Monday, December 26, 2005

There's Something New in the Garage

And it's a 2006 Honda Accord LX / SE.

Which means, of course, that there's something new in my financial portfolio, and that would be DEBT.

I can no longer revel in the fact that I am debt-free except for my home. That situation is a goner. I don't like it, because over the last year, with having no payments other than the mortgage, I've seen how nice debt-freedom can be.

I have grown to really, really despise debt.

I absolutely expect my readers to drill me on what I've just done. After spending all this time — years now — harping on our debt-laden society and how people get buried in it so easily, you'd think that I would run screaming from the thought of financing our next vehicle. And a new vehicle, at that? Egads. Have I cratered to blatant consumerism? Have I lost my financial marbles?


But after much hand-wringing and consideration, I came to a conclusion: I really, really value having a dependable car whose repair, maintenance, and ownership history I can absolutely validate. I had that with our now-demolished 1995 Accord ... and I have it again with our new one. The price for that sort of quality and assurance, of course, is high.

The Process
Working in the car business, I have some connections. So when my dealership's general manager is (1) a great friend of mine, and (2) a good friend of a nearby Honda dealership's general manager, I like to put those connections to use. Thanks again, Robert, for making that phone call on my behalf. I think it made my buying experience much easier ... and a little less expensive.

We test drove a 2005 Accord with 24k miles, a 2005 Camry with 38k miles, and then a 2006 Accord (the one we ended up purchasing). Big surprise here: We liked the '06 Accord much better than the others. Better aesthetically, better functionally, better mileage- and previous-usage-wise (duh), and just plain better overall.

What we didn't like so much, of course, was the price (and I'm not just talking about the sticker). There's depreciation, insurance, TTL, and so on . . ..

Dork that I am, I took my laptop to the dealership with me, and I put it to use. I'd already scoured my Quicken data and my Excel spending plans from the past six months. After plugging in worst-case income scenarios, I knew that if we were going to take on any monthly payments, they would have to be less than $400. (That's after considering the increased insurance costs. I'd pegged this at around $70 per month; in actuality, it's closer to $50.)

If I was buying used, I promised myself that I wouldn't pay more than $20k. If new, not more than $22k. Under no circumstances would I buy a black or dark-blue car, nor one with a sunroof, nor one that had shown any signs of being involved in a wreck.

I knew going in that I wasn't going to consider any of the usual F&I office offerings (gap coverage, TheftGuard, exterior and interior protection packages, and on and on) with the exception of perhaps an extended warranty. And in that case, the extended warranty would have to be from a company I deal with daily (given my job, there are several) and it would have to be sold to me at a price matching what I could get from my own workplace (roughly cost plus a hundred bucks).

Anyhow, once we had decided that the new Accord was what we wanted, I fired up my Excel spreadsheets (well, mostly this one,) to look and experiment with ranges of payments and total prices. I also used via wireless network to make sure the prices were on target.

And so, Dear Readers, here's how the deal went down:

— Vehicle Sticker Price: $22,075
— Agreed-Upon Sale Price: $20,978
— Doc Fee: $149 (a rip-off, I know, but I'd pay it at my dealership, too)
— Extended Warranty: $821
... ... ... TOTAL: $21,948

From there, we made a down payment of $4,000. We financed for 60 months at 4.5%. Payments will be roughly $334 per month. Whatever proceeds we get from our 1995 Honda (insurance settlement) will immediately go toward the auto loan for the '06. The tag / tax / license for the Accord will actually cost a shade below $1,000, rather than the $1,600 that the "True Cost to Own" chart shows.

Keep in mind: I still despise debt. I will be keeping track of my accelerated debt paydown on this blog. (Check the right-side column, third item down.)

And yes, I know that 60-month financing is ridiculous. If you have to finance a car for 60 months in order to buy it, then you can't afford that car. However, if you think I'll be taking 60 months to pay off this loan, you're downright nuts. My goal is a 3-year term. That would require ~$534 monthly payments from here, and that's if I don't put any insurance proceeds toward the loan. Remember — the spending-plan projections that guided me to a $400 maximum monthly payment amount were based on worst-case scenarios. If you'd like to look at the payment breakdown I based my decision on, it's right here.

Initially I declined the extended warranty (72 month / 60k miles). This is a Honda, after all, and the likelihood of bigtime repairs — or enough to overcome the cost of the warranty — is not much. However, I purchased the extended warranty only after they offered it to me at $1 above their cost. (Actually, it was $11 above their cost, according to my dealership's F&I manager; regardless, it was cheaper than I could have paid for it at my own dealership.) And should I need to use the extended warranty, I can have the repairs done at my own dealership, since the warranty company is the same one we use (and the one I most prefer).

Tell Us Again Why You Didn't Buy Used?
Test drives told us we preferred the Accord over the Camry. The used Accords that the Honda dealer had on its lot were not acceptable to us. My dealership's auto group has 4 used Accords in stock, and none of them were of acceptable condition. So if I were to go the "used" route, I had three options:

1) Start hitting all the local dealers to see what inventory they had, and, by extension, haggle with them over price and everything else. This was about as unenticing an option as I could possibly imagine.

2) Purchase a used Accord via online auction through my dealership. I could likely have gotten a good price this way. However, I'd be buying largely sight-unseen. Given the infrequency of "good" auctions in this part of the country, and also the relative infrequency of low-mileage, non-damaged Accords at these auctions, it could also take a month or more to acquire a suitable car.

3) Purchase a used Accord from an individual. I've never done this before. And I just don't know how comfortable I'd be doing it. I don't know how comfortable my wife would be doing it. Honestly, it was never really an option for us. (As mentioned in my insurance-related posts, searches at didn't turn up much in the way of suitable Accords, anyway. Around here, the only ones for sale seem to be high-mileaged, and — dare I say it — teenagered-out.)

In Conclusion
I'm in debt again. That much is fact. I went and did something I used to think I'd never do — I bought a brand new car.

Both of us really like the car. Of course we do, right? We picked it out.

We have a reliable car once again. That is important to us.

Now it's my duty to drive and keep the car in great shape for the next 10+ years, pay the thing off as quickly as possible, and mitigate the financial damage.

Posts In This Series
How Quickly It All Changes, Part 1
How Quickly It All Changes, Part 2
And Now We Wait ... Some More
There's Something New In the Garage
How Quickly It All Changes, Part 3
How Quickly It All Changes, Part 4

— Posted by Michael @ 3:33 PM


You kind of had your back up against the wall. And based on the circumstances, I think that you took every step needed to insure that you do the right thing the right way. Enjoy the new car though! Just because it's a source of debt doesn't mean it's pure evil. :) Might you not have recieved a better rate if you had gone with a 48 month lease? Or would that have put you above $400?


If you keep a car 10 years the assurance of having a car that works and wasn't in some lemon pile waiting to get sold outweighs it's "high" cost. I am 45 and have had 2 cars I bought both new and ran until they were no longer reliable. I've never made more than $30,000 a year and have no debt at all. While the last 2 cars I did finance I will be able to buy my next "new" car outright. If you are not comfortable with used cars do not listen to the tidal wave of people who buy used cars. Unless you get it from grandma:) And you know she hasn't rolled it!


Congrats on the purchase and enjoy that "smell" Michael!

Under the circumstances, you did the right thing, esp. since you take care of your cars and utilize them for a decade (or more!) Hold it for 13 and your daughter can drive it to high school and then college!!

Enjoy the Honda--and don't worry about the debt. It's the "good" kind, right? Remember, some "Millionaires Next Door" buy new, too, and still become millionaires!

Would you consider flipping part or all of the debt onto a home equity line? At least it's another deduction...

Tell Dave that "leasing" is a bad, bad word!

Happy New Year!

P.S. How did the meeting with the insurance adjuster go? Just wondering...


I've thought about the home-equity-line thing. Still thinking about it, in fact.

In general I'm not big on using one's home as collateral for other stuff. But we'll see.



I added a link to a chart to my post showing what the payments would have been at different terms. The 48-month loan would have required payments larger than $400. Not much larger, but I felt I needed to stick to my plan.


Congrats on the purchase. In the end, analysis and all, you do what you feel is right. I think education coupled with lots of thinking, and in your case plenty of experience, allows you to bend what some would say is an "unbendable" rule.

No need to purchase that 'New Car' tree-hanging-from-the-rear-view-mirror thingy anymore either. Did you include that in your analysis? ;)


I don't blame you a bit for buying the Honda new.
When I bought my new car - I searched all over the place for a used car because I thought it was smarter. I couldn't find what I wanted with low miles and a good price, so we bought new. Then we paid it off in 8-9 months.
It seems like the best deals for used cars (money-wise, not reliability or safety necessarily) happen when you don't have a particular car in mind. I only buy foreign cars - it's hard to find a good foreign car that hasn't already got 50-100k miles on it.
I check the value of my car periodically, and since I bought in in summer of '04, it has only gone down in value a couple of hundred dollars. I've got a VW Jetta TDI, THOSE are hard to find used, I get 45-48 mpg. I've noticed the same with Hondas - they just don't depreciate all that fast, and people tend to keep them longer too.


I have been sitting here reading your blogs all day... they are very interesting. I am just kind of disappointed that I can't read "Part 4". It says that it can't be found on the server :(.

Anonymous Anonymous
, at 1:11 PM, January 27, 2006  

Sorry 'bout that. Had a bad hyperlink. Think it's fixed now, though!


Interesting on your numbers. I like them a lot. Found you from LLNOE. Did you consider using a 0% BT from a CC? I'd prefer something like that to finance my car or put it on a CC then transfer the balance. Keep doing it for a year or two until you pay it off.

I wasn't a fan of 0% BT until recently.


Congrats on your ride.
A new car is nice but best bang for buck would have been a used private owner car. Hondas are overrated in perceived quality.
You sound smart so in this case I'm sure you will beat the market.


Bravo! I crashed the best car I ever had a few years back.I tried the "reliable used" route and got an '01 Chevy Prizm($5000). Blew the engine. Got a '96 Saturn($3500)... Blew that engine! Now I'm happy with my 2007 Saturn Ion($20000), but I feel really stupid for not having bought new in the first place.This of course goes against all things Dave Ramsey, but he doesn't commute 80 miles round trip every day six days a week like I do. Thank you so much. I thought I was the only one and boy did I beat myself up for nothin'.

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]