Hi Money Minder,
So, my trusty old car has finally given up the ghost with over 200k miles on the clock. Time for an upgrade! I’ve got my eye on a few 2024 Toyota Corolla’s with low mileage for around 22-23k. I’m hoping to haggle them down to 20k or less. I’ve got about 7k saved up that I can put towards it and looking to borrow around $15,000 after all’s said and done.
I bring home 52k a year, pay $750 in rent, and have about 12k in savings (including the 7k for the car). Been stashing away $600-700 a month in a savings account for a while now, on top of my 401k contributions. Got 10k in student loans at 3.98% interest with no payments due for at least a year. Credit score’s in the 770s. My credit union’s offering me a 6.49% rate on a 60-month loan. Scary stuff to cut my savings in half for a car, but I’m willing to make it work to get something reliable.
Thoughts? I’d try to pay it off quicker if possible, but the interest rate’s the same up to 60 months. Any advice on whether this is a good move or not?
Thanks!
Driven and Ready to Roll
Response from THE MONEY MINDER:
Hello There,
I’m sorry to hear about your car trouble, but it sounds like you have a solid plan in place moving forward. It’s great that you’ve found a certified pre-owned car that fits your needs and budget. Given your income, expenses, and savings, purchasing a reliable vehicle like the Toyota Corolla seems like a practical choice.
With a credit score in the 770s, you should be able to secure a reasonable interest rate on a loan. While a 6.49% rate for a 60-month loan might seem high, if you plan to pay it off sooner, the total amount of interest paid could still be manageable. Since you mentioned that you aim to pay it off before the 60 months, this could work in your favor to reduce the overall interest paid.
It’s understandable that cutting your savings contributions in half may feel scary, but having a reliable car is a necessity. Remember that you can always adjust your budget and increase your savings contributions once the car loan is paid off. Additionally, it’s commendable that you’re looking into ways to rework your budget to accommodate the new car payment.
In conclusion, based on your financial situation and priorities, purchasing the Toyota Corolla with a loan seems like a practical decision. Just ensure that you stay on track with your budget adjustments and aim to pay off the loan as soon as possible to minimize interest payments. Good luck with your car purchase!
Farewell from THE MONEY MINDER.
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