+8 votes
by (410 points)
Would love your advice, please! I’m needing to purchase a vehicle within the next 4-5 months. I’ve had my current car (which is fully paid off) for 9 years but need to upgrade to a 4-door. Credit score is about 660 and steadily climbing as I chip away at credit card debt. I’m 100% in favor of buying a used car and have roughly $10k saved. I’d hate to pay cash as that would eat into my emergency fund (a safety net since my employer does not offer maternity leave) and my savings to cover upcoming medical expenses. I’m leaning most towards an auto loan through my bank. However I’m not sure whether my score is “good enough” to qualify for a reasonable interest rate. Any advice? Am I missing something? Thanks for your help!  
Would love your advice, please!

7 Answers

0 votes
by (4.3k points)
 
Best answer
If it were me, I'd buy the cheapest 4-door I can get away with, for cash, and bide my time until I have more of a downpayment saved up, less (or no) credit card debt, etc. But it'd be better to go to your bank and get prequalified so you can see the actual interest rate. My guess would be, your interest rate will be too high for it to be worth taking out a loan. How much is your down payment? What's your budget? And is your credit card debt small enough to wipe it out today? Edit: Also, I have no idea how accurate this calculator is, but it might be worthwhile to play around with it, or a different calculator, to give you a ballpark of your financing details prior to talking to a bank.  
https://www.carmax.com/car-financin...lator
by (410 points)
@brezin cc debt is only about $5k. Interest rate is absolutely my big question. Is a 660 credit score good enough to get a rate under 4%? Or would 700 get me there? I’d been dragging my feet to pay off my credit cards only because I needed to replenish by emergency fund and save for my medical deductible. Even doing so, I’ve been making $300-$500 payments to my credit cards per month. I’m looking to now switch gears and attack the credit card debt more aggressively to raise my score
by (410 points)
@brezin when you say the interest rate is “too high” what threshold are you thinking? I generally use 7% (comparing it to really conservative market performance). How about you?  
by (4.3k points)
@dunaj10 I'm not really sure. I've never financed a car before, so all of them feel exorbitantly high to me. I'd consider 7% to be too high, personally. One tool that might help you is unbury. me which is a website where you can play around with interest rates and monthly payments and see a nice graph of how much money it costs to be in debt. It sounds like you're doing a lot of good things, but I worry that a car loan would negate some of that. It may be hard to make roughly $400/mo credit card payments with a car loan on top. If you could delay your purchase as long as possible, I would hope that your credit score would continue to rise, you'd get a better rate, and your loan amount could be smaller.  
by (410 points)
@brezin thank you! Yeah the credit card payments would definitely take a hit to allow room for the car payment. I’m aiming to make some good progress over the next few months as I’m due in December. I’m sure it’s going to come quicker than I’m prepared for! Lol
by (4.3k points)
Good luck! My wife is pregnant as well. Between a baby and a dog, our VW Golf is looking smaller all the time. But. the baby seat came in the mail this week, and it fits, albeit not super great (less legroom for the front passenger). I'm looking at bigger cars as well.  
by (410 points)
@brezin aww congratulations! I have an eclipse (hatchback) and I’m certain it will be nearly impossible to fit anything in the back seat!  
by (2.8k points)
Just for some context, last summer I bought a $12, 000 used car with a 750 score and got a rate of around 5. 5%. That was with about 25% downpayment too. You'd get a better rate on a new car, but the overall price tag would be higher (meaning more interest accrues daily).  
by (410 points)
@cube I really appreciate that! Did you finance through a major bank?  
by (2.8k points)
@dunaj10 Yeah. Huntington
by (410 points)
@cube I see. That’s around the price range I was originally looking at. Even if I pay my credit cards off completely I think I’d only get to about 715 or so, according to Credit Karma (which I know isn’t entirely accurate). I’m mainly wondering whether it’s worth the time/effort to get there or if I should get into something Cash sooner and work on replenishing my emergency fund afterwards. I guess that would all depend on the interest rate I’d qualify for.  
+3 votes
by (11.5k points)
Why not just do the paperwork and see what kind of deal the bank can offer and go from there? How much of that $10k is emergency fund and how much is up for grabs for the car?  
by (410 points)
@katerinekates I’m treating the $10k solely as an emergency fund (so mentally it’s not available to spend lol) but if I absolutely HAD TO spend part of it, I could safely part with $1600 and still have a 3 month fund plus the money to pay my medical deductible in full. I’m hesitant to run my credit at this point because I just purchased a house last year and I’m trying to bring my score back up to 700 before inquiring into an auto loan. Basically I want to give myself the best shot at getting approved for a low interest loan from a bank to avoid high-interest second-chance financing.  
+2 votes
by (11.5k points)
I think you'd be surprised what can fit in a smaller car if it is just one kid. We've done ski trips in a 4 door hatchback with a toddler, infant and 2 black labs. If we can get all that gear (car seats, pack n play, ski stuff, dogs) in a Volvo wagon, I think 1 or 2 adults and an infant can make it work in a 2 door until there is enough money to pay cash for a car and not have to go into more debt. If you are the types to take a lot of road trips, then maybe you need to invest a couple hundred bucks into a luggage box for the roof of your car but this whole idea that a 4 door is required once you have a kid is poppycock. As I wrote this, I'm looking across the street at my neighbor's driveway which has a Subaru Forester. They have 3 elementary aged kids and make it work in that little thing.  
by (5.1k points)
@katerinekates, this reply really resonates with me. I hauled an infant around in a 2-door Pontiac GTO forever! 14 years later, I'm still hauling the same kid around in the same car, plus one more.  
0 votes
by (2.7k points)
If your current car is paid off, how much is it worth? Put a down payment in that amount toward your new car from your savings, then sell your 2 door and put the proceeds right back in your emergency fund! Keep in mind your entire transportation budget (car, insurance, gas, etc) should ideally be 15% or less of your monthly net income! Good luck!  
by (11.5k points)
@vaccinate417 I think those percentage numbers are bull. It is far too situational based on current finances, income, zip code, etc.  
by (2.7k points)
@katerinekates it is situational; I don’t disagree with you. But, it gives us a best practice/rule of thumb to go off of. Those rules of thumb can help guide and instill peace of mind for folks on the path to financial literacy. I think 15% is way high, but I’m a teacher who rides his bike to work!  
by (11.5k points)
@vaccinate417 I also walk to my job at a school!  
+1 vote
by (6.9k points)
Keep saving, pay cash. You "need" a 4 door is not a reason to pay interest.  
+2 votes
by (5.1k points)
I'm also skeptical of having to buy a new(er) sedan instead of keeping your current one. What value will a 4-door bring that you can't get out of your current car?  
by (11.5k points)
@ihs6847 convenience. Putting an infant car in and out of a 2 door is not near as fast and easy as a a 4 door. But it is still plenty doable.  
by (5.1k points)
@katerinekates, that's what I was wondering, too. It sounds like this emergency fund isn't strictly an emergency fund. Especially if convenience is the reason for wanting to spend it. If it were me, I would buckle down and focus on the baby for now. Then save for up for the car later.  
+6 votes
by (890 points)
You’re already paying a house and now want to pay for a car? If you get sick, from reading it seems you might be prone to, I’d try to buy cash. Honda, Toyota are good cars to get.  
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