Hello,

I am recently divorced and I recently filed bankruptcy and discharged. I needed transportation so I had to take what I could get under my circumstances. This is what I got which is not too good, but I needed something.

Loan $23,108.93
APR 19.50%
72 months
Payment $546.84 which will make my total of payments $39,372.48

Should I double (or more) up on payments and try to get this paid off sooner?
Should I make my payments for awhile (2 years) to build up my credit and then try to get a better loan?
Should I put the extra money into some type of account to draw interest?
I need help, what would you recommend?

Thank you in advance for your help,

D

There’s no way around it…a 19.5% interest rate on a car loan is crazy! If you kept the loan for the entire 72 months, you would be paying over $16,000 in interest! That’s roughly 70% of the price of the car. In other words, that’s almost like paying for 2 cars.

What’s done is done but I think I would have looked for a cheaper car.

Okay, now to answer your questions…

Should I double (or more) up on payments and try to get this paid off sooner?

I ran an amortization and found out that if you doubled your payments and payed $1,092.85 per month, you could have the car paid off in 27 months (26 payments of 1,092.85 and one payment of $128.05). This would bring your total interest payed to a much-easier-to-stomach amount of $5,435.23. It’s still a lot considering you are paying nearly $1,100 per month. Doubling up on your payments isn’t a bad idea if you can afford to.

Should I make my payments for awhile (2 years) to build up my credit and then try to get a better loan?

The problem I see with this strategy is that at the end of two years, you’d still owe over $18,000 on the car. It would be hard to find a loan with decent terms for a two-year old car that has depreciated 30 to 40%.

Should I put the extra money into some type of account to draw interest?

I do think you need an emergency fund of some sort…say $1,000 to $2,0000. Beyond that, it simply makes no sense to have extra cash sitting in a bank account drawing pennies in interest while you’re paying off a 19.5% loan.

So, here’s what I would do:

1. Put back a little money for a bare-bones emergency fund.

2. Pay as much as you can on the car loan to get rid of that debt. Just make sure that there’s no pre-payment penalty and make sure your lenders applies the extra payment to the principal on the loan.

3. After the loan is paid off promise yourself to never get involved that kind of loan again.

4. If you didn’t miss that payment, then put it towards your retirement once the car is paid off.

…the dealership was taking in a lot of trades on the Cash for Clunkers program — they’d sold 60 cars in four days! — but he also noted that, in one respect, it was kind of a shame.

“How so?” I asked.

“Well, when these cars come in, we’re required by law to destroy the engines so they can never run again. The mechanics have been draining the oil and the coolant out of them, and then giving them the old broomstick test, or putting a brick on the accelerator until the engine seizes.”

“Really…” I said, suddenly feeling a little lightheaded.

“We had a really clean older Chevy pickup come in on trade — no rust, 6-cylinder engine running perfectly — and we had to drain the oil and burn out the engine. We also had a nice Windstar minivan come in with about 100,000 miles on it. It ran fine, but we had to destroy it.”

“What happens to the rest of the car, once the engine is gone?”

“It has to be scrapped and parted out.”

Strangely, I hadn’t even asked myself — until that moment — what would happen to our Jeep if we traded it in. I guess I naively pictured it being given to a medical clinic in sub-Saharan Africa, or going to some happy hunting ground where Jeeps are young again, and free to perch on buttes in Monument Valley.

The very idea of intentionally ruining that trusty old 318 in our Jeep — a classic American V-8, and one of the best — made me suddenly queasy. But then maybe that’s just me.

You can read the rest here: Side Glances: Cash for Clunkers

I have to say, I agree with the author. It does seem like a waste to ruin good engines. I understand the motives, but I think it just shows how wasteful government programs are.

I was just on the SmartUSA website. I have seen a few Smarts driving around town and thought I would check them out. Their prices aren’t too bad and I think they are nice-looking cars. But, I have to say I’m disappointed with their fuel economy, which is 33/41 (city/highway). Keep in mind that those numbers are estimates. We all know how those numbers usually don’t reflect reality. In reality, you’re going to be lucky to get 30/38 (city/highway). In my opinion, that’s not good enough to justify buying an extremely small two-passenger vehicle. A Honda Civic has an estimated MPG of 26/34 (23/31) and offers seating for five—though comfort is questionable.

The Smart is hip and will get some attention but I think the Civic (or some other equitable small car) is a better choice.

What’s your opinion? Would you own a Smart? If so, why?

The first thing I thought was, “Where the hell am I going to take my car?” Some of you are probably wondering why I’m taking my car to a dealership for service in the first place. Well, I don’t normally take it to the dealership for routine service. But, it is nice to have them available for the bigger jobs.

When they close this dealership, the closest GM location—besides the local Chevy dealership—will be in a little town about 20 miles away. This stinks because it means that the shuttle service probably won’t be available, which means I’ll have to either have someone drive up there with me or I’ll have to sit around and wait while they service my car.

I guess I’m going to have to find a local garage that I can trust. That sounds scary.

The other day I was picking up my daughter at daycare and I noticed one of the other parents was driving a new Honda Civic. They parked next to me and as I was getting out of my car, I noticed that their Civic had leather interior. When I got home and did some research I found out that it was a Honda Civic EX-L. I think this is the first time that Honda has ever made a Civic with leather interior.

This is clearly a sign of what high gas prices are doing to the car market. Car manufacturers are trying to capitalize on American’s newfound taste for the small car and are adding luxuries like leather seats in order to give buyers some comforts that are usually reserved for bigger cars. I think this is a good move. I probably would have gone for the EX-L last year when I bought my wife her Civic but the model wasn’t yet available.

The gasoline-price-induced collapse of the sport-utility-vehicle market presents a quandary for consumers. With gas at $4 a gallon, SUVs no longer make affordable commuter vehicles. But at the same time, they’ve never been cheaper.

Manufacturers are offering between $2,000 and $5,000 in discounts on once strong-selling models like the Ford Explorer and Chevrolet Suburban, and dealers say there’s plenty of negotiating room after that. Discounting is even heavier on used vehicles, with some selling at roughly one-third the price they would have fetched new four years ago.

With gas at nearly $4 a gallon (or higher in some places), saving $2,000 to $5,000 on a $40,000 to $50,000 vehicle isn’t enough. Prices for SUVs may go even lower but that also means that their resale value will also decrease. I suppose for some people, an SUV might make sense but I don’t think I would bite on this one. I’m not nearly as optimistic as this guy:

“It is the ultimate buyer’s market,” says John Casesa, managing partner at Casesa Shapiro Group LLC, a New York advisory firm that owns some dealerships.

Ultimate buyer’s market? I doubt that. Of course we should expect this guy to say such a thing since his company owns dealerships with lots of SUV inventory.

I guess my question for you is: if prices for SUVs dropped far enough, would you consider buying one?

“[T]he prices that we’re paying at the pump today are, I think, going to be ‘the good old days,’ because others who watch this very closely forecast that we’re going to be hitting $12 and $15 per gallon,” Hirsch said. “And then, after that, when oil – world oil production goes into decline, we’re going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we’re not going to be able to get the fuel when we want it.”

I’m starting to think that these forecasters are making money by scaring the crap out of people. I realize that supply and demand play a role in all this but I still think that markets are being manipulated by all this talk.

I must say, it’s a scary thought. At $12 per gallon, it would cost me $215 to fill up our Rendezvous.

For the other five myths, check out Money’s gas-saving myths. With gas prices as high as they are it’s as important to know what NOT to do as it is to know what to do.

As I was leaving daycare I got to thinking about this lady’s decision to trade in her Aviator for the Accord. Did she make a wise decision? Well, that’s not for me to say, but I can tell you what the numbers say.

I noticed that she was driving a Honda Accord with a V-6 but I didn’t notice the exact model. So, I’ll assume she went with the EX V-6, which Edmunds.com says retails for just under $26,000 (there are more expensive Accords, but this model will suffice). Using Edmunds.com, I estimated that her Aviator had a trade-in value of just under $11,000. I have no idea what year her Aviator was, so I’m going to assume it was 2003, which was the first year for that model.

Since gas was the first thing she mentioned, I thought it would be a good idea to estimate how much she is going to save on gas now that she is driving the Accord. According to the FuelEconomy.gov, the 2008 Accord V-6 gets between 19 and 29 miles per gallon. The average Honda Accord driver will spend around $2,261 on gas each year while the Navigator driver will spend $3,676 (assuming an average price per gallon of $3.39 and 15,000 miles driven per year split 55% city driving and 45% highway driving). So, she will save roughly $1,400 per year on gas. Unfortunately, that’s just PART of the equation.

Unless she paid cash for the Honda, she probably has a new car note. American Honda Finance is currently running a promotion of .9% financing for 24-36 months. Assuming she financed $15,000 (the difference between the sales price of $26,000 and the trade-in value of $11,000 for the Aviator) for 36 months, her payment would be $422.47 per month or $5,070 per year.

Bottom Line

Not factoring in maintenance costs, this lady is spending $5,070 per year for 3 years to save $1,400 per year, a difference of $3,670 per year. Granted she does have a new car and her savings will increase as gas prices increase. But, she traded in a car that was still in very nice condition and was most likely paid off for a brand new car that will depreciate in value. All else being equal, gas prices would have to go to over $12 per gallon before she broke even.

I suppose there are environmental considerations but I think those are negated by the fact that someone will be driving the Aviator.

I’m all for saving money but I think lots of people are making decisions based on emotion rather than on clear thought.

What do you think? Did I mess up on my math somewhere?