Buying a car worth half my annual income with cash/90% down payment?
I’ve posted here recently but never got an answer for this and my situation has changed.
I thought I had a few more months on my car but 2nd gear went out and the axle broke this week. To get it running again and buy a few more months is $6000ish and making it street legal and safe again is upwards of $10k. My wonderful Honda Fit is done.
I am looking for a small hatchback that I can sleep in on road trips and when camping. It also helps with my anxiety about being homeless because I can always sleep in my car in a pinch. I want another Honda fit but there are not any available with less than 200k miles in my area. I might wait on one to pop up but I have been looking for months now with no luck. I am currently taking the bus to work and then walking an hour home. I can’t get almost anywhere else with the bus. My city is car centric. Biking is not a good option. It is affecting my work as I am not able to work my normal schedule and am supposed to be training a student. I am in the early steps of a promotion and risk losing it if I don’t get transportation figured out soon.
The car market in my city is awful. Hatchbacks are unpopular and thus rare. I am limited to a few select cars that will likely only be available for a week or two at most. When one pops up I need to act quickly.
I need a car that will last 10+ years. My income will take a hit when I go to grad school for five years and I will not be able to afford major repairs. I know buying cheap cars every 2 years seems to be popular, but that is not going to be a good option for me.
I have $17,000 in my savings account (19k total) and make $40k per year. I’m spending about $1000/mo on necessities and discretionary spending,which can be adjusted to $800 if I only buy absolute necessities. I am saving approximately $1000/mo on top of retirement.
There is a used Prius V available priced at $21k that has been on the lot for a few weeks. I think I can get them down to $19k. Hopefully less. I should be able to get a $500 discount for financing with them. My credit file is thin so I’m looking at awful rates anywhere, but as long as it is less than 20% I should be looking at $100-200 in interest over the three months it would take to pay the car off. I am only financing the minimum ($5,000) and paying about half that off immediately.
I’m not concerned about losing my job. My performance is good and I am funded for five years through an R01 grant. I also have a standing offer at a previous employer. I will have full coverage insurance so if I total it I can go back to taking the bus to work and walking home like I am doing now until I get the check. If I had a massive financial emergency I could sell the car. Kbb is $15-18k which would nearly make me whole and the car would be paid for. There is no risk of being upside down on it with a down payment of $14k.
So why should I or should I not buy a car right now?
Posted Sep 2, 2023, 3:23 PM UTC
That’s a tough one because of the APR. I don’t have a direct answer to your question (gut feeling if it’s really as you describe is probably go for it), but i want to encourage you to read all your paperwork very closely. Some of these dealer financing things require you to have the loan open for 3-6 months or more otherwise there’s some penalty.
Alternatively shop around for a loan. If you can get a loan from a local credit union for a low APR it may work out better to finance the car and put that 90% in the market or even a CD.
The salesman said there’s no early payment penalty so I’m sure he won’t mind if I take my time reading all the fine print. Three month minimum is okay but six would be a no go. I did check with credit unions but the thin file is an issue. I’m looking at double digit rates no matter what.
I am so very glad I had gotten an appointment with my mechanic (they’re amazing and I’ve been meaning to make them cookies) for my old car because they’re booking three weeks out now but I can just roll my appointment over into a PPI.
It sounds like you’re well informed and at least your reasoning seems sound to me as long as you don’t mind being cash starved for a bit.
I don’t have a pulse on the used car market (which by all accounts is mental right now) so I can’t say I’d 19k is a good deal for that particular car.
Used car prices are insane right now and the market in my area is starved. If you’re curious I posted all the available fb marketplace cars with clean titles under 100k in my area on another sub earlier along with the dealership cars that I would consider.
I think $19k is close enough to kbb value that I would still be able to sleep at night. It’s not a good deal, but those are rare right now and I can’t keep walking an hour home every day.