I recently bought a Volkswagen Golf after my Mitsubishi Eclipse was crushed by an inattentive teenager driver.  Thankfully, I was able to pay cash for it using my “sinking car fund.”

If I hadn’t had the cash on hand, I would have considered three options to finance the new car:  an auto loan, a home equity loan, or a home equity line of credit.

I compiled the rates offered for the three types of loans by four local banks, as listed in the table below.

Auto Loan

An auto loan is likely the most common way to finance the purchase of a new car.  It tends to have the highest rate, but if you don’t own a home, it might be your only option.  The good news about an auto loan is that there are usually no closing costs and the paperwork is straightforward.  The bad news is that the interest paid isn’t tax deductible.

Read the rest of this entry »

Tags: cars, financing a new car, home equity line of credit, home equity loan

In my last post, I described the problem with my 2002 Honda CRV.  The Check Engine Light (CEL) came on, and the mechanic wanted mucho dinero to fix it.  His estimate was almost half of the car’s trade-in value.  I decided to buy an OBD-II code reader and do a bit of investigation myself.  Here, then, is the rest of the story…

The diagnosis

The scanner found three codes on the CRV: P0430, P1166, and P1167.

My secret decoder ring tells me that the “P” means powertrain. The first number is either a “0″ or a “1″. Zero means it is a generic problem, and a one means it is specific to the model. My reader was no help in the Honda-specific codes, directing me to a telephone number.

I went, instead, to the web. There are several sites to help you understand the codes. I found obd-codes.com to be the most helpful. Or google “2002 Honda CRV P1166″ and you’ll find not only the problem code, but descriptions of how to repair it, and trouble spots that other DIY’ers found (and how to avoid them). By then end of a dozen clicks, I knew more about automotive emission systems than I ever though I would need to. Read the rest of this entry »

Tags: 2002 Honda CRV, car repair, OBD codes, oxygen sensor, P0430, P1166, P1167

Just when I thought I was done writing about cars, yet another vehicular issue arose.    After replacing our totaled Eclipse, we had to address the “Check Engine Light” on our other car, a Honda CRV.

The car:  2002 Honda CRV

It’s a 2002 Honda CRV with about 100,000 miles.  Trade-in value is about $6,000.  The Check Engine Light (CEL) came on back in November.  I took it to my mechanic, whom I’ve done business with for about three years. I’ve been pretty happy — he’s always seemed like an honest guy.  He told me it needed a new catalytic converter and oxygen sensor for a total of $2,200.  Gulp.

I told him I’d have to think about it.  He cautioned me that it wouldn’t pass emissions testing without the repairs.  Luckily, it’s not due for inspection until August, giving me nine months to figure out what to do.

Would you:

1. Put $2,200 into a seven year-old car?
2. Get another opinion?
3. Sell the car?
4. Diagnose the problem yourself?

The tool: Actron OBD-11 Code Reader

Opting for #4 might seem like do-it-yourself-brain-surgery, but it’s really not that bad.  Bring on the OBD-II code reader.  For about $50 you can buy a device that reads the same codes that the mechanic sees when he checks your engine, and ta-da! it can reset the engine light. Read the rest of this entry »

Tags: 2002 Honda CRV, car repair, OBD codes, oxygen sensor, P0430, P1166, P1167

I thought I had finished writing about my car crash and replacement, but I forgot to mention one important item.  Until the end of the year, the government will allow a deduction for the sales tax paid on the purchase of a new car. There are only two weeks left on the offer, so if you’re in the market for a new car, get going now.

The fine print

Uncle Sam allows you to deduct the sales and excise tax paid on up to $49,500 of a new car. It does not apply to used cars. They can be prior year model cars (e.g. a 2009 Subaru), but you must be the first owner.

The deduction is phased out for higher income people. Phase outs start at $125k and end at $135k for individuals. The limits are $250k-260k for joint filers.

The car must be purchased after Feb. 16, 2009 and before Jan. 1, 2010. Read the rest of this entry »

Tags: new car, sales tax deduction, tax deduction

This is the third and (hopefully) final post about my recent car crash and the financial aftermath.

After shopping around, we narrowed the field of contenders to just Volkswagens — either a Golf or a Jetta TDI.

The Jetta TDI was very fun to drive, especially the automatic.  I usually drive a manual transmission, but these days, the automatic transmissions get just as good (and sometimes better!) gas mileage.  And the Jetta manual has six gears.  That’s a lotta shifting.  I mean, it’s not like it’s a semi — it’s just a sedan.  Why on earth, does it need so many gears?

I prefer the Golf styling.  The Jetta is a garden-variety sedan.  I love being able to haul stuff around, so the Golf’s hatchback makes more sense for me.  The regular gas engine Golf is plenty fun to drive.  The Golf TDI version is currently only available in the two-door model, which made it a non-starter for my three-person family.

TDI:  Turbocharged Diesel Injection = Fahrvergnügen

Fahrvergnügen roughly translates to “driving pleasure,” and the TDI has it in spades.  Not only is the engine plenty peppy, but it gets 47 mpg* on the highway.  Wow!  Toyota’s Prius is only rated at 55 mpg.  Who knew that a diesel engine could be so efficient? Read the rest of this entry »

Tags: Advanced Lean-Burn Vehicle Rebates, climate change, CO2 emissions, diesel, greenhouse gas, Volkswagen

The bad news is that my car was rear-ended and totaled; the good news is that we got to go shoppin’.  I’m really not much of a shopper, but it was pretty fun to try out some new wheels.

Safety

My starting point for selecting a new car is its safety rating.  Both the Insurance Institute for Highway Safety (IIHS) and the National Highway Transportation Safety Administration (NHTSA) publish safety ratings for dozens of car models.  I have a slight preference for the government organization since they would seem to be more objective, but the IIHS publishes a convenient list of their favorites.  I don’t know if the car manufacturers can get on the list by flashing a little cash, but the IIHS choices seem to agree well with the government’s list.

The two organizations seem to have slightly different testing methods:  the IIHS bashes weights into the car, while the NHTSA drives the car into barriers.  Instrumented dummies inside the vehicle measure the actual impact of the crash.  The government wins for thoroughness. Read the rest of this entry »

Tags: collision insurance, new car, Subaru, used car, Volkswagen

This week my car was rear-ended while driving home from work.  True story.  Here’s what happened and the aftermath — financial and otherwise.

Crash!

After work I was driving home on RT-128 in Gloucester, MA.  There are two traffic circles.  I got through the first one and was waiting in line at the second, when I heard the squeal of brakes and almost immediately felt the impact from behind.

My car was pushed forward and into the vehicle in front of me.  The front impact triggered the airbags in my car to inflate.  The nose of my car became lodged under the bumper of the front car, dragging my car off to the side of the road as the front vehicle pulled out of traffic.

When my car came to a stop, I opened the door and just sat there, adenaline rushing — not in a good way — trying to get my bearings.

Read the rest of this entry »

Tags: car crash, collision insurance, comprehensive insurance

Joan wrote in asking: Can an 18-year old get a car loan?

Great question, Joan.

The initial hurdle is the legality of the loan.  Each state has laws about how old a person must be to enter into a contract.  I live in Massachusetts where the legal age is 18. You’ll have to check the laws in your particular state.

The second hurdle is the practicality of the loan.  Every loan company is (or at least should be) looking for your ability to pay off the loan.  You’ll need to prove that you have steady income that will enable you to pay off the loan.  In addition, you’ll need to pay for the other expenses that come with car ownership: sales tax, title and registration, inspection, insurance, gas, and maintenance.

It begins to make riding a bike or taking the bus sound like pretty good options.

You might want to approach car ownership by setting aside the amount of a car payment, say $300/month, until you have at least half of the amount of the car price.  Better yet, save up the entire amount and pay cash for the car.  You’ll have a lot more strength negotiating down the purchase price with a pile of cash on the table.  (Figuratively speaking, of course — never actually put a pile of cash on a table).

You should consider buying a used car.  New cars lose their value quickly, and used cars are much less expensive to insure. Choose one with a low theft rate, again to minimize the cost of insurance.

If the car dealer isn’t offering a good financing deal (they are these days, but it isn’t always the case), you can do better by bringing your own financing — that is, get a loan through your local bank or insurance company, they might have better rates.

Good luck, Joan, let me know if this answers your question.

Image credit: KaroliK at Flickr.

Tags: car buying, car financing

When you need a new car, how do you pay for it?

Most folks take out a loan and end up paying for years for the privilege of tooling around on new wheels.  But, hey you know you’re going to need a car eventually, right?  Why not start saving for it now, and when the day comes around you can either pay cash or at least reduce the amount you need to borrow.

Money set aside for a known future need (like a new roof on a house) is called a sinking fund.  Voila!  The sinking car fund.  Someday, when I live near water, I’ll have a sinking boat fund.

If you plan to buy a $50k BMW in 5 years, set aside $10k/year.  Put it in a savings account (not investment account), or at least in a safe investment-grade bond fund.  This is a relatively short time horizon, and the need for capital preservation is greater than the need for high return; otherwise, your BMW could turn into a Beetle (which is a cuter car IMHO).

You can finess the calculation by including the expected turn-in value of your current vehicle, the rate that cars are increasing in cost, and the expected rate of return on your savings account.  The important part is to start saving now, and minimize (or eliminate!) the amount you end up paying in interest.

Also, you are in a much better position to negotiate down the price if you’re offering cold hard cash.

Tags: buying new car, sinking car fund

In Massachusetts, excise tax paid on cars is deductible.  The registration fees paid to the state are not, but the excise tax paid to your town/city is.  The excise tax is $25 per $1000 of the car’s value, based upon the original MSRP and a factor that decreases with time:

• In the model year 90%
• In the second year 60%
• In the third year 40%
• In the fourth year 25%
• In the fifth and succeeding years 10%

Since the tax is based on the value of the car (and not the weight or other criteria), the Feds allow you to claim it it as personal property tax deduction on your Schedule A.

Tags: tax deduction