Trade-in dilemma.

[astrn]

Another question from a new buyer.

I decided to buy Model 3 LR RWD PUP for 55k with taxes. I secured the financing from 828 a month from 4.89 APR with no downpayments. It is not perfect but I feel with tax credit, gasoline and maintenance service considered in long term it will make alot sense.

The thing is I have 2 cars in my posession and both of them still on financed. One of them is 2015 Ford Fiesta which is real pain in the ass. Odometer is at 67k and I hate that car. I bought it for my wife little more than a 2 years ago and it has a class-action lawsuit on it which is granted. If I managed to got repaired the gearbox 4 times I can get back the full value of the car of 15k. But it will probably take extra 4-5 years to get that level if it brokes 4 times in that timeframe. I still owe 7800 with interest on that car, monthly payments are 236 on 11 APR which is higher than usual and still 33 months left. Tesla gave me 5500 offer and actual payoff is 6900. So still I will be in 1400 in debt even if I decide to give it but save around 900 from interest. I want to get rid of it asap but still I dont know because of lawsuit. It might be useful in longterm assuming I got back the full amount of the car. There is also a risk factor that if it does not broke off from gearbox or got involved in an unforeseen accident in that timeframe that will be huge bummer.

I have also 2015 Toyota Corolla S. That car is a rock. No problems so far and it has a good value. If I trade-in to Tesla, they will probably give me around 12k with current ODO 36k. Payoff amount is 8600 so if I trade it I have extra 3500-4000 to put. Monthly payments are 445 with 14 APR which is too much. and still owe 9400 with interest. But I am in doubt to trade it because its a good and reliable car. Even if I pay it in 2 years I can easily sell it around 9k or so. But monthly payments, gasoline and insurance are a little bit higher than Fiesta, probably 300 more a month.

I got those with high interest sadly because I dont have any credit score at all 5 years ago. It was a hardcore mode for me to build it.

I suck at math and I would like to figure out more realistic and financially doable solution in long term. There are too many variables and assumptions on the table. Anyone in here to help me with math?

 

[EnrgyNDpndnce]

@astrn Hello. I am pretty good with math and personal finances and will give you my honest opinion based on the information you posted. You may not like it and that’s OK, but this is what I would tell either of my children if they asked me the same question. My answer is, you should not buy another car right now, Model 3 or otherwise. You are making payments on 2 cars and at least one of them is upside down (ie you owe more than the car is worth). This is not the time to buy anything else. Don’t go buy a TV, don’t buy anything until you pay off those car notes. I would go so far as to say you should look at your household budget and drastically reduce any non-critical expenditures like eating out and entertainment. Use that money instead to pay off your cars early thus avoiding some of that interest. Get to the point where you have zero debt other than your mortgage before you consider taking on any more debt. And even then, I would recommend you save as much as you can and consider replacing that Ford with another car for which you can afford to pay cash. If you choose to finance another car, only do so once you can afford to put down 50% or more of the purchase price.

In a nutshell, debt is the number one killer of your ability to build wealth over time. I know that isn’t a fun thought, but if you can live skinny for a while and pay off all your debts (excluding a reasonable mortgage) you will live far more comfortably for the remainder of your life. As Dave Ramsey says, “live like no one else, so one day you can live like no one else.” Peace to you my friend, I hope everything works out for you.

 

[ShannonOh]

@astrn Hello. I am pretty good with math and personal finances and will give you my honest opinion based on the information you posted. You may not like it and that’s OK, but this is what I would tell either of my children if they asked me the same question. My answer is, you should not buy another car right now, Model 3 or otherwise. You are making payments on 2 cars and at least one of them is upside down (ie you owe more than the car is worth). This is not the time to buy anything else. Don’t go buy a TV, don’t buy anything until you pay off those car notes. I would go so far as to say you should look at your household budget and drastically reduce any non-critical expenditures like eating out and entertainment. Use that money instead to pay off your cars early thus avoiding some of that interest. Get to the point where you have zero debt other than your mortgage before you consider taking on any more debt. And even then, I would recommend you save as much as you can and consider replacing that Ford with another car for which you can afford to pay cash. If you choose to finance another car, only do so once you can afford to put down 50% or more of the purchase price.

In a nutshell, debt is the number one killer of your ability to build wealth over time. I know that isn’t a fun thought, but if you can live skinny for a while and pay off all your debts (excluding a reasonable mortgage) you will live far more comfortably for the remainder of your life. As Dave Ramsey says, “live like no one else, so one day you can live like no one else.” Peace to you my friend, I hope everything works out for you.

Kind and good reply. I agree. It may be heartbreaking but saving now and getting finances in order will bring a better feeling in the long run.

 

[astrn]

@astrn Hello. I am pretty good with math and personal finances and will give you my honest opinion based on the information you posted. You may not like it and that’s OK, but this is what I would tell either of my children if they asked me the same question. My answer is, you should not buy another car right now, Model 3 or otherwise. You are making payments on 2 cars and at least one of them is upside down (ie you owe more than the car is worth). This is not the time to buy anything else. Don’t go buy a TV, don’t buy anything until you pay off those car notes. I would go so far as to say you should look at your household budget and drastically reduce any non-critical expenditures like eating out and entertainment. Use that money instead to pay off your cars early thus avoiding some of that interest. Get to the point where you have zero debt other than your mortgage before you consider taking on any more debt. And even then, I would recommend you save as much as you can and consider replacing that Ford with another car for which you can afford to pay cash. If you choose to finance another car, only do so once you can afford to put down 50% or more of the purchase price.

In a nutshell, debt is the number one killer of your ability to build wealth over time. I know that isn’t a fun thought, but if you can live skinny for a while and pay off all your debts (excluding a reasonable mortgage) you will live far more comfortably for the remainder of your life. As Dave Ramsey says, “live like no one else, so one day you can live like no one else.” Peace to you my friend, I hope everything works out for you.

Thanks man that is helpful.

There are some points actually that I forgot to mention as well. Currently I have no mortgage, child or no desire and able to to get one in foreseable future for at least 5 years because of the reasons not mainly economically but uncertainty of other situations, location and other personal issues. Yes I can save around 300-400 a month extra probably if I change my mind.

My income level is ok (around 80k-90k pre-tax) so I can afford another car up to 40-50k assuming with other savings coming from tax credit, gasoline and maintenance. (plenty of freecharging available in LA).

I can get rid of Fiesta and buy another car but definitely not a used one. I had alot of headaches because of it and always found myself in a situation that I lost more money than I paid of at least 2 fold. I dont want to drive ICE cars anymore and dont want to put any more money for 5 more years on these. I plan to use Tesla for at least 10 years or until its battery dies...

And also it might sounds dumb at first but everytime when I see myself financially secure and ok I lost my desire to work and become lazy or couch potato. A little more debt is more beneficial for me because it always urges me to work and earn more money. (There was a time back in my home country when I have huge amount of income from my family business but its gone because of huge economical crisis which is getting worse everyday, then moved to USA permanently 4 years ago)

So I can easily say I already made my decision to buy Model 3. The only problem for me should I get rid of Fiesta of Corolla..

 

[willa1975]

I also would not have bought another car in the first place, especially one at the Model 3’s price point. If 4.89 is the best rate you can qualify for, you still have quite a bit of work to do in terms of building your credit.

That being said, you’ve put your money down and can’t back out of it. I think you have two choices. One would be to cancel your order, forfeit your deposit, and come back when you have rebuilt your credit and have enough between a down payment and/or trade-in. The other would be to trade in the Corolla. You would get a credit for it and lose the higher monthly payment in terms of car loan, insurance etc. Trading in the Fiesta would only increase the amount of money you would have to finance in order to purchase the 3.

 

[willa1975]

Thanks man that is helpful.

There are some points actually that I forgot to mention as well. Currently I have no mortgage, child or no desire and able to to get one in foreseable future for at least 5 years because of the reasons not mainly economically but uncertainty of other situations, location and other personal issues. Yes I can save around 300-400 a month extra probably if I change my mind.

My income level is ok (around 80k-90k pre-tax) so I can afford another car up to 40-50k assuming with other savings coming from tax credit, gasoline and maintenance. (plenty of freecharging available in LA).

I can get rid of Fiesta and buy another car but definitely not a used one. I had alot of headaches because of it and always found myself in a situation that I lost more money than I paid of at least 2 fold. I dont want to drive ICE cars anymore and dont want to put any more money for 5 more years on these. I plan to use Tesla for at least 10 years or until its battery dies...

And also it might sounds dumb at first but everytime when I see myself financially secure and ok I lost my desire to work and become lazy or couch potato. A little more debt is more beneficial for me because it always urges me to work and earn more money. (There was a time back in my home country when I have huge amount of income from my family business but its gone because of huge economical crisis which is getting worse everyday, then moved to USA permanently 4 years ago)

So I can easily say I already made my decision to buy Model 3. The only problem for me should I get rid of Fiesta of Corolla..

As a general rule of thumb, automobile expenses (loan/lease payment, insurance) should not exceed 10% of your take-home pay.

 

[NewTMSMan]

Every time I read one of these threads all I can think is; hey here's another recipe for someone with a decent income to remain poor.

If you have any kind of debt at 11% and 14% for cars that's crazy to me, sorry. If you anyone continues on the path of building debt with this kind of interest rate. Just to show what I mean; if you buy a $25k car with 14% interest on a 5 year loan, you end up paying almost $35k for that car, so over 5 years you pay just short of an extra 40% for the car. That also does not account for depreciation of the car (asset); which will be about 55%, so in the end you will pay $35k for a car that is worth about $11k in the end. Note I am also not including the lost investment opportunity cost, or the time value of the money, so the assumption in the above calculations is I am comparing investing the money at a rate that keeps pace with inflation with buying the car. In any case it should be obvious that if you want to give someone 40% more than something is worth, and then have it's value go down every year this is not a good financial decision.

Do not manage you personal finances as cash flow decisions with any depreciating asset unless you want to be poor, sorry, but it is that simple.

Probably not the advice you are looking for, sorry for that.

 

[voip-ninja]

I also would not have bought another car in the first place, especially one at the Model 3’s price point. If 4.89 is the best rate you can qualify for, you still have quite a bit of work to do in terms of building your credit.

That being said, you’ve put your money down and can’t back out of it. I think you have two choices. One would be to cancel your order, forfeit your deposit, and come back when you have rebuilt your credit and have enough between a down payment and/or trade-in. The other would be to trade in the Corolla. You would get a credit for it and lose the higher monthly payment in terms of car loan, insurance etc. Trading in the Fiesta would only increase the amount of money you would have to finance in order to purchase the 3.

He can get his entire deposit back if Tesla has not assigned him a VIN.

This is the second thread the OP has posted in which we learn a little more of the story and his desire to become heavily leveraged to buy a car that costs over half his annual income.

We know little about the rest of his financial situation such as credit card debt or other loans, how much income his wife has, etc.

In the other thread he reported 7k a month gross income, then later replied that no he actually makes 100K a year. In this newer thread he makes “80k-90k” pre-tax which is a pretty huge variation. How does a person not know their actual income level?
in any event this guy is hell bent on being deeply in debt so he can do whatever he wants.

 

[Teslie]

Sell both cars and buy Tesla shares and trust Elon...

Oh no, no investment advice, just joking. Everything is already said by members above.

 

[JTesmod3]

The fact you are posting for advice on this is the smarter part of you telling yourself to not do it.


....But something tells me the advice you get in this post will have no effect on your decision, so i say get the P!

 

[astrn]

Well my main question was not should I buy Tesla with my income ratio.


I dont want to save until I got 50-60, live frugally and amass a couple of million dollars when and buy Tesla after those years.


I like to spend my money on experiences while I am still younger rather than wait 10-20 years and try to fix your health problems caused by all the stress to put aside all those money with your hard earned money.


Everyone have different money saving goals here. Some of are here paying huge amount of mortgages or student credits which I dont have both gladly. Some of us trying to save tuition for their childs college or such things. Heck I still dont know even if I am going to have a baby.


I dont eat outside. Even if I do so I try to spend no more than $10-15 a meal which is pretty much rare. I am not under huge amount debt, which is around 20k currently including all of my credit cards and credit accounts. I was living of 3k a month with my wife including almost a year ago while I was paying both of these cars and credits. Dont ask me how I could be able todo it but it was pretty hard times for me because I moved from another country without knowing anyone here, getting used to cultural differences, language, food, climate, everything you can imagine. Adding all of these it was pretty hard to find a really paying good job if you dont know anybody.


While I have still time and being young I want to enjoy my hard earned money during my youth. I will definitely regret it in future if I dont enjoy my money while I was young. You can replace what you lost depending on how hard to replace it. But can you replace your time or do you have extra life potion hanging around assuming you are dead because of some stupid accident? I dont think so. My time is much more valuable than money. I dont work for money. I work for enjoying. No one knows what is going to happen tomorrow. So that is my point of view to life. Even if I have huge problems in future I have a choice to get back to my country and live without any financial problems. So no big deal for me.


I can also go and buy Model X or much more fancier cars right now with insane amount of APR, but I am not that stupid as well. I can buy what I can afford and 50k is easily affordable in my current income situation. And no P is a little extreme for me


I am not economist, analyst or some stock brokerage people which is pretty obvious actually. I can paint, take photos, make graphics so I am a designer.


So back to my original question again. Corolla or Fiesta?

 

[njsrikar]

Did you try to sell fiesta outside of Tesla? Carmax? Craigslist?

Toyota as you said is rock solid and will have a very good resale value even later.

I would say sell fiesta and clear loan on Corolla as a priority

 

[willa1975]

He can get his entire deposit back if Tesla has not assigned him a VIN.

This is the second thread the OP has posted in which we learn a little more of the story and his desire to become heavily leveraged to buy a car that costs over half his annual income.

We know little about the rest of his financial situation such as credit card debt or other loans, how much income his wife has, etc.

In the other thread he reported 7k a month gross income, then later replied that no he actually makes 100K a year. In this newer thread he makes “80k-90k” pre-tax which is a pretty huge variation. How does a person not know their actual income level?
in any event this guy is hell bent on being deeply in debt so he can do whatever he wants.

Is that the case?

I remember it saying, when I configured, that the $2500 deposit was non-refundable.

 

[adaptabl]

Some very wise advice. Unfortunately I doubt the original poster will even consider listening to this advise from his responses. I am in far better financial shape and have a large retirement account and no debt but am still uneasy about spending more than 50K on a new car even without financing it.

 

[Eno Deb]

Do not take on new debt while you are still stuck with these high-interest loans. Based on your description you are at the beginning of the classical debt trap. Given that your credit score seems to have improved since taking out the car loans, have you considered refinancing your loans at a lower APR? That way you'll be able to reduce your payments significantly.

 

[JTesmod3]

"So back to my original question again. Corolla or Fiesta?"

Sell the Ford fiesta and get the P. Based on your logic with buying a model 3 and you wanting to "buy experiences" the model 3 performance is definitely the only to way to go .

Your young, go for it! You DEFINITELY wont have any regrets spending this much money on a car that will eventually get old

 

[adaptabl]

So back to my original question again. Corolla or Fiesta?

Sell the Ford fiesta and get the P. Based on your logic with buying a model 3 and you wanting to "buy experiences" the model 3 performance is definitely the only to way to go .

Sell the Fiesta and buy another used Corolla. Makes the most financial sense for this person. Than save up for the Tesla when he is in a better financial position and has more income.

 

[MXWing]

Do you have equity in any property?

If so, a home equity line would have less interest than what you pay now on those cars.

Can I ask how old you are?

When I was in college I drove a Mazda 3. I still drove a Mazda 3, 10 years after college.

I can drive whatever I want now within reason as I made the garage to park the car more important than the car itself.

Man, I had to drive that Mazda 3 for a long time....

Before you do anything you need to get a personal loan or do something to lower that interest rate.

We don’t even know your other debt like credit cards.

 

[willa1975]

Well my main question was not should I buy Tesla with my income ratio.


I dont want to save until I got 50-60, live frugally and amass a couple of million dollars when and buy Tesla after those years.


I like to spend my money on experiences while I am still younger rather than wait 10-20 years and try to fix your health problems caused by all the stress to put aside all those money with your hard earned money.


Everyone have different money saving goals here. Some of are here paying huge amount of mortgages or student credits which I dont have both gladly. Some of us trying to save tuition for their childs college or such things. Heck I still dont know even if I am going to have a baby.


I dont eat outside. Even if I do so I try to spend no more than $10-15 a meal which is pretty much rare. I am not under huge amount debt, which is around 20k currently including all of my credit cards and credit accounts. I was living of 3k a month with my wife including almost a year ago while I was paying both of these cars and credits. Dont ask me how I could be able todo it but it was pretty hard times for me because I moved from another country without knowing anyone here, getting used to cultural differences, language, food, climate, everything you can imagine. Adding all of these it was pretty hard to find a really paying good job if you dont know anybody.


While I have still time and being young I want to enjoy my hard earned money during my youth. I will definitely regret it in future if I dont enjoy my money while I was young. You can replace what you lost depending on how hard to replace it. But can you replace your time or do you have extra life potion hanging around assuming you are dead because of some stupid accident? I dont think so. My time is much more valuable than money. I dont work for money. I work for enjoying. No one knows what is going to happen tomorrow. So that is my point of view to life. Even if I have huge problems in future I have a choice to get back to my country and live without any financial problems. So no big deal for me.


I can also go and buy Model X or much more fancier cars right now with insane amount of APR, but I am not that stupid as well. I can buy what I can afford and 50k is easily affordable in my current income situation. And no P is a little extreme for me


I am not economist, analyst or some stock brokerage people which is pretty obvious actually. I can paint, take photos, make graphics so I am a designer.


So back to my original question again. Corolla or Fiesta?

I can tell you from experience that putting aside money to service debt is much more stressful than putting aside money to save.

$20k of credit card debt is nothing to scoff at. Having been in that situation myself with a credit rating in the 500s, it's amazing how much more money you have every month when you no longer have those debts to service, and you will qualify for a better interest rate (and thus a cheaper car payment) to boot.

If you can afford an additional $800 plus on another car payment, you would be better off using that money to pay off your debt over the next two years. Your credit rating will skyrocket and you will have much more money left over each month without those bills to pay. In the meantime, if you must get an EV, you can lease a Nissan Leaf for roughly what you are paying on that Fiesta and probably get enough from trading in the Corolla to cover any money you might need to put down. You could then look at getting a Model 3 in two years, when you will qualify for a much better APR. You should also be positive on the Fiesta and be able to get a trade-in credit for that as well instead of having to bring money to the table or roll the amount into your loan in order to get rid of the car.

And, if you are young now, you will still be young two years from now. If you can afford an extra $800+ per month, it will not take you until you are 50 or 60 to get your credit sorted out.

In a nutshell, your best choice is to cancel the Tesla if possible and lease a Nissan Leaf if you must have an EV now. Your second best choice (and a bad choice in my opinion) is to trade in the Corolla.

 

[willa1975]

Do you have equity in any property?

If so, a home equity line would have less interest than what you pay now on those cars.

Can I ask how old you are?

When I was in college I drove a Mazda 3. I still drove a Mazda 3, 10 years after college.

I can drive whatever I want now within reason.

But man had to drive that Mazda 3 for a long time.

Must have been sweet not having a car payment for that long, though.

I paid off my S4 two years ago and, since then, have enjoyed not having a car payment for the first time in my adult life. The thought of going back to having one with my upcoming Model 3 stings a bit, but I figured I might as well get one now since the tax credit will basically cover a year's worth of car payments.