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I want to replace my mother’s clunker and am considering financing a new one. My father died unexpectedly and I want her to hold onto what little savings she has. What would you do?
Taking Care of Mom
Dear Taking Care of Mom,
It is wonderful that you are helping your mom. Many widows feel vulnerable and alone. Unfortunately, they are often targets of scams or get ripped off when navigating unfamiliar financial choices, such as buying a car.
I understand your desire to see your mother in a safe vehicle. It would be helpful to know her age, but apart from that, answer a few questions before you decide that another vehicle is necessary. Is the clunker reliable? If so, is it safe? Does it have airbags, good tires, etc? How often does she drive? How much longer will she be driving? Are there better options for transportation available to her?
Our emotions can overrule logic. My dad bought my mom a new car in her later years. They always kept two new cars throughout their lives. Mom hardly ever drove but felt safer in a new model. When she passed earlier this year, she owned the car for two years and it had only 9,000 miles on the odometer. Dad ended up selling it to a family member at about an $8,000 loss.
Logic Overcomes the New Car Smell
As much as you want to help your mom, especially after a sudden loss, I would discourage buying a new vehicle.
I know how strong those emotions can be! When I open the door to a new car and breathe that new leather smell, my “want factor” jumps off the chart. The auto industry is extending loans to 72 or 84 months. The down payment may remain the same, but monthly payments drop and are a temptation for the most sober-minded buyer.
But, Oren Weintraub, president of AuthorityAuto.com, sees long car loan terms as a set up for a “vicious cycle of negative equity.” Dealers focus on selling you the monthly payment but the overall cost is ignored. Just because people qualify for a long-term loan doesn’t mean they should get one. In fact, the shorter the loan, the more quickly one can build equity in a car. Equity means someone could sell the car and have cash rather than owing money on it. Negative equity means if you sold the car it would not pay off the balance of the original note.
Facts About America’s Auto Loan Debt
- GenXers carry the highest loan balances (median close to $19,000) and are the most likely age group to have a car loan.
- 4.7% of auto debt is seriously delinquent (90 days or more).
- The average new car loan for Q1 was $32,187. The average monthly payment was $554, more than half the average U.S. mortgage payment.
- The average used car loan for Q1 was $20,137. The average monthly payment was $391.
- The average monthly payment on a new car lease was $457.
- 38% of new-car buyers in first quarter 2019 signed loans from 61-72 months, and 32% are signing for loans between 73 and 84 months.
- For used car purchases, 42% are taking 61- to 72-month loans, with 20% financing 73 to 84 months.
- People are “underwater” the moment they drive off the lot, meaning they owe more than the car is worth if they borrow to purchase it.
- Higher car loan interest rates add to the total cost of the car.
- Expect to pay for repairs and maintenance WHILE making loan payments on a 6- or 7-year old vehicle.
- Credit Unions offer better interest rates for borrowers with excellent credit.
My Personal Opinion
I do not want to drive something off the lot that immediately depreciates. That’s why I buy used vehicles and pay cash for what I can afford. This allows someone else to pay for the initial depreciation, and pass along the savings to me. The higher registration fees have been covered too, because they are based on a car’s value and model year. And, used cars can be much less expensive to insure.
However, used cars may not have a warranty, which is acceptable when buying a model with a good reputation. Many vehicles today won’t need repairs until driven well over 100,000 miles.
Since I’m typically short on time and don’t have the know-how or tools for repairs, I only buy dependable vehicles that hold their value. One-owners with service records are my favorite and I’ve bought several.
I use Carfax to learn about the vehicle (service history, accidents, flooding, hail damage, retitled etc). VIN numbers (vehicle identification number) reveal things like failed emissions tests, rolled back odometers, flooding, number of owners etc.
My preference is to know why the owner is selling so I don’t buy at auctions or cars that were acquired by the dealer at an auction. And, I value the opinion of a trusted quality mechanic before purchasing.
Only buy used cars with clean titles. Some insurance companies will not offer a policy for full coverage on a rebuilt title. And, future resale can be affected.
For more tips, check out these articles at Edmunds:
Your mom may need help managing her income and savings to ensure she will be adequately provided for in her remaining years. Your first priority is to help her budget whatever income and savings are available. Losing money on a new car, especially one that is financed, is a step in the wrong direction.
If at all possible, keep the clunker well maintained and running for as long as possible. Larry Burkett said: I drive a car till it turns to dust, then I sweep up the dust and ride on the dust.
We laugh at that, but if you discuss this logically with your Mom, you may discover that she wants to keep her clunker a little longer. In the meantime, you can save and find a reliable used car that can be purchased with cash.
Luke 14:28 says, For which one of you, when he wants to build a tower, does not first sit down and calculate the cost to see if he has enough to complete it?
Encourage your mother to establish an auto maintenance fund in her budget to cover routine maintenance and repairs. Regular service prevents the cost of major repairs and is helpful for resale.
I advise people to start a new car account while driving their current vehicle. Simply deposit monthly payments on a future car to avoid the expense of financing one in the future.
God bless you and your Mom. I hope you are able to give her helpful guidance with this input.