Broke Down CarThis is another question that comes up more frequently that people might think.  “I am facing financial problems, so how does it make sense for me to go out and borrow more money or use what little savings I have on an old used car???”  Now…I said the question comes up frequently but the answer is what you would expect about 90%+ of the time — no, you should not buy a car!  Now let’s talk about the very few people who might consider the question just a little longer.

I am going to make three very important assumptions: One, you have an absolute need for a vehicle, as most of us do for work and daily life unless we live and work where public transportation is available and do not have kids to shuttle around several places every week.  Two, you do not own a reliable vehicle, or the expense of maintaining your current vehicle significantly exceeds its value, or the payments for your current vehicle are more than you can pay going forward.  In short, there is a realistic possibility that you will not have a running vehicle in the next year or two.  If you have basic transportation that gets you where you need to go every day, and probably will for the next few years with regular maintenance and a few repairs, then it is unlikely you need to consider buying another vehicle.  This is not a post about trading up to a nicer and newer car before a bankruptcy is filed.  The third and final assumption is that you have the financial means (down payment and monthly payments) to purchase a basic, reliable used vehicle that should last you several years with financing terms that are reasonable under the circumstances.  That rules out “buy here, pay here” car lots

Many people lease nice cars before finding themselves out of work, and they either cannot afford the high lease payments or the lease is ending.  Others buy that Mercedes or Range Rover while times are good. It is not uncommon for us to see monthly car payments of $1,000 or more for just one car.   On the other end of the spectrum are people who have been content with their 16 year old minivan with 245,000 miles even after the kids have left for college. It needs a new transmission that will cost more than the van is worth and it will still need ongoing maintenance and repairs just to keep it running.  I recently had married clients going into Bankruptcy because of significant business debt, and one of them drove an old truck with 350,000 miles.  It was not only used for personal transportation, but also for daily deliveries in their small business (sometimes pulling a trailer).  It was not going to last one or two years, much less the five years or so of their Bankruptcy, with multiple daily trips and significant annual mileage, without constant maintenance and repairs.

What do you buy?  Without turning this into a column on used car buying, it is certainly possible to get a good used car for under $10,000 and by shopping around you can find a reliable vehicle for less.  A 14-15 year old Honda or Toyota that has had regular maintenance may be a great deal for $5-6,000 and they can go for 300,000 miles or more.  Just make sure to get it checked out by an independent mechanic before buying! Sure, it won’t be pretty, have GPS, working heated seats, and so on, and it might not last ten years.  It will, however, get you where you need to go for the next five years.  When its time is up, you will be in a better position to purchase a little nicer vehicle.