To buy a car, should I use my emergency fund?


Q. I’m thinking of getting a new car. I could pay cash — about $40,000 after the trade-in — but then I won’t have an emergency fund. The other option is taking a loan, but I know rates are higher. What’s the best choice?
— Driver

A. Getting a new car is exciting.

But it is also a big financial decision that can impact many areas of your money life.

You shouldn’t use your emergency fund unless it’s an emergency, said Matt Rembish, a certified financial planner with JFL Total Wealth Management in Boonton.

He said your emergency fund should be used for any unplanned expenses like car repairs, home repairs, medical bills or a job loss.

Emergency funds should consist of three to six months of expenses, he said, and you should be sure to take advantage of the higher interest rates that are available these days.

“It sounds like this isn’t an immediate need, so you have some time to put money away for the down payment and not drain your emergency fund,” Rembish said.

“Interest rates are higher, but it all comes down to how much of a monthly payment you can afford,” he said. “If the payment is too high- you can look at cheaper vehicles — used or certified pre-owned — wait and save for a larger down payment, or wait for interest rates to adjust.”

Rembish said if you used your emergency fund on the car, then whatever you would save on the monthly payment would have to go directly towards building that up again.

“If an unplanned emergency happened during that time, you wouldn’t have that nest egg to fall back on,” he said.

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This story was originally published on Oct. 31, 2023. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.