#15kSavings #CarDownPayment #Investing
Investing vs Car Down Payment – What Should You Choose?
So, you have $15k in savings and are faced with the decision of whether to put it all towards a car down payment or to invest it. Let’s break down the pros and cons to help you make the best decision for your financial situation.
Pros and Cons of Car Down Payment
Pros:
- Lower monthly car payments
- Potential to get a better interest rate on your car loan
- Immediate sense of ownership
Cons:
- Tying up a large chunk of your savings
- Depreciation of car value over time
- Opportunity cost of potentially higher returns through investing
Pros and Cons of Investing
Pros:
- Potential for higher returns over time
- Diversification of your investment portfolio
- Flexibility to use the money for other financial goals
Cons:
- Risk of losing money in the market
- Not having the cash readily available for emergencies
What is the Ideal Price for a New Car?
As a 27-year-old with an annual income of $80k, it’s important to consider how much you can comfortably afford for a car. Ideally, your car payment should not exceed 15% of your monthly income. Based on that, a car priced around $38k may be stretching your budget.
What Should You Do?
Given your situation, here are some suggestions:
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Consider Your Financial Goals: Determine if owning a car outright is a priority or if you’re comfortable making monthly payments.
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Evaluate Your Emergency Savings: Make sure you have enough set aside for unexpected expenses before committing to a large down payment.
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Explore Financing Options: Look into different loan terms and interest rates to see what works best for you.
- Seek Professional Advice: Consider consulting with a financial advisor who can provide personalized guidance based on your specific circumstances.
Ultimately, the decision between a car down payment and investing comes down to your individual financial goals and risk tolerance. Take the time to assess your options and choose the path that aligns best with your long-term plans. Good luck! 🚗💰
Don’t go into debt on a vehicle. Buy a good used Toyota Camry with cash.
Don’t get stuck by optimizing gains over immediate needs. Get the car, avoid interest as much as possible. Remember to include the total monthly cost of the car, taxes, insurance, gas, tolls, maintenance, etc. when you calculate your maximum out of pocket cost of ownership.
I would get a 10-12k used car and pay cash for it. I am driving a 2012 Hyundai Elantra(paid 6k used in 2018 with 80k miles on it) it’s got 230k miles on it. Still running like a champion. Sure the interior isn’t as nice anymore but it gets me to work. Car payments are lame.
Ideal price is 15k the money you have
Personally I would use 12k for a used vehicle and keep 3k in savings.
Lots of excellent used cars out there for less than 10k… Just make sure you take it for a thorough inspection by a reputable mechanic before you hand over any money or sign anything
I would spend a $8k on a very reliable newer car. It might take some research and a trip to get a car that isn’t in your area. The rest can go in a HYSA. Also, if you have no kids or financial responsibilities, look into saving more of your income. You never know if you might need it later.
Where are you located?
My wife and I just upgraded to a larger 3-row SUV to accommodate our growing family and I was literally right about to put our well-maintained 2016 Jeep Grand Cherokee on the market today. 114,000 miles. Great condition. New spark plugs, regular oil changes, newer tires. The only reason we’re selling was to get a car with a third row.
Insurance is cheap on Jeeps as they’re cheap to repair on not stolen often (like Hondas or other more popular cars).
KBB values it at about $15k. We’re in Southern CA. Happy to let you have a mechanic take a look at it. I’m confident it will pass with flying colors.
You make enough money if I were you I would use most for the down payment and invest the rest. You can probably pay the rest of the car off early to avoid interest. The earlier you invest the more the compounding interest on that money is
Don’t touch your 401k. But as others have said, if you need a car, find one that you can pay with the max of $15k.
What’s your monthly cash flow after expenses? Your credit score and lender will determine the interest rate on the loan. After fees a $38,000 car will probably be $40,000. If you put $15k down you owe $25k. The loan will probably be 4 years, and interest rates are high so maybe 7%-9%? Are you okay with paying $600-700 a month on a car payment, plus insurance and gas and tolls and maintenance?
I would buy a used car for $11 or $12,000 and leave $3000 for future repairs
You can use 5-8k for used car, just get it inspected before buying
with your current situation, i’d opt in for the cheapest car possible. it doesn’t sound like you’re in a comfortable financial situation to splurge on a 38k car.
for reference, i just turned 27, make about 90k a year with $170k net worth. i splurged on a $38k car with no issue (upgraded from my 200k+ mile prius). i would not have bought this car if i didn’t feel comfortable financially.
I won’t begin to tell anyone what kind of car to buy, but a good place to start is a website like Autotrader, mainly because you can put in the style of vehicle (without specifying a brand or model) and add any features you find important to you as well. I would also check the ‘certified pre owned’ box as it will bring back used vehicles that will come with some sort of extended manufacturer warranty (definitely something worth considering when spending more than 15k on a used vehicle. You can also start with a low mileage filter and slowly increase the mileage amount to see if there is a sudden drop in cost.
Starting like this might show vehicles you hadn’t considered before. Then you can get an idea of how much extra you’d be paying for the specific model car you are looking at, or see how much those extra features actually cost. This will allow you to make a more informed decision and recognize how much you’re willing to spend on a WANT as opposed to a need.
Vehicles are never an investment and always depreciate, but at the same point you shouldn’t hate what you drive, especially when you’re paying for it. Most important to know your options, calculate your budget and realize whatever payments you sign up for will be for a few years at least. I.e. just because your expenses allow for x payment amount now, doesn’t mean they will stay that way. If you’re renting your home/apartment will that rent go up or will you have to move? Do you have any other large potential expenses that may come up in the next few years?
I always try to buy a vehicle that I can EASILY afford, rather than a vehicle I might not be able to afford if something changes
I know what to do. Get the newest 911 convertible.
You can find great used cars for 10-15k with 100k miles or less. Honda and Toyota will go much much further than 100k, just make sure Carfax report or similar is clean. No need to go into debt if you can afford it
I would say take the 7k for car and put the 15k in savings
Why do you need a 38K car when you make 80K? Really think through the basics of your net income and expenses. Personally I would buy a cheap used car if it’s only for driving. You’ll need a lot more for real things later
This depends, are you a car person or more of a point a to b type of person?
Girl, use that 15k to buy a car with cash. There are plenty nice cars for $15k travel out of the state if you have to. Good luck.
My only concern is I’m not very well versed with cars and repairs. So what would be the risk I should expect on a used car?
Get a nice used car and pay in cash. Cars hold no value and if anything lose it. It’s just another debt you don’t need to worry about and could use the other money for other things that will help make you more money. You total a leased car and let’s just say insurance only covers half, you’re left with having to start a new 6 year plan and the last of whatever you owe on the totaled car.
You are under 30 with a ‘comfortable living’ salary and decent savings already. A car payment will be relatively negligible in terms of monthly expenses and will help to build credit. Saving money doesn’t build credit. Debt does. Auto loans are relatively low risk. Rates aren’t great but aren’t changing anytime soon.
Unnecessary frugality often translates to regret later on in life. A cheap car sounds good on paper, but they require significantly more $ for gas and maintenance, even over the course of a few years. Get a hybrid and actually add better quality to your everyday life now.
Plus, you can always do both!
I’d shoot for something that’s around 3x your monthly net income (less than $15k out the door assuming you take home ~$5k/mo after taxes and benefits).
Keep at least three months of expenses as an emergency fund, and put the rest toward the car. Ideally that means finding something cash, but $15k-3mo expenses isn’t going to go very far. You’ll probably need a small loan that you pay aggressively towards to get rid of by the end of the year. After that keep being aggressive to build your emergency fund to 6mo expenses and start saving up money for a sinking fund for car repairs/maintenance/insurance/replacement.
I replaced my car last month after its predecessor was totaled. I make $70k which is $3k/mo after taxes, health insurance, and retirement contributions. My budget was $9k and it took a little digging, but I got a great rav4 with <100k miles on it that ended up being under $8500 total after taxes, fees, 6mo full coverage insurance, and new fluids/hoses/battery. I paid cash but ended up borrowing $3k from my emergency fund (previously at $10k/6mo expenses) and had the other $5500 in my transportation sinking fund. Since purchasing, I’ve been putting $1k/mo to top my EF back up. Once that’s made whole again, I’ll contribute $500/mo to my transportation fund until or unless it exceeds $20k.
I view cars as depreciating assets and will never spend over 15k on a car. If you invest 15k into the growth stocks like apple and google, you’ll potentially double your investment or more in 10 years. I guarantee the car will not be worth 38k in 10 years.
Not sure where are you from, what car prices are, and what are your requirements for it, but in Lithuania – with 10/15K you can purchase a quite nice car that is 100% comfortable and gets the job more than done. Even with 5K its more than possible. Expensive cars cost more to maintain, so why splurge? And going into debt for a car sounds just so freaking stupid.
I make a bit more than you and bought a ’23 CX-5 last year. Had driven shitty cars my whole life to be “frugal”.
Having a new car is like night and day. I did a lot of research and bought what I believe the best value vehicle that fit my needs. Ac works, I have a warranty, seats are comfortable…. I am happy with my choice.
But you are in the personal finance sub, and it is not the financially best decision. Only you can decide your priorities….. security in your finances and future investing, or some temporary pleasures. Up to you my friend!
Here is an idea buy a 15k car. Work hard the next few years sell it and buy a 30k car in cash.
Is your income staying similar?
I would buy a new car. Ive had way too many issues with buying used vehicles.
Find an older Acura TSX with under 100k miles. They’ll last you forever