Car loans are something that I hope never cross our household again.
We had one briefly a few years ago at a teaser rate and paid it off fast. It was a sad day for our credit union when we paid it off, but a very happy day for us. It was $200 per paycheck that we could allocate to other things.
Our two vehicles have been hanging on really well: my 2004 Corolla and my wife's 2005 Sienna. They're a bit rough around the edges now, but otherwise quite reliable, with nearly 300,000 miles between them.
Three cars may be in our future for a bit
We had three vehicles at one point between my wife and I. (It wasn't worth it.)
However, our daughter is less than a month away from being old enough to get her driver's permit. (When did she grow up?!)
So, as my wife and I went around the subdivision to get our steps in, we began talking about a vehicle for our daughter.
There are lots of financial parameters to consider, of course:
- Does she need one at all? (I'm currently in the minority with my opinion.)
- What is the budget for the third vehicle?
- Does she inherit my vehicle, or do we look for another?
- What is the cost split between us (my wife and me) and her for acquiring the vehicle?
- What is the cost split for its maintenance, gas, and insurance?
- What financing terms or other arrangements for payment will there be?
Overall, we want to do what's right financially, as well as parentally.
A car loan (without the credit check)
A few years ago, one of my colleagues found a balance between the financial part and the parenting part with getting another vehicle.
This was the arrangement:
- My colleague “sold” his current cars to his daughter at a very reasonable price. (I want to say it was half book value. Let's say $1,500.) He got another (newer) vehicle.
- There was a payment plan of $50/month for the vehicle. No interest, and no prepayment penalty.
- The $50/month was more than she could make “doing chores for Mom” as he put it. (Translation: She needed to get a job.)
- If the $50 wasn't paid, the car would be “repossessed” until the account was current.
Now I understand that this kind of arrangement implies a fair embarrassment of riches and something that not everyone can afford.
But as it is, this deal has some of the qualities of a car loan, without the real-world consequences of the loan like:
- A credit check
- Interest
- Co-signing
- Default and repossession
- Ruined credit should things go bad
Other considerations
On the parenting spectrum of “spoiling the child rotten” to “fend for yourself, kid,” it's somewhere in the middle.
There are of course other ways to do it, like the method Dave Ramsey recommends.
I'm not convinced she needs her own car, but that's (literally) just me at the moment. (Part of that is likely because I didn't have my own car until I was in my mid-twenties. That's neither good nor bad, just what it was.)
There are other considerations. (There always are.) The main one is my wife's well being.
Our daughter is a year-round swimmer, which means lots of practices and a few meets. My wife has been the one that taxis her to and from all of these. (I've done it only a handful of times. Really.)
Having the third car (and a third driver) would free up my wife from doing this all the time. So, the third car would almost be as much for my wife as it would be for my daughter.
So the thing I have to wrestle with for myself is how much of my reluctance to get a third car is just postponing having my daughter grow up and take on some responsibilities for herself.
To be continued …
This is all speculation at the moment, because our daughter has yet to get her learner's permit. But I intend to update or write again when things get real.
