashers

Chevron Is Rolling Out New Commercials To Help You Save On Gas

Erik Folgate — Tue, 29 Jul 2008 12:00:56 +0000

In between the car commercials that now label each vehicleÃ¢â‚¬â„¢s fuel rating, Chevron is running a new ad as a public service to the gas conscious consumer.
Eventually Chevron will be using ten tips for gas conservation, though currently only one commercial is airing.

The tip: Slow Down

Apparently, driving 55 mph instead of the posted 65 mph can increase your fuel economy by as much as 20 percent. Do that and I will shake my fist at you as I cut you off. From this point on I will refrain from sarcasm for the rest of this post. Promise.

The rest of their tips are similar in function, and they are mostly things weÃ¢â‚¬â„¢ve known about for a while now: get tune ups, donÃ¢â‚¬â„¢t rev your engine, prevent idling, car pooling, etc.

The Man, Chevron in this case, is telling the American public to drive ten miles per hour slower than a posted speed limit to conserve gas. My last post outlined the American need for performance with fuel economy, and if IÃ¢â‚¬â„¢m not completely wrong on this then Chevron is wasting some advertising money.

Though these may help some who are dependent on their constant driving, I think that itÃ¢â‚¬â„¢s time to stop educating the public on how to save gas. We get it. The thesis is to drive less or buy something that goes farther on the same tank.

As a self proclaimed MoneyCrasher, I know that it is my duty to alter my habits for the purpose of financial fitness. This may mean that sometimes my life may be less comfortable than before, but the initial sacrifice will eventually lead to economic redemption.

My first post referenced a guerrilla-type method to get more out of the US Prius limpy edition. I suggest that in the months ahead, we get actively smart, and angry with the inventive ways we could possibly get from point A to point B. Ride a bike for 5 miles? Sit next to a different ethnicity on your town bus? LetÃ¢â‚¬â„¢s do it.

LetÃ¢â‚¬â„¢s do it for no other reason than to stick it to those claymation cars.

Check out more of Tim Cox’s writing at TimNCox.com
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Chevron Is Rolling Out New Commercials To Help You Save On Gas is a post from: Money Crashers