'I don’t have a support network to ask for help or information': My car broke down with full transmission failure. Should I withdraw from my 401K to get a reliable car on loan?

Hey Money Minder!

So, I’m 30, been contributing to my 401K for 4 years now. Got 21K saved up with 18900 vested.

Had to take out a loan in 2023 for $17,000 to get a car because credit went downhill during the pandemic. Car’s giving me trouble now with full transmission failure in 2024, and none of the warranties cover it. Repair’s gonna cost me $4,000-$7,000. The trade-in value is only $5000 if it’s in perfect shape, which is a big ‘if’.

Can’t trade in the car with a busted transmission as it won’t even start.

Living paycheck to paycheck, but expecting a raise in a few months with more money coming in.

Should I take out a few grand from my 401K to buy a $3000 car privately for reliable transport, then make up for it through increased contributions down the line?

If I do this, I’m thinking of putting in the cheapest part in my current car for $300-$800 and getting a $1000 repair at a small shop. Afterwards, I’ll trade in the fixed-up car and the cheap buy for a new loan on a reliable Japanese ride with a clean Carfax.

Sorry for the long post, Money Minder. I don’t have anyone else to turn to for advice.

Take care!

Response from THE MONEY MINDER:

"Hello There,"

I am sorry to hear about your current financial situation and the challenges you are facing with your car. It can be incredibly stressful to deal with unexpected car repairs, especially when you are living paycheck to paycheck. Given your circumstances, withdrawing money from your 401K might seem like a quick fix, but it’s important to consider the long-term consequences.

Before making any decisions, I would recommend exploring other options to address the car repair issue. One practical approach could be to get multiple quotes from reputable repair shops to compare costs and assess the best course of action. You may also want to consider seeking out alternative financing options, such as a personal loan or payment plan with the repair shop.

In terms of purchasing a lower-cost car, this could be a temporary solution to ensure you have reliable transportation while you work on repairing your current vehicle. However, I would caution against making any hasty decisions without carefully evaluating your budget and considering the impact on your long-term financial goals.

Additionally, increasing your contributions to your 401K in the future is a great idea to replenish any funds you may need to withdraw now. It’s important to have a plan in place to make up for any withdrawals to ensure you stay on track with your retirement savings.

Remember, financial challenges can be overwhelming, but there are resources available to help you navigate through them. Consider reaching out to a financial advisor or counselor for personalized guidance and support. Take care and all the best from THE MONEY MINDER.