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Background

My family is growing and I find my current car (a two-door GTI) inconvenient. I am in the market for a small, used SUV such as a Tiguan, CRV, or Equinox. I will be financing and plan to keep the purchase under $15,000. I currently have a horrible deal on my GTI, paying $320/mo at 8%.

I don't want to trade in the GTI. I would be upside down on it. Bad deal. Because of mods (uugh) and a major engine and steering restoration which likely won't be taken into account if I trade in.

Additionally, I recently closed on a mortgage refinance and have a decent credit score 700 - 715.

There are about 2 weeks left in December and I am seeing great deals all around.

Question

Which would be a better money move? My concern is in the order of things. Will refinancing first upset or help my new (used) car purchase?

  1. Refinance the car loan to reduce the interest charge. Then, purchase the SUV.
  2. Get a personal loan, pay off the car along with $1K of credit debt, then finance the SUV.
  3. Finance the SUV first.Payoff the current car loan and credit card debt second.

A final detail, my escrow balance will be paid out and could cover all credit card debt (or a good portion of the personal loan if I choose to go that route). In addition, I plan to be free of the current car (GTI), and credit debt using my tax return (in 4 months) regardless of which action I choose. Getting a good deal on the new purchase is most important...

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    Not really an answerable question. From a financial point of view? Pay it off (or refinance it or whatever then pay it off). But whether you can do that while managing your family needs? Rather your call, isn't it?
    – Joe
    Dec 20 '17 at 20:31
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    What would you do with the GTI after you buy a new car? Would it just sit unused until you owed less on it than it's worth?
    – Nosrac
    Dec 20 '17 at 20:39
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    I plan to use the GTI as my daily driver to and from work. I may sell down the line and use the public transit to and from work. I am honestly tired of driving in LA traffic. My wife would be the primary driver of the SUV. Though I think I may get what you were hinting at. Perhaps its a sunk cost?
    – dlz21
    Dec 20 '17 at 20:46
  • Don't forget that you still have to pay insurance and in some states personal property tax on it (don't know CA law) while you own it, making it worse than a sunk cost.
    – Joe
    Dec 20 '17 at 20:58
  • Do not buy another car yet. Switch to public transit now. Or walk/ride a bike if feasible. Let the wife drive the GTI. Pay down as much as you can until tax returns come in. Then eliminate both debts. Do not buy another car yet. Save money and research the minimum you need. Sounds like four doors and four wheels. Use the internet to find out the most reliable used sedans/hatchbacks. When the time comes, sell the GTI, take what you've saved, and buy a car you've identified as a well maintained car of a model with good reputation. Congrats, you got debt free and exited the rat race.
    – Xalorous
    Dec 20 '17 at 21:51
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You didn't say how much credit card debt you have, but here's the order I would take care of things:

  1. The credit cards (and stop using them altogether). Getting rid of those will give you much more flexibility for the next steps
  2. Pay off your car. Either sell it off in the open market for at least what you owe or work like mad to pay it off.
  3. Next (not "new") car - You can find a decent SUV much cheaper than $15K - it might have more miles or fewer features, but it will drastically improve your payment. Then save up for a "nicer" car. The monthly payment savings should more than make up for any additional maintenance on an older car.

Interest rate is probably not your biggest problem. Your biggest problem is cash flow. You are looking to add a fourth debt payment to your budget which is probably already tight. Get rid of the debts one at a time by focusing on the lowest balances (which I'm assuming is the credit card, or you're in a worse mess than I thought).

Getting a good deal on the new purchase is most important...

No it's not. Getting your finances in order is most important. Don't be impatient. There will still be plenty of "good deals" out there when the time is right. What seems like a good deal now will be like a rock around your neck when the monthly payment kicks in.

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    Agree. Patience will be key. I was so wrapped up on a quick solution and year end 'deals', I did not consider the full impact of the choices. Thanks!
    – dlz21
    Dec 20 '17 at 21:28
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    @dlz21 Agree, and keep in mind that putting up with the inconvenience will pay dividends (and reinforce a couple of lessons). You'll be so much better off if you pay off your car and any credit card debt, then save to buy a four door. Don't forget to look at sedans. SUV's are typically heavier than a similarly sized sedan. Golf, Civic and Cruze are similar in size to the SUV's you mention. If you aim at a 10 year old version, do your research, and shop patiently, you can get solid, reliable transportation for way less than 15k. And 0/month is better than all other payment plans.
    – Xalorous
    Dec 20 '17 at 21:40

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