Big Enough For Baby

By: Gary Foreman

We're expecting our third child in July and will need to purchase a new car as our current one (4 year old Subaru Outback wagon) does not have adequate space for 3 car seats. We've got a couple of questions about this impending big-ticket purchase - (1) Are we better off to try and sell our current car outright rather than trade? (2) We know how much cars depreciate as soon as you drive them off the lot, but as we still have a fair amount left on our current car loan (and worry about not getting enough in trade due to having 84K miles), would we be wise to look at new cars that have rebates that can help mitigate a negative loan balance after trade? (3) Is there a best time to purchase a new and/or used vehicle? and (4) Which is a better bet: a minivan with All Wheel Drive or an SUV with a 3rd row seat? We live in a rural area that gets lots of snow and would need one or the other.

Thanks so much!

- Danielle T. in Vermont

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 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 website. If you're looking to save time and money visit to find hundreds of time and money saving ideas.

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