Congratulations, Danielle! Babies always bring changes into our lives. Let's see
if we can't answer Danielle's questions and provide affordable transportation
for that growing family.
Would Danielle be better off selling the Outback herself? The simple answer is
yes. A dealer will need to make money on the Outback. So they'll pay a
'trade-in' value to Danielle that's lower than the retail price that they hope
to sell it for. According to Kelley Blue Book (kbb.com) a four year old Suburu
Outback Wagon on trade-in is valued at $8,735.
Danielle probably won't be able to get full retail ($13,720) if she sells it
herself. Kelley estimates the 'private party' price at $10,685. So she stands to
make about $2,000 if she sells it herself.
But, let's look beyond the numbers (by the way, these number are just an
example. Danielle will need to get the specific, current values for any car that
she buys or sells including all the optional equipment). She might still be
better off trading in her car. If her car is worth less than she owes, she might
need to roll the negative equity into her next car. That's not possible if you
sell your car yourself.
Selling it herself also means having strangers come to her home to look at the
car. And, when she sells it she'll need to make sure that she doesn't get stuck
with a bad check.
It's also possible that she might also be able to negotiate a better combined
deal if a trade-in is included.
Now, for question two: should they look for a car that offers rebates? No, they
should look for the best total deal that they can get. A deal that includes
rebates, but carries a higher interest rate might not be the best.
Owing more on the Suburu than it's worth is a problem. In effect, it means that
they're looking at a newer car and have a negative down payment! That's going to
make for higher payments for more years of payments.
The bottom line is that they'll need to figure out what their total cash outlay
is after all rebates and car payments are made. If it seems confusing, just
total the amount of all the checks that you'll write.
When is the best time for Danielle to go car shopping? She'll do a little better
at the very end of the month. And if she's willing to wait until the fall she
might get a deal on one of the last year's models on a dealer lot.
Is she better off with an SUV or a minivan? That really depends on how she'll be
using the vehicle. She'll need to compare specific models, but typically an SUV
will be better able to handle heavy loads and towing. She'll also find more four
wheel drive choices among SUVs.
But, if she's mostly carrying three tykes and some groceries, a minivan will
offer better gas mileage and easier access to baby seats.
It's a shame that Danielle needs four wheel drive. It's more expensive to buy,
maintain and operate. Many front wheel drive vehicles, like a minivan, are
excellent in snow and mud. There are also a lot of front wheel drive minivans
available. Being able to consider them would give her a lot more choices.
Seriously consider the gas mileage estimates. Danielle puts on a lot of miles.
And, she's likely to keep her new vehicle for a number of years. It wouldn't
hurt to estimate how much she'll spend for gas for different vehicles.
Financially, Danielle will be much better off with a used vehicle. She'll avoid
paying the big depreciation all over again. And, since she's bringing negative
equity to this deal she really can't afford another round of high depreciation.
Invoice on a new Ford Explorer is $25,115. A four year old Ford Explorer has a
Kelley 'Retail Value' of $13,235. With baby number three on the way, borrowing
an extra $12,000 for a new car is probably a luxury they can't afford. Deciding
on a used vehicle is the single biggest thing that they can do in this deal to
avoid financial pain later.
Hopefully Danielle will find a vehicle that has room for an extra car set and a
payment that fits within her budget.
Gary Foreman is a former financial planner and purchasing manager. He currently
edits The Dollar Stretcher.com
website. If you're looking to save time and money visit
TheDollarStretcher.com to find hundreds of time and money saving ideas.