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  • Becoming a one-car family

    We were rear-ended the week before Thanksgiving, and although everyone was okay, the damage to the car has proven extensive. The original 2 1/2 week estimate for repairs is now at a solid 4 weeks. Our insurance policy includes rental coverage, but we’d still have to pay 20% of the cost. Plus there’s the hassle of renting and driving an unfamiliar car.

    So we’ve been getting by with only one car for the last three weeks. (It helps that Marc and I commute together.) We’ve been a little surprised to discover what’s actually within walking distance of our house. The excursions take one to two hours, but I’ve found that when time is not of the essence, a walk to the bank, Pavilions or CVS is actually quite pleasant. Of course, I can’t buy too much, and nothing perishable.

    So the last three weeks have proven that we could, if necessary, become a one-car family.

    The savings would be significant, even though both of our cars are fully paid for. We pay about $1000 per year in insurance and registration on our older car, plus approximately $25 in gas per month. And maintenance costs are probably about $200-500 per year, depending on the year. That adds up to a savings of $1500-1800 per year, or $125-150 per month.

    We are going to keep both cars, though, simply because having two cars is a convenience that we can afford – and while having only one car has been manageable, it hasn’t been preferable. But I do think that we’ll consider walking a realistic option for a handful of locations from now on, especially when we’re not in a rush.

    Something I wish I’d known three months ago: Some credit card issuers do not allow merchants to impose a maximum

    As you might recall, back in March, my husband and I bought a new car. I had intended to make a down payment of over $10,000 on my credit card, but the sales manager told me that the maximum I could pay with a credit card was $5,000. When I mentioned this on CFO, I received a comment from MITBeta stating that Visa and Mastercard do not allow merchants to impose minimum or maximum limits on purchases.

    I had known that merchants can’t impose a minimum purchase amount, and that the mom and pop stores that have signs that say “Credit card purchase requires $10 minimum” were in violation of their merchant agreement. But it never occurred to me that the opposite might also be true.

    I was reminded of this issue by this Bankrate.com article. The author quotes a Visa rep confirming that their “rules require merchants to always honor valid Visa cards regardless of purchase amount — large or small.” (Mastercard has the same rules, but American Express allows merchants to limit transactions.)

    If I had known this back in March, I definitely would have insisted on being allowed to make the full down payment that I wanted to make. And, according to the Bankrate article, the dealership would most likely have given in when I informed them that I would pursue the issue with Visa. The article’s author points out that the dealer might want to re-negotiate a deal under such circumstances, but it wouldn’t have worked in our case. My husband and I had made clear when negotiating our old car’s trade-in value that we were prepared to walk away.

    We don’t plan to buy a new car for at least another five years, but I plan on paying cash for that car. In fact, I’ve already started saving money for it each month. And in five years, I’ll be paying for that new car with a credit card!

    We’ve paid off the car – now what?

    As I mentioned yesterday, we were able to pay off our car loan less than two months after we bought the car. One reason we were able to achieve this is because we were setting a substantial amount aside in savings each month specifically for the car purchase. But now that the car is paid off, I thought I’d mention some of our other financial goals and how we’re going to get there.

    The first thing we are going to do is continue saving for a new car. That might sound strange, considering that we just bought one. But we’ve decided that we never want to take out a car loan again. Every car we buy from now on will be paid for with cash. Our next car purchase should be in about five years, and we’ll probably spend about the same amount of money. Saving $325 per month for the next five years will give us $19,500 plus interest. We should be able to pay the remaining cost of the car with the trade-in value of our current car and additional savings. I’m not contributing more to the car fund because . . .

    I am also significantly increasing the extra amount that we pay on my student loans each month. At this rate, my loans should be completely paid off in less than two years.

    Finally, I am increasing the amount we put into “regular” savings each month. In addition to what I have budgeted, I’ll be snowflaking all extra income into our savings. This savings is money that will pay for our vacation in Las Vegas in the fall (we’re going for a relative’s wedding), as well as any other unexpected expenses that arise. Once we’ve saved a substantial amount, I’ll use the money to make a large principal payment on my student loans, and then we’ll start over with the savings. (Note: This isn’t our emergency fund, which will remain untouched.) While I could put this money toward my student loans to begin with, I like having the extra cushion in my savings account. (Especially since we have talked about installing a new air conditioning system, which would run about $3500.)

    Once my student loans are gone, we’ll be debt-free except for our mortgage. I’m really looking forward to celebrating that milestone!

    Our car loan is officially paid off – in less than two months!

    I am thrilled to report that our car loan is officially paid off. We took out the loan in the middle of March, so we’ve paid it off in less than two months!

    How did we do it? The most important thing we did was buy a car that we could easily afford. We also negotiated a great price. And, we saved up for the purchase. All of this meant that the loan wasn’t a very big loan. And it helped to have good credit, so that we could get a loan with a great rate.

    As for paying off the loan itself, we basically snowflaked all available funds toward the loan. The funds included the amount we had been saving monthly for the car purchase, the amount that I normally would have transferred into our savings account, our tax refund, our tax rebate, and some additional small amounts of income that trickled in during the last two months.

    Considering we took 4 1/2 years to pay off our last car loan, I’m extremely pleased that we were pretty much able to meet my 2008 financial goal of paying cash for a new car.

    What’s our next financial goal? Stay tuned . . . I’ll share that with you soon.

    Our Car Buying Experience – Part Three: 5 Lessons Learned to Reduce Stress and Cost

    Read Part One: The Negotiations and Part Two: Financing and the Trade-in.

    After we bought our car, I thought about the things that worked well and things I wish I’d done a little differently. Here are the lessons I came away with:

    1. Negotiate by email. Whether your email communications start with a car buying program as I discussed in Part One of this series, or you initiate the communication via the dealership’s web site, negotiating by email is the way to go. The dealership can’t strong arm you if you’re not in front of them, and you don’t waste a lot of time sitting in their little room waiting for the salesman to get back from consulting with his manager. Email negotiation also gives you the opportunity to price match – we bought our car from a dealer that agreed to match another dealer’s offer of $500 under invoice. Finally, once you’ve agreed on a price, ask the dealership to email you a breakdown of the taxes and fees you’ll be expected to pay so there aren’t any surprises when you go in to close the deal. (This will also give you a chance to look up any suspicious fees.)
    2. Make sure the car is on the lot. Five years ago, my husband and I found ourselves at a Mazda dealership waiting for a car. After we’d completed all of the paperwork, we were told that although the car we wanted was listed in their computer system, it appeared that it had been sent out for customization and the closest car they could offer us was $800 more. We were mad. It was classic bait and switch, as far as we were concerned. Not only did we walk away from Galpin Mazda, we will never do business with the entire Galpin family. This time around, we made sure the car was on the lot before we went in (well, after a little hiccup).
    3. Mention any trade-in only after you’ve agreed on a purchase price. Otherwise, the salesman might try to recoup the trade-in value on the purchase price. For more on this topic, see Part Two of this series.
    4. Plan your financing before you go in. Knowing how you are going to pay for the car is at least as important as negotiating a good deal. If you are going to finance the purchase, make sure you find the best loan available to you. Know what deals the dealer is offering on financing, and what the restrictions are. In our case, Nissan was offering a $1,000 rebate with 3.99% financing or a $1,250 rebate with no financing. Since I knew we’d be paying off the car quickly and we were able to get a 4.99% rate with USAA, it made sense for us to take the extra $250. But if we’d planned to make payments for the full five years, it would have made sense to go with Nissan’s financing. (For example, a $20,000 loan at 3.99% for five years results in $2094 interest paid; $20,000 at 4.99% results in $2640 interest paid, or $546 more.) Also, if you know you don’t want or think you might not want dealer financing, then get preapproved with a different lender and take proof of the preapproval with you when you buy the car.
    5. Finally, always be prepared to walk away. If you ever feel that the deal isn’t right for you, walk away. My husband and I were prepared to leave when the dealership offered us a mere $2300 for our trade-in. This is obviously easiest to do when the car purchase isn’t urgent, but even if you do really need a car, it’s not worth closing a deal that will make you miserable as soon as you walk out the door. Tell the dealer that you need to think about it some more and leave. If you have to, you can always start over with another dealership. But getting out of a contract once you’ve signed it is, at a minimum, a huge hassle – and at worst, might not be possible.

    The new car vs. used car debate revisited

    There are so many personal finance bloggers who write about buying a new car as one of the worst financial decisions a person can make that I decided to revisit the issue.

    As I’ve mentioned previously, Marc and I considered buying a used car before we ultimately bought our new Nissan Altima. After all, the numbers don’t lie. A wisely chosen used car would almost always cost less money than a new car. (See Million Dollar Journey’s analysis on this subject.)

    But that’s the rub.

    We don’t have any confidence in our ability to choose a used car wisely. Of course, we would choose a car that’s reliable, is only a year or two old, and has low mileage. We’d order a Carfax report and have the vehicle inspected before we bought it.

    But we don’t have a good mechanic anymore. We haven’t found a mechanic we trust since our last one went loony after his divorce. Oh no, wait. That was the dentist. He’s the one who lost it after his divorce. I guess the mechanic was always loony to start with.

    Aaaaanyway . . . last year, golbguy wrote a great series on buying a used car. He addressed our major concern and described how to properly inspect a used car before buying it. It was gibberish to me, and I knew neither Marc nor I would be able to inspect the car in the way golbguy described. That was when we decided that the right decision for us was to buy a new car.

    It’s not just that peace of mind is worth something (a lot, in my book). It’s also that, unless you get a used car in great shape, you can end up with major car repair bills. I speak from experience – my first car was used and turned into a huge headache. Admittedly, my first car was a five-year-old Honda Accord, not a one-year-old car, but still, it should have had far fewer problems than it did.

    We now have two cars that we plan to drive until they’re each over 10 years old. (The Honda Accord that we traded in for the new Altima was 11 years old. The car we traded in for our old Atima was 12 years old.) In the long run, we might be losing a few thousand dollars by buying new cars. But I think we more than make it up in peace of mind and fewer car repair bills.

    Now it’s your turn: Do you prefer to buy cars that are new or used?