Car Dilemma

[lydibird]

I have a 2001 Mitsubishi Mirage that I bought outright about 2 1/2 years ago. In the past year it's upkeep has been irritating. Every couple of months there's some other repair that I need to do. I don't have all my receipts on me right now, but in the past 6 months I've spent at least $600 on repairs, probably more. I just found out that I have another $1000 repair. I also know that I will have to either fix or repair my passenger side door before I move. I'm not sure what the problem is, but it shouldn't be open. I have no clue how much this would cost. According to a bunch of car value calculation websites my car is worth about $2000 in pristine condition, which it's not. So I'm quickly approaching (maybe surpassing) my car's value in repairs over the past year.

I'll be moving about 1600 miles in August to start my masters program. I'm really excited about it. I don't need a car to live in my new city, but I do like having one and I'll be able to afford one. My plan A was to keep my current vehicle, save my pennies while in school, and buy a nicer (2-3 year old car) when I graduated. Now that I'm faced with such a large repair, though, I'm wondering if it's really the best plan.

I'm trying to decide if I should:

1) pay the bill and pray I don't need another repair any time soon.

2) Buy another old outright (around $2500)

3) buy a car 3-5 years old with a down payment of about $2000.

I'm tempted to just buy a nicer car, but I really want to make the most financially responsible decision. Since I can't/won't buy new there are guarantees that said nicer car won't need major repairs within the year. I don't have a whole lot of money in my bank account right now and need to keep in mind that I'll need money for moving, first and last month's rent,living expenses until my stipend begins (end of September?), apartment furnishings, etc. I'd expected to be more than fine, but adding in a down payment for a car and monthly payments after that... Before I found funding I applied for federal loans and I could advance myself enough to live on for the first couple months. With my stipend I could pay it off before the end of the year. Is that a really dumb idea?

I've thought about just going carless for a few months and buying one 2-3 weeks before I move. It would be a pain, but I would save money on car insurance and gas, and probably for a lot of random purchases (clothes, food) as well. I can walk to one of my jobs and the other would only cost about $8.00 a week for public transportation.

I obviously need to crunch the numbers when I get home, which won't be for about 4 hours.

Anyway, thanks for letting me vent. Any input is welcome!

[Andsowego]

Can you just go car-less altogether? I got rid of my car back in January (for all the same reasons you've posted above), and I haven't regretted the decision once. I'm lucky that I live in a city with great public transit. Have you seriously considered whether it's possible to live a car-less life once you move?

[mirandaw]

If you go carless and save that money through school, you'll have enough to put a downpayment on a much better car. Insurance prices + upkeep costs + gas + parking fees - transit fees will still bring you out on top.

[mirandaw]

Also, UM has great transit. Better than most of the other cities in MI (I haven't lived in Ann Arbor, but I have lived in Kalamazoo and Grand Rapids, and transit wasn't the best). Plus its generally (and enjoyably) walkable. From what I've seen, it's also a pretty decent bike city.

ETA: Car insurance premiums in MI suck because of how the insurance industry is set up. It's a weird state for that. Maybe you should file a few quotes online to determine what the insurance difference will be if you establish residency.

Edited May 1, 2012 by mirandaw

[michigan girl]

If you're moving to Ann Arbor, you can get around easily without a car. I lived in Ann Arbor for two years without a car. I also lucked out by living near three bus routes that took me to different sections of the city. If you don't mind public transit, AATA is a decent service (a hidden gem seriously) in this car-dominated state. In fact, AATA recently launched its Ann Arbor-to-Detroit Metro Airport shuttle service for as low as $12.00 per trip. As mirandaw previously stated, car insurance and gas prices are very expensive in Michigan (currently ~3.85/gal for regular) so I don't miss paying for fuel and car maintenance fees.

The only time you will need a car is when you're driving outside the region. Since Ann Arbor has both Amtrak and Greyhound stations, I used those services to visit my relatives in Metro Detroit. U-M also provides ZipCar service if you occasionally need to rent a car. Very useful membership.

[long_time_lurker]

I was in a similar boat to you 2 years ago, sans the moving part.

I ended up repairing the car for over a grand; a few months later I had noise coming from my wheelwells the same week Toyota was offering 0% financing on new cars. I ended up trading the car in.

So I highly recommend not repairing the current car. Also if you can try and trade in your car at CarMax. My local dealers were offering me a $1200 trade-in and CarMax offered me $3000 cash or trade-in. CarMax parts out their cars so they will give you a good value even if your car needs work. Also you are under no obligation to buy a new car from them, they give you a binding offer to buy your car. Meanwhile the traditional dealers offer you a $1200 trade-in and then proceed to inflate the sales price of the car they're selling you by $1000.

Also don't rule out a new car. I know the whole depreciation argument of buying used vs. new, but the financing on a new car is generally much better. When I looked for cars I qualified for 0 interest for all 5 years whereas for a used car it would've been 5.9% APR. Also, you are buying more time, namely when you are doing your program, that you won't have to worry about the time and cost of doing repairs to an older car.

[OregonGal]

I will give you my standard answer to all questions financial: compare costs! The previous poster made a very good point about the relative cost of financing a used vs new car if you have to take on debt for it, and the posters previous to them made good points about researching public transit options where you're headed. If you can sell your car (for parts, perhaps) you can test out how you like not having a car and save your insurance/gas money towards moving expenses. I would lean towards not sinking a ton of money into your current car, though, because it's essentially a junker--a car where it being "totaled" (insurance payout on repairs more expensive than value of vehicle) can come any moment. (Please don't take that as a ding against the actual condition of your car--my mother's old car was declared a totaled junker when her airbag deployed in a fender-bender even though it was in pristine condition, because it was over 15 years old and declared only worth the cost of the scrap metal by her insurer. She bought it back from her insurer for $500 and drove the car another 3 years)

I would be interested in your rationale towards "can't/won't buy new" because one advantage of buying a post-recession vehicle vs pre-recession is that mpg has really trended up in the last couple years--a 2007 compact might get 25 mpg vs a 2012 getting 35 mpg, which can save you hundreds of dollars a year. Also, car dealerships are so eager to sell that they're offering good prices and really good financing offers. However, new cars have a larger up-front cost. This is where I think going to a place like auto-trader.com and checking out pricing and relative monthly costs (factoring in insurance, car payment, license costs, and estimated gas costs) would be best so you can figure out which has larger total costs.

[lydibird]

Thanks for everyone's advice! I did crunch the numbers last night and it turned out I've already spent $1500 on repairs in the past year. Goodbye car! I also talked to my parents about it and have decided to go ahead an buy another used car. Not sure about the price point yet. I need to do some more number crunching first.

If you're moving to Ann Arbor, you can get around easily without a car. I lived in Ann Arbor for two years without a car. I also lucked out by living near three bus routes that took me to different sections of the city. If you don't mind public transit, AATA is a decent service (a hidden gem seriously) in this car-dominated state.

I probably could deal with not having a car. I was carless the first 2 or 3 years of my undergrad, I was fine, and I could do it again. I just plain don't want to. No matter how good the public transit is it takes longer, grocery shopping is a huge pain, I hate feeling like a burden for asking friends for rides (even if I know they don't mind), service isn't as good at night... For me the reduced anxiety and annoyance are worth the extra money every month. I figure a car can be my one luxury. I'll be sharing an apartment rather than living on my own, I very rarely eat/go out (as in once every couple of months I'll spend about $10 on a meal), and I don't have or want cable. I'll be saving a a bit less than I'd hoped, but I'll still be able to save. Not to mention I only have average credit and a car loan will help me to build it up for when I want a mortgage. Not to say I won't take advantage of public transit. I'll probably end up taking the bus to campus every day.

don't rule out a new car. I know the whole depreciation argument of buying used vs. new, but the financing on a new car is generally much better. When I looked for cars I qualified for 0 interest for all 5 years whereas for a used car it would've been 5.9% APR.

I do need need to research what interest rates I qualify for. I didn't realize new vs used loan rates could differ that much, but I highly doubt I qualify for 0% interest! If the difference is that large I might reconsider a bare bones new car. From my basic research it looks like several lenders consider fairly new used cars (1-4 years) at about the same interest rates.

I would be interested in your rationale towards "can't/won't buy new" because one advantage of buying a post-recession vehicle vs pre-recession is that mpg has really trended up in the last couple years--a 2007 compact might get 25 mpg vs a 2012 getting 35 mpg, which can save you hundreds of dollars a year.

Besides the fact my family might disown me for buying new ? The month to month cost is lower no matter how I look at it. There's no denying that having a new car under warrenty with great gas mileage would be nice, but it is just more expensive. Let's assume I buy an $8,500 used car rather than an $18,000 new one using a 3 year loan. The monthly payment would be a little less than half that of the new car. Assuming I spend an average of $200 a month on repairs (which is more than I've spent on my current car in the past year and I didn't have any problems until about a year ago making the lifetime average even lower) the monthly cost is still less than than new car. Add lower insurance premiums for used cars and any difference in gas milage would not make up the gap over the year, especially considering I'm not likely to be driving a lot a grad student. And I haven't even touched value depreciation!

That said, if I buy a lemon I'd get rid of it and then just go carless until I could buy a new or 1-2 year old car out of pocket. I don't see that happening, though. My entire immediate family has always bought used cars from the same dealer and mine is the first that went bad so quickly. As long as you're careful, check it's history, and have a mechanic check it out before you buy lemons can usually be avoided.

[TakeruK]

Some more ideas. My father worked for Chrysler in the past (in the parts warehouse) and we get an employee discount on vehicles. However, like an above poster said, some dealers will inflate the price / haggle more conservatively knowing that we will get discounts, so that someone without employee pricing is likely to haggle the dealer down to about the same price. So, here is what we do, and a suggestion for you when you trade in your old car:

Don't tell them you are trading in an old car. Find a car you like and negotiate a final price first. Then, bring up the fact that you want to trade in your old car as well. They might still try to undervalue your old car, but there's the "black book" (or whatever colour it is in the US) that lists standard trade in values, so they can't go too far off that. Also like any purchase, shop around and see what other dealers would offer.

Another thing to consider was that when we were buying car insurance, the person told us that going uninsured for awhile makes things more complicated and might affect your rates. It sounds like you will be continuously having a car and insured, but for others, I don't think it's worth it to go carless for time periods on order of several months.

[mandarin.orange]

lydibird - see about financing through a credit union, rather than the dealership. I got a 3.5% APR from a local credit union. You'll have to do a lot of the prelim paperwork with them before settling on a car, and it helps to know the name of the credit union + rate, and to have really thought-out your monthly expenses and what you can/can't afford, when you negotiate the price of the new car.

I too had a car (97 Golf) that was becoming cost-prohibitive last spring. I really wanted it to last, but...faced with driving it cross-country...and wanting a vehicle long-term...I bit the bullet and got a 2007 car, with a large down payment and 3 years financing. It was more than I hoped to spend, but it had a 1-year warranty, and I worked hard to make up for it with housing choice. I searched high and low and negotiated, and finally got a bedroom/bathroom in an already-furnished place with roommates, walking distance to campus.

A few months before I started my program, I did scope around for credit cards that offered extended periods of 0% APR as a financial "buffer." Perhaps not the best financial back-up plan, but so many are now offering $100 sign-up bonuses, cash back, 10,000s of airline miles, etc. I knew I would make the payments on time. I loaded a lot of my moving and initial expenses onto one that I have been gradually paying off. To the poster who mentioned MI expenses being astronomical for cars...keep in mind I was moving to CA. I continue to pay the highest insurance premiums and gas prices of my life. I've still managed to save money, invest, make my car and credit card payments, eat well, and make retirement contributions.

And, I could probably make do without a car...LA is actually easier for that than other places I've lived. But like you, I don't want to! I want the option and flexibility to make the 400 mi drive to see my BF and family...I LOVE driving. And, for the first time in my life, I drive a car that isn't persistently leaking something, from somewhere.

[Bimmerman]

Car guy here.

Do you know how to fix cars or are you willing to learn? It's really not hard, and you'll save an awful lot of money. I find working on cars to be a nice distraction from school and academia. Plus, learning how to fix them yourself will make future interactions with mechanics a whole lot more pleasant since you'll know more about what they are doing. I'd recommend joining a relevant forum for your car (google) and reading/asking for help. The feeling of fixing your troublesome car with your own hands is amazing, and gives you a confidence boost for the day. In the space of two years, I went from being able to do an oil change to fixing my transmission and rebuilding my engine. If I can do it, anyone can.

An alternative would be to sell your current car and buy a more reliable one. Mitsubishis are many things, but reliable is not a word I'd describe them with. I would sell your car and buy a $1k-ish Honda Accord or Civic. All you need to do to one of them is put gas in and change the oil every 3k miles. They're the perfect grad student A-B transportation machine. Craigslist is a goldmine for good cheap cars. A Honda, Subaru, or Toyota would be my recommendation. Figure out your budget and then find a car that matches. I'd personally buy a cheaper car up front that needs a little work, factoring the cost of repair (get a prepurchase inspection from a qualified mechanic!!!) into the expected cost. I have a 95 Subaru Legacy that is unkillable (I've tried for seven years now) and incredibly cheap to maintain and run, I'd recommend one. Wagons are really really really useful.

edit-- I should probably note that the transmission/engine rebuilds were not on my Subaru. Those were on a different car.

Edited May 8, 2012 by Bimmerman