I’m 26. Make $60,000 pre-tax. A year ago I bought a brand new, fully loaded Mazda CX-5 for ~$30,000. At the time I told myself all the typical things to justify the purchase and thought it would be a good decision. Now, one year and 16,000 miles later, I really wish I hadn’t. While the steep car payment doesn’t completely cripple my budget, I know I can make better financial decisions and a 26 year old doesn’t need a $30,000 car. I don’t want a $427 car payment until I’m 30.
The loan is at 0% for 63 months, and I still owe $21,750. According to KBB, the car is worth ~$22,000.
What should I do? Here are the two options I see:
1) Suck it up, deal with the car payment, and drive the car until it dies.
I love this car and definitely would drive it for 8-10 more years. But it’s hard for me to justify paying $5,100 per year for the next 4 years. But it’s a new car that should last a very long time and holding on to it for as long as possible may be one solution to a poor financial decision.
2) Sell the car, buy a cheaper one, learn from my mistakes.
According to KBB, I’d break even on the sale vs. remaining principal. I’d be looking a $7,500 loss (down payment + loan payments to date) but I consider all of this in the past and just want to focus on what I can do to make the most out of this situation. I don’t have enough to make a cash purchase so I’m looking at another loan. No idea what used interest rates are now (~800 credit score) but I’d look to pay the car off within 24 months. I need an SUV for my lifestyle and I’m thinking about replacing the car with a 2006-2008 Toyota 4Runner in the $10,000 range. I had an older 4Runner before my CX-5 and have full confidence in Toyota reliability.
In one example of this scenario, I put in $3,000 towards the new car, finance $7,000 for 24 months. Let’s assume 4.5% My monthly payment is $306. I’d pay the car off much sooner and end up saving ~$8,500 between now and the date I’d pay off my current loan (after factoring in insurance cost for both vehicles).
The hard part of this scenario is dealing with an older car not having the creature comforts I’m used to with the CX-5 (rear view camera, heated seats, radar cruise control, active safety features, etc.) but I’m not sure these things are worth $8,500 to me.
For what it’s worth, here’s a full picture of my financial situation.
Savings
Savings: $2,000
Emergency Fund: $10,000
401k/Roth IRA: $15,500
Monthly Budget
Take-home pay of $3,400 per month.
Rent: $950
Utilities: $45
Car Payment: $427
Car Insurance: $88
Gas/EZ-Pass: $150
Groceries: $140
Internet: $20
Cell Phone: $50
Total Expenses: $1,870
Fun Money: $300
Roth IRA: $300
Savings: $900
TL;DR. 26 y/o and bought a very expensive car. It doesn’t kill my budget but I know it’s too much. How do I make the most out of a poor financial decision? Suck it up, pay it off, and drive it for another 8-10 years? Or sell it, cut my losses, and buy a cheaper vehicle?