Greetings:
I am looking for some advice. About three years ago, I bought my first new car–a 2018 Nissan Sentra . When I bought it, I had a fairly less than ideal situation. My credit score was very low (in the high 500s), and I, admittedly, didn’t have a lot of experience, or “game” . with regards to buying a new car. Looking back, I feel like I got fleeced . The interest rate was nearly 20%, and there was very little wiggle room in negotiating the price. All in all, I was paying about $440 in payments on the car–while making around $45000 a year. This high payment had a profound impact on my life–as you can likely imagine. My situation has improved some what since then . I am making more money (around $52000/year), my credit has improved substantially (now in the mid 600s), and I was recently able to refinance the loan . The payments are now around $270/month . This is still pretty high for my situation, and my insurance payments are high as well . Recently, I’ve been contemplating selling the car (Still worth around $13-14k), paying off what I owe on the car ( Roughly $14,500 ) and replacing the car with an older, reliable car or truck --a beater if you will. Would this be a wise decision? This will probably be my last new car–regardless. Any advice would be greatly appreciated. Thanks in advance!
According to U.S. government statistics, the average monthly car payment is over $550, and those statistics were released in 2020. With the current car shortage, and bubble pricing, I am sure the figure is higher today.
That being said, your original $440 monthly payment–while high–is probably a bargain by today’s standards, and your refinanced monthly payment of $270 is definitely a bargain by today’s standards. It is unlikely that someone–even with stellar credit–could finance a used 2018 Sentra today for less than that.
My advice is to keep the car that you have, which has already been refinanced to a very reasonable monthly payment, and drive it until the wheels fall off. Resist the temptation to “upgrade” to a new(er) car, and resist the temptation to sell it and buy a beater to avoid the monthly payment. Cheap old cars are for people who can DIY most repairs and maintenance. If you can’t DIY, the upkeep on an old car will eat you alive.
You are making more, and spending less. I would not take a chance on a beater. How many payments could you get for the price of a transmission if needed. If you can pay another 100 a month towards principal without penalty that might be worth looking into.
Agree with @bcohen2010 Your car has already suffered the greatest depreciation in the first 3 years. Keep the car, continue the loan payment schedule. Consider paying it off early if you can.
Since it is a Nissan product…IF it has an automatic transmission (the dreaded CVT!) plan on changing the fluid at the dealer with real Nissan branded CVT fluid every 30K miles as long as you own it no matter if the manual says every 60K or not!
Plan on buying 3-4 year old cars for cash and driving them for at least 4 years as that is the cheapest way of owning a car. Consider owning the car for at least 150K miles as that is getting you into that gray area where expensive things can start to go bad.
The unknown is how many months left to pay it off? Once paid off work on the credit score. No credit card balance, payments on time, etc. At any rate, Dave Ramsey would say to sell but I guess I agree to keep it. It’s already three years old and the devil you know is better than the devil you don’t know, unless you know more about cars and personal finance now. Otherwise I guess you wouldn’t be asking us here. Just lucky that there are a lot of intelligent people here.
Let’s assume you sell the car for enough to pay it off and break even.
How are you going to come up with the money to buy another car ?
You would be in the same position you’re in now, but with an older car.
Nope. Keep the car.
You weren’t fleeced. You paid a reasonable interest rate for your situation. You had an awful credit score, probably little or no down payment, and no bank or credit union would have written a car loan at the 2-5% that people with a 750 credit score would have gotten. It’s not unfair, it’s the cost of being financially insecure.
At this point, you’ve reduced the interest rate and lowered the payment, and if you continue to make the $400 payment instead of the $270, you’ll own the car outright within a few years. At that point you can substantially lower your insurance premium and have no car payment, which is ideal. At that point you will begin to have the benefit of no car payment, and be driving a car that is 6-8 years old with several more years of reliable driving.
Driving an old beater may seem attractive, until you have to call in to work for the third time in 5 months because your old car is overheating/not starting/no brakes, etc. There is a definite cost to having an older car, and it’s hard to put a dollar figure on not being able to go hiking for a weekend or missing a family gathering because you don’t have a reliable car. Unless you can maintain and repair your car yourself, or have a second car at your disposal, it’s false economy to think you’re getting ahead that way. A couple of trips to the mechanic in a year can easily wipe out $1000 or more, the average repair ticket at the shop where I work is over $700.
Pay off the car, drive it for several more years after it’s paid off, and start planning for your future.
What was purchase price? Out the door?
$20k? What will payments total? From loan 1 and loan 2?
$25k? 28k? Paying $28k for a $20k car bites, it might make you feel bad but your scores were/are not good. Even now. You might be really unlucky and trans will puke 2 months are warranty expires.
A short term lease would have been better in your situation.You bring back the keys after 3-4 years or buy the car according to its risudual value. Monthly payments are usually lower than if you financed the car.
A 600 credit score is still not high enough for low interest rates so forget about getting rid of what you have . Sure cars are selling for outrageous prices but you will pay an outrageous price for anything you buy . And as others have said a old vehicle can drain your bank account in record time.
Edit:
A low FICO score will cause higher insurance premiums plus if you are under 25 that makes a difference also.
you can try other insurance companies to get a lower rate. staying with the same company is not always the best way. their rates rarely go down but you can get a lower payment with the same coverage by switching. it does not hurt to do some research.
Beaters are seldom reliable. Pay off the current car if at all possible.
Those rates are based on your “Old Low” credit score
Shop around, other companies are going to base your rates on your current credit score.
I’d recommend still paying the old payment amount ($440/month) since you were able to afford it when you were making less money. Should be easier to afford now. Pay it off early and then drive it until it dies. Or put that extra money in a savings account. That extra $170/month that you’re saving on the car payment needs a home. Otherwise it’ll just slip through your hands, if you’re like me. It’ll get eaten up in dining out, an extra trip to Starbucks, etc.
I wouldn’t recommend a beater unless you rarely drive and work from home or can walk to work or something.
You have to start someplace. In your situation, I would pay off the car and use it for at least ten years. You could take the monthly payment and save it for other important things like buying a place to live, retirement, or another vehicle 10 to 15 years from now. BTW, saving for retirement early means it’s a lot easier to accumulate enough to live on for 30 or more years after retirement. It worked for me, and if I can do it, you can too. Most of us have limited funds. Use your money wisely and for the things you want.
I agree with others. Pay the car off. If your car keeps breaking down, you might loose your job too!
Start saving for your next car now, so you can buy it all cash.
Make sure you maintain this car very well, so it can serve you for a long time.
Familiarize yourself with basic car care/etc. This knowledge, even if you don’t do the work yourself will save you some money.
Thanks for the advise everybody! I really appreciate it. My insurance premium is set to go down next year, so I will probably make the determination once I know what the the insurance payments are looking like for 2022.
A bit more information:
I can work from home (Software engineer)
I am working to substantially limit how much drive by moving relatively closer to my major city center and making extensive use of public transportation. If all goes to plan, I will only drive when it is absolutely necessary–such as for an audition, to be on set or a meeting–but thanks to zoom and self-tapes, some of this is becoming less and less necessary as well.
Note that in my experience the little lizard and the gun waving waitress represent companies with some of the highest rates. Shop around at individual sites. I would have been paying more than $1000 more if I had not shopped. Not 15 minutes but an hour or two can save you BIG bucks, especially after you come of age (25/26) .
I used to think an agent with a local office is the way to go, now claims etc. gets you redirected to an 800 number, though they are still there. They did help harass the claim agent for homeowners policy to at least call me back after 2 months. Had a $250 deductible for neighbors dead tree that had a giant limb fall on our glass table and cleanup, had texted him over a year previous, going through sublimation, no response to get my $250 back. More of the dead tree ready to fall in my backyard. Car was better dealt with when rear ended, but as Clark Howard says, customer no service!
I tried the local agent (I like local) could not come with in several hundred bucks, sorry local you no can do yo no can do!!