I have a car loan out that is $10,000. It's actually a personal loan at 10% interest rate. The vehicle is about 10 years old and has 135,000 miles. The KBB value is around $4,000. It's having transmission problems. Without going into details too much, I've put alot of money into this car the last few years and basically it needs a new transmission. Here is the problem: I need a new vehicle, not brand new, but I'm looking to buy a used car. I need a dependable vehicle with AWD because of where I live. The vehicle is a must for work purposes. There are many options here, but I'm not sure what to do that makes the most financial sense. Please help!

I have $5k savings. I make $1,000 per two weeks. My expense are this loan at $350 and rent $500 for everything. No other bills besides gasoline ($200/month) and food ($100/month).

  • You should try and format this into a specific, and focused, question, otherwise it's likely to be closed as too opinion-based. There are a lot of variables that go into determining what makes the most financial sense, and you don't provide us with that information.
    – BobbyScon
    Commented Aug 29, 2016 at 16:04
  • 1
    $10k is the payoff
    – Roy
    Commented Aug 29, 2016 at 16:35
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    You aren't going to change the debt; you:re stuck with that. If you aren't going to fix this car, sell it. If you still need a vehicle, buy a used car you can afford, even if that means driving a $500 junker. There is no magic here; you chose to buy an expensive vehicle and to do so on credit, and that has costs which must be paid.
    – keshlam
    Commented Aug 29, 2016 at 18:29
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    Ask yourself if you really need All Wheel Drive. I live in Northeast Wisconsin, and although we get plenty of ice and snow, I've never had AWD, and have done fine without it. In my experience, most people that think they need AWD really don't.
    – Ben Miller
    Commented Aug 30, 2016 at 2:41
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    @benmilker: Absolutely. "All cars have four-wheel brakes." And most these days have traction control in their braking systems. AWD may help you get moving if you are stuck in mud or snow, but doesn't help much during actual driving.
    – keshlam
    Commented Aug 30, 2016 at 3:41

2 Answers 2


Let's assess the situation first, then look at an option:

  1. You make about $2,167/mo - I'm assuming this is take home, not pre-taxes (which may lead me to the danger of an assumption). If it's $1,000 every 2 weeks pre-taxes, then the numbers will be different.
  2. Car loan outstanding is $10,000 @ 10% paying back $350/mo - By my math that puts you with about 33 months of payments left until you're done.
  3. Housing costs are $500/mo
  4. Fuel is $200/mo
  5. Food is $100/mo

This leaves you with about $1,017/mo in cash flow, provided you spend money on nothing else (entertainment, oil changes, general merchandise, gifts, etc.) So I'd say take $200/mo off that as "backup" money. Now we're at $817/mo.

Question: What have you been doing with this extra $800/mo? If you put $600/mo of that extra towards the 10% loan, it would be paid off in 12 months and you would only pay $508 in interest. If you have been saving it (like all the wisest people say you should), then you should have plenty enough to either pay for a new transmission or buy a "good enough" car outright.

10% interest rate on a vehicle purchase is not very good. Not sure why you have a personal loan to handle this rather than an auto loan, but I'll guess you have a low credit score or not much credit history.

Cost of a new transmission is usually $1,700 - $3,500. Not sure what vehicle we're talking about, so let's make it $3,000 to be conservative.

At your current interest rate, you'll have paid another $1,450 in interest over the next 33 months just trying to pay off your underwater car.

If you take your old car to a dealership and trade it in towards a "new to you" car, you might be able to roll your existing loan into a new loan. Now, I'm not sure when you say personal loan if you mean an official loan from a bank or a personal loan from a friend/family-member, so that could make a difference. I'm also not sure if a dealership will be willing to recognize a personal loan in the transaction as I'd wager there's no lien against the vehicle for them to worry about. But, if you can manage it, you may be able to get a lower overall interest rate. If you can't roll it into a new financing plan, then you need to assess if you can afford a new loan (provided you even get approved) on top of your existing finances. One big issue that will affect interest rates and approvals will be your down payment amount. The higher it is, the better interest rate you'll receive.

Ultimately, you're in a not-so-great position, but if your monthly budget is as you describe, then you'll be fine after a few more years. The perils of buying a used car is that you never know what might happen. What if you don't repair your existing car, buy another car, and it breaks down in a year? It's all a bit of a gamble. Don't let your emotions get in the way of making a decision. You might be frustrated with your current vehicle, but if $3,000 of repairs makes it last 3 more years, (by which time your current loan should be paid off), then you'll be in a much better spot to finance a newer vehicle. Of course it would be much better to save up cash over that time and buy something outright, but that's not always feasible.

Would you rather fix up your current car and keep working to pay down the debt, or, would you rather be rid of the car and put $3,000 down on a "new to you" car and take on an additional monthly debt? There's no single right answer for you. First and foremost you need to assess your monthly cash flow and properly allocate the extra funds. Get out of debt as soon as reasonably possible.

  • For an auto loan, a higher down payment will not always lead to a lower interest rate. I bought a new vehicle and, after agreeing the final sale price, I discussed down payment options with the finance manager afterwards. They had some financing promotion going on that resulted in a lower interest rate (and lower total interest paid) that I could only take advantage of by paying a lower downpayment than I originally had in mind. WIth simple interest, though, a higher down payment WILL lead to lower monthly payments assuming the interest rate does not vary.
    – Eric
    Commented Aug 30, 2016 at 19:00
  • @Eric In such a situation, you could always ask if there are any prepayment penalties or anything like that. If there aren't, accept whatever offer gets you the lowest interest rate, then put the money you didn't put as down payment towards the loan immediately (or when you get the first bill). I was in a situation of needing to finance my current vehicle when I bought it, and one of the questions I very specifically asked was if there were any prepayment penalties attached to the loan. There weren't, and I paid off the loan about a year early (on a five year original term).
    – user
    Commented Dec 13, 2016 at 21:05
  • This is what I did, but it still gives you higher monthly payments than a larger up front down payment. Paying extra on the loan just pays it off faster.
    – Eric
    Commented Dec 13, 2016 at 21:08

Suggested way to make the decision to repair or buy: Figure out what it will cost to repair your car. (If necessary, pay a garage to evaluate it "as if your daughter was interested in buying it".) Then think about whether you would pay that much to buy a car just like yours but without those problems.

If the answer is yes, fixing it us probably your most cost-effective choice, even if it is a big bill.

If the answer is no, consider a used car, and again have the mechanic check it for any lurking horrors before committing to buy it. That avoids the "proprty-line tax" where a new car loses a significant percentage of its value the moment it leaves the dealership. An almost-toy car us virtually indistinguishable from a new car, costs much less, and realistically has about the same expected life span.

I bought a new car once -- at about $300 over the dealer's real (as opposed to sticker) cost, since I was willing to take the one he was stuck with from the previous model year. (Thank you, Consumer Reports, for providing the dealer's cost info and making this a five-minute transaction.) If it hadn't suffered flood damage I'd probably still be driving it, and even so I sorta regret not pricing what it would have cost go completely replace the engine. If you really plan to drive it until it is completely unrepairable, you may be able to justify a new car... But realistically buying a one- or two-year-old car would have been a better choice.

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