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Should We Pay Cash for a New Car?

February 20, 2023 By MelissaB 1 Comment

Should You Pay Cash for a New Car

My husband and I have had our Toyota Sienna for 18.5 years, and it has 240,000 miles. We plan to buy a car in the next year or so, and, for the first time in our lives, we’ve saved money for the purchase. However, we can’t decide if we should pay cash for a new car or take out a loan instead with the plan to pay it off quickly.

Reasons to Pay Cash for a New Car

We have three reasons why we want to pay cash for a new car:

Stick to the Budget

Paying cash helps us stick to the budget in two ways.

Maintain Our Monthly Budget

We have a monthly budget that is working for us. If we pay cash for our vehicle, we don’t have to rearrange the budget to determine where the money will come from to pay a monthly car loan. Our finances stay as they are, and all is well.

Maintain Our Car Budget

In addition, if we pay cash for a vehicle, we have a finite amount of money available. That’s it. If we go over that amount, we either have to take some money out of our emergency fund or get a car loan.

If we consider taking out a car loan instead, overspending is easier. We’ve been to several dealerships to look at cars, and we find it easy to think, “We should upgrade our budget a bit because we can get better options and safety features if we do.” If we use a car loan, we won’t feel the pain of paying a higher price as much. Sure, we’ll feel the pain when we have to make the monthly car payment, but we won’t feel it when we sign on the dotted line because the money is not immediately coming out of our account.

No Interest

Without a loan, we won’t have to pay interest on the vehicle. The car will only cost us what it takes to drive it off the lot. Every other time we’ve bought a car, we’ve had to pay hundreds to thousands more in interest over the life of the loan.

Save for the Next Car

Pay Cash for a Car?

Currently, we are setting aside $400 a month in our budget for a new car. If we don’t have a loan, we can continue to set aside that money every month for a replacement vehicle for my husband. (His car is 10 years old and has 115,000 miles on it, so we’ll need to replace it in five to ten years.) Without a loan for my car, we can save for and hopefully pay cash for my husband’s replacement vehicle, too.

Reasons to Finance

Even though we love the thought of paying cash for our new car, there are advantages to taking out a car loan, especially if we plan to pay off the loan quickly.

Builds or Maintains Credit Score

Our credit score is excellent, and we are debt free except for our house. If we take out a car loan, we will maintain our high credit score.

While this is an important factor for some people, but less of an issue for us. Even though we’re debt free, we use credit cards regularly and pay them off before they’re due, so we maintain our credit score. So, I don’t think having a car loan or not will make much difference to our credit score.

Doesn’t Deplete Emergency Fund

We have both an emergency fund and a new car fund, so the money for the car would come from the car fund.

However, our emergency fund isn’t as large as I would like it to be. (It currently covers 1.5 months of living expenses.)

If we took out a car loan for at least part of the price of the vehicle, we could add the cash we would have used for the car to increase our emergency fund. That is a tempting idea, especially in this time of high inflation. However, if we don’t need that money as the months go on, we could use it to continue to pay extra on our car loan and pay it down more quickly.

In addition, we have one child who is attending a community college. He has one more year there before he transfers to a university, which will cost more. So, having more cash set aside to help him with his college expenses is tempting.

May Get Dealer Incentives

Long gone are the days when cash was king at car dealerships. Now, dealers make money on the financing, so they prefer customers who finance.

If we’re willing to finance, we may get dealer incentives to sweeten the deal. Without financing, those incentives are likely off the table.

Paying Cash May Increase Our Chance of Being Audited

Pay Cash for a New Car

If we pay the dealer more than $10,000 in cash, the dealer must file Form 8300. The IRS needs to know if we’re spending a large amount of cash and how frequently. Paying cash once for a new car likely won’t trigger an audit, but it does add an extra layer to our tax filing the following year.

Taking out a loan and paying more than the required monthly payment to pay the vehicle loan off quickly may be a better solution.

Our Loan Requirements

We would not consider taking out a car loan if we can’t get an interest rate below four percent. Our credit union said they could offer us a loan at 3.5 percent interest. We haven’t yet asked what the dealer can offer.

Additionally, we wouldn’t take out a car loan for a term longer than 36 months as we don’t want to extend this out for years. Even with a three-year loan, we may try to pay it off in two years.

Final Thoughts

Should we pay cash for a new car? For years that has been our dream, but now we’re wondering if some of the money wouldn’t be better served increasing our emergency fund, especially during this period of high inflation.

Read More

Our Two Large Financial Goals for 2023

Why Buying a Toyota Sienna Was One of Our Best Decisions

How We Used the Proceeds from the Sale of Our House

MelissaB
MelissaB

Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.

www.momsplans.com/

Filed Under: Cars Tagged With: auto purchase, car loan, new car, paying cash

The Financial Benefits of Regular Car Maintenance

January 5, 2023 By Semify Leave a Comment

The financial benefits of regular car maintenance are often overlooked, but they can be significant. By taking care of your car, you can extend its lifespan, improve its performance, and save money on costly repairs down the road. Let’s take a look at some of the benefits.

The Reason for Maintenance

Each year, 3 million people are injured in car accidents on U.S. roads. While some accidents are simply unavoidable, regular maintenance can help to prevent many of them. For example, keeping your tires properly inflated and aligned can help to improve your car’s handling and stability, which can reduce the risk of accidents caused by loss of control. Similarly, regularly replacing your brakes and other safety-critical components can help to keep your car running smoothly and safely.

Financial Issues

In addition to the safety benefits, regular car maintenance can also save you money in the long run. For example, the U.S. Geological Survey estimates that about 40 million tons of road salt are used annually to de-ice roads in the winter. This salt can be corrosive and can cause rust and other damage to your car if it’s not removed regularly. By washing your car and waxing it, you can protect it from the damaging effects of road salt and other environmental contaminants.

Another financial benefit of regular car maintenance is that it can help you to identify and fix small problems before they become big ones. For example, if you notice that your car is consuming more oil than usual, it could be a sign of a problem with your engine. By taking your car in for maintenance, a mechanic can diagnose the problem and fix it before it causes more serious damage. This can save you a lot of money in the long run, as major repairs can be very expensive.

Find a Mechanic

There are more than 180,251 auto mechanics currently employed in the U.S., so it’s easy to find someone who can help you with your car maintenance needs. Whether you need to change your oil, replace your brakes, or fix a more serious problem, a skilled mechanic can get the job done. The cost of regular maintenance may seem like a burden at first, but it’s a small price to pay to keep your car running smoothly and safely.

Overall, the financial benefits of regular car maintenance are clear. By taking care of your car, you can extend its lifespan, improve its performance, and save money on costly repairs down the road. Whether you do the work yourself or hire a mechanic, the time and money you invest in regular maintenance will be well worth it.

Other Considerations

Another financial benefit of regular car maintenance is the resale value of your vehicle. When you take good care of your car, it is more likely to be in good condition when you go to sell it. This can increase the price that you are able to get for it, which can be a significant financial benefit.

Additionally, regular car maintenance can improve the fuel efficiency of your vehicle. When your car is running smoothly, it will use less fuel, which can save you money on gas. This is especially important given the rising cost of fuel. By investing in regular maintenance, you can help to keep your fuel costs low and save money over time.

One way to save money on car maintenance is to do some of the work yourself. There are many simple maintenance tasks that you can do on your own, such as changing the oil and replacing the air filter. By taking on these tasks yourself, you can save money on labor costs. However, it’s important to be careful and make sure that you are following proper procedures to avoid causing any damage to your car.

Filed Under: Cars

5 Ways Maintaining Your Car Saves You Money

November 15, 2022 By Semify Leave a Comment

Maintaining your car is one of the easiest ways to save money for those that are strapped for cash. While you might think car maintenance is an unnecessary expense, this couldn’t be farther from the truth. Below are some of the best ways maintaining your car can help you save money in the long run.

1. Avoid Costly Medical Expenses

There were more than 138,000 car crash injuries due to hit-and-run drivers last year. Sadly, you can’t prevent accidents from other drivers. However, you can take measures to keep yourself as safe as possible while driving.

Wearing a seatbelt is one of the most effective ways to reduce injuries and fatalities in car accidents. In addition, maintaining your car to keep it in good working order can help you avoid accidents caused by mechanical failures.

You should also take care to drive defensively and be aware of your surroundings at all times. By taking these precautions, you can minimize your risk of getting into an accident.

2. Avoid At-Fault Accidents

If your brake pads are less than 1/4 inch thick, it’s a sign that your brake pads need to be replaced. Unfortunately, many people wait until their brake pads are completely worn out before they replace them.

This is a bad idea for several reasons. First, driving with worn-out brake pads is dangerous. Second, if you get into an accident while your brake pads are in poor condition, you may be held liable. Third, replacing your brake pads regularly can save you money in the long run. This is because you’ll avoid costly repairs that may be needed if you wait until your brake pads are completely worn out.

3. Prevent Engine Failure

You might not think that something as simple as an oil change can save you money, but it can. Getting regular oil changes is one of the best ways to ensure your car remains durable and ready for the road. In the U.S., 4 out of 5 auto repairs performed on cars are related to the vehicle’s durability. Because of this, it’s crucial to maintain your car to extend its lifespan. One of the best ways to do this is by getting regular oil changes.

While you might be tempted to put off getting an oil change, doing so can actually end up costing you more money in the long run. This is because not changing your oil regularly can lead to engine damage, which is expensive to repair. In addition, getting regular oil changes can help you avoid other costly repairs. This is because oil changes can help prevent buildup in your engine, which can lead to clogs and other problems.

4. Help Prevent Flat Tires

Flat tires are a nuisance, and they can be expensive to fix. Fortunately, there are several things you can do to help prevent flat tires. One of the best things you can do is to check your tire pressure regularly. You should also have your tires rotated every 5,000 miles. This helps ensure that your tires wear evenly, which can help prevent flats.

You should also inspect your tires regularly for signs of damage. If you see any cracks or punctures, it’s important to get them repaired as soon as possible. Ignoring damage to your tires can lead to flats and blowouts, which are both dangerous and expensive to fix.

5. Avoid Expensive Towing Fees

If your car breaks down, you may have to pay for a tow truck to take it to a mechanical garage. Towing fees can be expensive, and they vary depending on the distance you need to be towed.

Another way to avoid expensive towing fees is to have your car serviced regularly. This helps ensure that any potential problems are caught early before they become serious enough to require a tow.

Use these tips to save money by maintaining your car. Taking care of your car can help you avoid expensive repairs, and it can also keep you safe on the road.

Filed Under: Cars

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