New Car: Is this the right thought process??

BK5580 · #1 (**permalink**) 07-15-2009, 08:43 PM

I own a 2005 Volkswagen GTI with 70k miles on it. It is paid off and is selling privately for about 11-12k. They hold their value well and used car values in general on 3-5 year old fuel efficient vehicles are up 23% in the last 6 months. I know the golden rule of, drive a car until its dead, never invest in a depreciating asset etc. Volkswagen's are high maintenance vehicles and my warranty recently ran out.

Here is what I want to do, yet my brother is telling me I'm wrong. Through a federal/Military credit union I'm eligible for 3.9% financing for used cars on loans up to 60 months. I want to basically take advantage of two sectors of the economy and mitigate risk which in this case is car repairs at the same time.

I'm interested in a 2008 slightly used (16k miles) certified Honda Accord, that has a bumper to bumper warranty up to 75k miles. It is selling for 21,000.00. The 2009 models sell for 30,000 so I'm getting a reliable certified used car that someone else already took the depreciation hit on financed at 3.9%. I would sell my car, take the 12,000 I get from that, put half down on the new car and with the other 6,000 take advantage of another sector of the economy by maximizing a Roth IRA. In doing so, I would be taking advantage of the stock market collapse and be getting great market share value for that 6k investment at a low time. I would also be getting a practical, reliable car with a full warranty and piece of mind.

While on paper it appears im only taking on more debt, Im actually in my mind investing at a low point for my future while taking advantage of a buyers car market.

FYI I would have absolutely no problem making the payments

User Name · #2 (**permalink**) 07-17-2009, 06:15 PM

Quote:

Originally Posted by BK5580

I own a 2005 Volkswagen GTI with 70k miles on it. It is paid off and is selling privately for about 11-12k. They hold their value well and used car values in general on 3-5 year old fuel efficient vehicles are up 23% in the last 6 months. I know the golden rule of, drive a car until its dead, never invest in a depreciating asset etc. Volkswagen's are high maintenance vehicles and my warranty recently ran out.

Here is what I want to do, yet my brother is telling me I'm wrong. Through a federal/Military credit union I'm eligible for 3.9% financing for used cars on loans up to 60 months. I want to basically take advantage of two sectors of the economy and mitigate risk which in this case is car repairs at the same time.

I'm interested in a 2008 slightly used (16k miles) certified Honda Accord, that has a bumper to bumper warranty up to 75k miles. It is selling for 21,000.00. The 2009 models sell for 30,000 so I'm getting a reliable certified used car that someone else already took the depreciation hit on financed at 3.9%. I would sell my car, take the 12,000 I get from that, put half down on the new car and with the other 6,000 take advantage of another sector of the economy by maximizing a Roth IRA. In doing so, I would be taking advantage of the stock market collapse and be getting great market share value for that 6k investment at a low time. I would also be getting a practical, reliable car with a full warranty and piece of mind.

While on paper it appears im only taking on more debt, Im actually in my mind investing at a low point for my future while taking advantage of a buyers car market.

FYI I would have absolutely no problem making the payments

First, sorry to hear you want to get rid of your dub.

I got a 01 GTI and 06 GLI myself. As to your questions, I would have to agree with your brother.

Mortgage, car, stock, all markets come and go. I don't think more debt, especially cars, toys, and credit cards is investing in your future. More cash and diversification is investing in your future. I personally would advise not selling your car to taking on more debt. I don't think a warranty and a few less miles is worth 9k. Do you really NEED a newer car or WANT a newer car. You also will not spend that much in maintenance on the dub even if it needed a new motor. You would be better of keeping it for now. You can contribute up to $5,500 this year and next year for your Roth IRA. You have until April of next year to contribute for this year so I would put a little in at a time and not all at once. If you have any debts, those should be addressed. Additionally, if you do not have a 6-9 month emergency fund that should be your next goal after debts such as credit cards are paid in full. I would encourage 9-12 months personally. This will help cover expenses in case you lose your job, get hurt, car breaks down, ect.

Also, if you did decide on a newer car, you could get a 05-07 VW Rabbit, 05-07 Civics, many GM, Ford, or Chryslers, or even a Kia for $11-15K saving even more.

Hope that helps.

sapphirecapital · #3 (**permalink**) 07-21-2009, 07:44 PM

you can get a 0% APR from VW on a Passat, even slightly used ones and all maintenance paid for 3 years or max 36000 miles, calculate it with the possible value loss when keeping the car for 3 years and the lowest possible down payment and look at it again; anyway in general if you are not pushing the limits of the GTI when driving, you should be fine till 100000miles, so no rush to get a new one, however the best deals are now, they are desperate to sell and with 0% APR you are pretty safe

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