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Pay Cash or Finance first car??? |
Our child is graduating from community college this year. Originally, it was our plan that he goes to school for four years, but he wants to start working. The money we saved for his education is gone. If he wanted to go two more years, it would be on a student loan. As it stands now, he has $0 in debt and about $12,000 in savings from jobs he's had. We could give him some more as a gift. His car is a piece of junk. He knows that to find meaningful work, he's going to have to commute a good 50 miles each way. He tells us he wants to buy a 2007 Hyundai Accent 5 speed which will get upper 30's and cost about $14,000 delivered. Seems like a practical commuter car and we want him to work if that's his choice. Should he buy the car for cash or should he get a loan? He doesn't make much now, so would we have to co-sign the loan? This is no problem, but would it help him? I agree with the cheaper used car idea, but I'd say he should finance it, and keep some cash around for emergencies, bills, etc. Good payment history on the loan will earn him a good credit rating. Besides, at 100 miles/day, with a car that gets a respectable 25 MPG, that's 4 gal/day. At $2.50/gal, that's $10/day, $50/wk, $200/mo. His gas payments will be more than his car payments! Better yet, keep the clunker, and use $10k of the savings as a down payment on a condo closer to the job. Home ownership is the real key to financial success. Honestly, buy a used car with 15000 miles, it knocks half of the price and pay half for that. Certified used is the way to go. That is what you need to do. The money alone will make much less than the interst you pay on a loan for a car over 5 years. It is economically wise to pay for a car in cash if you have it. It is much wiser to pay cash for a car, that you have the cash to pay with. Don't cosign his loan. It's great that he is going to school, however, he is old enough to start making his own choices. Why does he have to have a 2007 car? Why couldn't he buy a car that is a couple of years older, still in great shape, and posssilby half of the price? This still leaves money in the bank, and you are not at risk if something happens, and he is unable to make the payments. the $14,000 Accent will be a $3,000 Accent after 2 years of a 100 miles a day commute....What a butt-kicking on the depreciation! It's a nice car, but doesn't make sense in this situation. Better to buy a $7,000 2002 Honda Accord with relatively low miles...which will be worth $4,000 in 2 years... Car payments drain the heck out of a monthly cash flow...Especially for someone just getting started. Paying cash is the best way to go. For his situation, $3000 or so is a plenty big "emergency fund" to keep in savings. I might also encourage him to move closer to wherever he is going to work...50 miles each way takes 2 hours of the day just in commuting time...not to mention wear and tear on a vehicle, stress in bad weather situations, etc. I'm impressed with the answers you've gotten so far. I too would recommend going with a cheaper car to avoid the loss of value on the new car. Paying cash for a car is always the best way to go. A quote from Dave Ramsey's book: 鈥淯SA Today notes that the average car payment is $378 over 55 months. Most people get a car payment and keep it throughout their lives. As soon as a car is paid off, they get another payment because they 鈥渘eed鈥?a new car. If you keep a $378 car payment throughout your life, which is 鈥渘ormal鈥? you miss the opportunity to save that money. If you invested $378 per month from age 25 to 65, a normal working lifetime, in the average mutual fund averaging 12% (the 70-year stock market average), you would have $4,447,084.01 at age 65. Hope you liked the car!鈥?br /> A brand new car will ultimately cost you more than you would ever want to pay! www.daveramsey.com Honestly Lease if he has to have new because until you 30 or so things change so much that being able to get a new car every 3 years is nice and the payment is much much less then an auto loan |
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