I SAH and drive a very nice loaded Subaru that is almost paid off. I hardly drive at all - just to run errands. I planned on driving it for several more years, or until I go back to work. Our projections on how long I can stay home were based on dropping my $350 payment soon and still having a safe, reliable car.
Sadly, it was totaled in a hail storm. After we get the settlement and pay it off, we'll have $9.5K. We are looking at two options - buying a loaded forester for $3K down and $350/ month. The forester is too much car for me right now, but we would drive it for a long time and when we're ready to get rid of it, it will have lots of value.
Or, we can lease a base Impreza for $1200 and $150 a month. This makes me sad, since I have a loaded legacy and the base Impreza isn't nearly as nice. Plus we won't have any value at the end of the lease to roll into a new car. BUT, we'd have $8K in the bank and $200 less in payments each month, which would provide some breathing room.
so, validate my decision - lol. The lease makes the most sense right now, doesn't it? Even though I won't have a kick ass stereo and a sunroof? So sad!
With hail damage, I'm assuming we're talking mostly cosmetic damage, albeit cosmetic damage that is expensive to fix. You're sure there's no option to go the salvage title route for your existing car? You don't have to fix all the cosmetic damage for it to be drivable for at least as long as you'd plan to have the lease. It's just that neither of your other options are all that great. Owning more car than you need is no good because it depreciates, but leasing is tossing money away.
With hail damage, I'm assuming we're talking mostly cosmetic damage, albeit cosmetic damage that is expensive to fix. You're sure there's no option to go the salvage title route for your existing car? You don't have to fix all the cosmetic damage for it to be drivable for at least as long as you'd plan to have the lease. It's just that neither of your other options are all that great. Owning more car than you need is no good because it depreciates, but leasing is tossing money away.
We considered this, but the salvage value is $4.5K (!!). We owe $3K and it needs four new tires to get through this winter ($500). So it will cost $9k to keep, and it will be uninsurable (comp and collision) and have no value. We also looked at just buying a duplicate of my car, or another used Subaru, but it would be $12k for anything decent, and all of those are off warranty and high mileage.
We're not talking minor hail damage, either. There is $12K in damage and some of it needs to be fixed, like the broken headlight and windshield. So it's really more like $10k to keep, without fixing anything cosmetic.
I definitely don't understand how salvages work. You have to pay $4.5k for some reason? To the insurance company?
Leasing is almost never the smartest long-term MM decision. But, it sounds like your priority is to be able to SAH in the short term. If that's the case, and if you understand that you'll have less wealth in 3 years because you leased (but obviously a lot more time with your kids), I don't think anybody would crucify you for that decision. You probably will get a lot of recommendations just to buy a used car outright or one that will cost less than $200/month, though, since that's comparable in terms of time with kids and statistically smarter financially.
If you hardly drive it at all, I'd buy something at $9.5K and have a car with $0 monthly payments. Save your $350/month payments for the same period you expected to keep paying - and keep that nest egg for repairs.
I know it sucks balls to go from a loaded Subaru to a non-loaded used care - buy you hardly drive it at all.
I definitely don't understand how salvages work. You have to pay $4.5k for some reason? To the insurance company?
Exactly. They valued my car at approximately $12K. If I accept that offer, they take my car and sell it to a salvage yard for $4.5k. If I want to keep my car, the insurer will give me $7K (4.5 plus some taxes and fees I don't get under this option). Then we have to pay it off ($3k), fix a few things and buy new tires ($1k). That's where I get that it costs $9k to keep, Susie.
Yes, why can't you put the full 9.5K down on the Forester?
I don't think we ran those numbers, but I'll see what that looks like.
Honestly, though, we'd still have payments (for five years instead of the 9 months we expected), we'd be underwater on a car, and we'd have zero settlement money left. That seems like a loser from where I sit, but that why I ventured over to MM - lol.
I totally get that leasing is throwing away money, and that's why we're hesitant. But it seems like the "best" of the bad options in that it leaves the most money in the bank and in our pockets each month.
I definitely don't understand how salvages work. You have to pay $4.5k for some reason? To the insurance company?
Exactly. They valued my car at approximately $12K. If I accept that offer, they take my car and sell it to a salvage yard for $4.5. If I want to keep my car, the insurer will give me $7K (4.5 plus some taxes and fees I don't get under this option). Then we have to pay it off ($3k), fix a few things and buy new tires ($1k). That's where I get that it costs $9k to keep, Susie.
So they give you $7k less $3k to pay it off = you have $4k left to fix stuff before paying a dime out of pocket.
Insurance should be less without collision.
Save the payment into a new car fund (plus any remainder of the 4k not spent on repairs). That way if you are in a wreck you have a dp for the next car.
I would look at the price of a 3 year old Impreza and see how much it depreciated. If it depreciated more or about equal to $6600 ($150/mo x 36 payments + $1200 dp) then you won't "lose" anything more than depreciated value. I would actually negotiate for $5500 paid in full for the 3 year lease and you won't have a payment. Then you can save the $350 car payment to put down in 3 years.
But if you hardly drive the car, why not just buy a used car with that $9500 and keep it until you're ready to go back to work? Then you can save that $350/mo for a new car later.
Yes, why can't you put the full 9.5K down on the Forester?
I don't think we ran those numbers, but I'll see what that looks like.
Honestly, though, we'd still have payments (for five years instead of the 9 months we expected), we'd be underwater on a car, and we'd have zero settlement money left. That seems like a loser from where I sit, but that why I ventured over to MM - lol.
I totally get that leasing is throwing away money, and that's why we're hesitant. But it seems like the "best" of the bad options in that it leaves the most money in the bank and in our pockets each month.
If you put $9.5k down on a new Forester, you are not going to be underwater on it. That amount down should also get you into a better payment term, say for 3 years instead of 5. Then you'd be paying for 27 months more than you anticipated, which still sucks, but at least at the end, you will own a nice car outright.
Honestly, though, if I were you, I'd downgrade your car to the Impreza, put the $9.5k towards that, and look at those payments. You could likely buy that car for less than $200/month at that point rather than lease it.
I went and looked up some numbers. A completely loaded new Forester is around $34k, which even if you put all $9.5K down still leaves a $407 payment. I would not recommend that. I would also not recommend leasing a car (ever). A mid-level Impreza hatchback goes for $21590, which if you put $3k down is $309/month. The remaining $6.5k will cover that payment for 21 months, which should help your SAH budget.
I definitely don't understand how salvages work. You have to pay $4.5k for some reason? To the insurance company?
Exactly. They valued my car at approximately $12K. If I accept that offer, they take my car and sell it to a salvage yard for $4.5k. If I want to keep my car, the insurer will give me $7K (4.5 plus some taxes and fees I don't get under this option). Then we have to pay it off ($3k), fix a few things and buy new tires ($1k). That's where I get that it costs $9k to keep, Susie.
I suppose that's one way to look at it, but I'd say that's a $9k opportunity cost, which is not the same as an actual cost. The way I see it, your options are:
1. Net $9.5k after paying off the current car. Put $3k down on a Forester, have a $350 monthly payment, and watch something depreciate in your driveway that you don't even need, but at least after a couple years you have a car to show for it.
2. Variant on #1, put the whole $9.5k down as suggested by some pp's. Have a smaller monthly payment, but probably still larger than the $150/mo lease. Still watch something depreciate that you don't need, but again, you've got a car to show for it after a couple years.
3. Net the $9.5k, put $1.2k down, and pay $150/mo. For how long, 24 mos? That's $3600 in monthly payments + $1200 down = $4800 of your $9.5k is gone. After 2 years you have $4700 plus a little interest toward your next car.
4. Salvage option. Net $4k after pay off, spend $1k to fix it up such that it's drivable. Now you're at $3k to hang onto, which you'd have as a down payment if the worst happened and you got into an accident that rendered it undrivable. You have a $0 monthly payment, $3k plus interest in the bank at the end of 2 years assuming no accident, and you get to make the call (unlike a lease) as to when you're ready to replace.
I'm not saying I'd definitely do #4, but it's at least worth considering IMO. I'm not sure which I'd do, but I'm pretty sure it'd be either #2 or #4.
I would look at the price of a 3 year old Impreza and see how much it depreciated. If it depreciated more or about equal to $6600 ($150/mo x 36 payments + $1200 dp) then you won't "lose" anything more than depreciated value. I would actually negotiate for $5500 paid in full for the 3 year lease and you won't have a payment. Then you can save the $350 car payment to put down in 3 years.
But if you hardly drive the car, why not just buy a used car with that $9500 and keep it until you're ready to go back to work? Then you can save that $350/mo for a new car later.
DH ran those numbers already and that's exactly right. We only "lose" money if we lease for more than three years, which we would never do. We'll even see about a two year lease, but I don't know if those exist. We also considered paying the lease upfront.
As to the second paragraph, we'd never save that $350, not all of it anyway. We are not that disciplined. There's a reason I don't hang out on MM -lol.
1. Net $9.5k after paying off the current car. Put $3k down on a Forester, have a $350 monthly payment, and watch something depreciate in your driveway that you don't even need, but at least after a couple years you have a car to show for it.
2. Variant on #1, put the whole $9.5k down as suggested by some pp's. Have a smaller monthly payment, but probably still larger than the $150/mo lease. Still watch something depreciate that you don't need, but again, you've got a car to show for it after a couple years.
3. Net the $9.5k, put $1.2k down, and pay $150/mo. For how long, 24 mos? That's $3600 in monthly payments + $1200 down = $4800 of your $9.5k is gone. After 2 years you have $4700 plus a little interest toward your next car.
4. Salvage option. Net $4k after pay off, spend $1k to fix it up such that it's drivable. Now you're at $3k to hang onto, which you'd have as a down payment if the worst happened and you got into an accident that rendered it undrivable. You have a $0 monthly payment, $3k plus interest in the bank at the end of 2 years assuming no accident, and you get to make the call (unlike a lease) as to when you're ready to replace.
I'm not saying I'd definitely do #4, but it's at least worth considering IMO. I'm not sure which I'd do, but I'm pretty sure it'd be either #2 or #4.
I really appreciate all this. Re: #4, we'd only have the $3k because the car would be worth nothing. The $350 in payments we're no longer making are not savings since that was already worked into our budget. If my car weren't totaled, I would have about $7k in value when I go to sell it, so I've already lost $4k. Does that make sense?
But to be perfectly frank, we wouldn't have that 3k leftover either. We'd use it to pay down credit cards and we do not have a big enough emergency fund, so if there was some kind of emergency, we'd dip in then, too. Which is why $1200 down is appealing. That leaves us with $8k to pay off debt (which MM likes, right?) and have some extra savings. The money we're not paying in cc interest will cover the $150 payment.
We would have nothing to show at the end of the lease, but we think we'd be in a better finical position overall.
I really appreciate all this. Â Re: #4, we'd only have the $3k because the car would be worth nothing. Â The $350 in payments we're no longer making are not savings since that was already worked into our budget. Â If my car weren't totaled, I would have about $7k in value when I go to sell it, so I've already lost $4k. Â Does that make sense?
But to be perfectly frank, we wouldn't have that 3k leftover either. Â We'd use it to pay down credit cards and we do not have a big enough emergency fund, so if there was some kind of emergency, we'd dip in then, too. Â Which is why $1200 down is appealing. Â That leaves us with $8k to pay off debt (which MM likes, right?) and have some extra savings. Â The money we're not paying in cc interest will cover the $150 payment. Â
We would have nothing to show at the end of the lease, but we think we'd be in a better finical position overall. Â
You're not really paying down debt, though. You're just changing its form (OK, a lease may not technically be debt, but it's also not asset-building).
Just for kicks, I computed that you could buy a $15k car with $9k down and a $172/month payment (2% interest, 3 year term). At the end of that 3 years, you'd have a car still worth something that you could keep or sell. Could you find something acceptable at that price?
I skimmed most of the posts, but can you negotiate the settlement? It seems that you really can't find a comparable car to what you drove for the $12.5k (if I read that right, that's your settlement amount). I would start by looking for the same car you drove - within a year older or newer, similar miles, similar features (not necessarily the same color) but within a 100 mile radius. Take that to your insurance person and tell them this is how much your car is worth. Take that money and buy the car you printed out (and maybe negotiate the price down a bit) so you'll still have a small loan but nothing like your other options.
If you are a SAHM and don't have a good e-fund, buying a fully-loaded car is not the right answer in any eventuality.
We came to that conclusion, too. Lol.
Maybe "loaded" was not the right word because all I REALLY want is a manual transmission and a sunroof. The specific forester we're looking at is only $21-23k. I think it's the premium.
I claim absolutely no personal knowledge on this issue, BUT my FIL has run the numbers dozens of times calculating the cost difference between buying and leasing, including maintenance and residuals (yes, for fun. he's a retired NASA accountant with too much time on his hands). He's come to the conclusion that 90% of the time, there is minimal cost difference between leasing and buying a new car for the first five years. After five years, buying wins hands down. But, like I said, I don't know for sure.
I don't understand why your only options are a brand new vehicle that is, as you admit, too much car for you, and a lease for a base vehicle you don't really like.
Even people in fabulous financial positions should not be choosing either of those options.
There are more kinds of cars.
I'd find an older used model for $6k-$8k. Use the rest to pay down cc debt or put in the efund.
I claim absolutely no personal knowledge on this issue, BUT my FIL has run the numbers dozens of times calculating the cost difference between buying and leasing, including maintenance and residuals (yes, for fun. he's a retired NASA accountant with too much time on his hands). He's come to the conclusion that 90% of the time, there is minimal cost difference between leasing and buying a new car for the first five years. After five years, buying wins hands down. But, like I said, I don't know for sure.
The key assumption is that you will only keep a car for 5 years. The MM advice would be to drive it till the wheels fall off. Now there are other reasons someone might want a new car, but from a strictly financial standpoint keeping it for more than five years is the right answer.
Another typical recommendation is to buy a used car, but we just bought a new Forester and I know finding a good deal on a slightly used Forester is like looking for a needle in a hay stack.
I don't understand why your only options are a brand new vehicle that is, as you admit, too much car for you, and a lease for a base vehicle you don't really like.
Even people in fabulous financial positions should not be choosing either of those options.
There are more kinds of cars.
I'd find an older used model for $6k-$8k. Use the rest to pay down cc debt or put in the efund.
I guess it's because I'm stuck on the Subaru. We have some fucking gnarly weather here and of all the cars I've ever driven, my Subaru is far and away the safest. The base Impreza isn't a crappy car. In fact, they redesigned it so it's the same size and has more modern features (ie Bluetooth, navigation) than my legacy. The problem is no sunroof. I really love my sunroof.
We are looking at used Subarus now and they're just tough to find and they are not cheap. Something with 80k miles or even more is 12k. We could use all our cash and buy one and be in the same position as before the hail storm - a paid off car that's safe and reliable but isn't under warranty and could have major repairs at any time.
One article I read on lease vs buy said that in the long run, buying is cheaper. But if you are short on cash NOW, a lease might be better in the short term. I think that's where we are and I'm sort of surprised everyone disagrees - lol. I expected you all to say suck it up and forget the sunroof. There isn't much wiggle room in our budget, and we are not well prepared for big unexpected expenses. If I could pay off some debt, have some cash in the bank and free up $200 a month, all while driving a brand new car...I'm just not sure why that's such a bad idea.
I claim absolutely no personal knowledge on this issue, BUT my FIL has run the numbers dozens of times calculating the cost difference between buying and leasing, including maintenance and residuals (yes, for fun. he's a retired NASA accountant with too much time on his hands). He's come to the conclusion that 90% of the time, there is minimal cost difference between leasing and buying a new car for the first five years. After five years, buying wins hands down. But, like I said, I don't know for sure.
The key assumption is that you will only keep a car for 5 years. The MM advice would be to drive it till the wheels fall off. Now there are other reasons someone might want a new car, but from a strictly financial standpoint keeping it for more than five years is the right answer.
Another typical recommendation is to buy a used car, but we just bought a new Forester and I know finding a good deal on a slightly used Forester is like looking for a needle in a hay stack.
The only car I want to buy and drive until the wheels fall off is a forester, which is why we're considering it. I will need something bigger than the Impreza as the kids get bigger, and the forester is perfect. In like three years. Right now, I don't need it.
I don't understand why your only options are a brand new vehicle that is, as you admit, too much car for you, and a lease for a base vehicle you don't really like.
Even people in fabulous financial positions should not be choosing either of those options.
There are more kinds of cars.
I'd find an older used model for $6k-$8k. Use the rest to pay down cc debt or put in the efund.
I guess it's because I'm stuck on the Subaru. We have some fucking gnarly weather here and of all the cars I've ever driven, my Subaru is far and away the safest. The base Impreza isn't a crappy car. In fact, they redesigned it so it's the same size and has more modern features (ie Bluetooth, navigation) than my legacy. The problem is no sunroof. I really love my sunroof.
We are looking at used Subarus now and they're just tough to find and they are not cheap. Something with 80k miles or even more is 12k. We could use all our cash and buy one and be in the same position as before the hail storm - a paid off car that's safe and reliable but isn't under warranty and could have major repairs at any time.
One article I read on lease vs buy said that in the long run, buying is cheaper. But if you are short on cash NOW, a lease might be better in the short term. I think that's where we are and I'm sort of surprised everyone disagrees - lol. I expected you all to say suck it up and forget the sunroof. There isn't much wiggle room in our budget, and we are not well prepared for big unexpected expenses. If I could pay off some debt, have some cash in the bank and free up $200 a month, all while driving a brand new car...I'm just not sure why that's such a bad idea.
Because you are not. You are costing yourself extra money, shuffling debt, and losing money. What is that cash in the bank going to do? Everyone here has given you great advice, you just are not hearing it.
Leasing is not a value - you pay for the use of the car and at the end you have no value.
I think #4 option is the best for you. You come out with a car with a salvage title, no car payment, and $3k in the bank.