Ask the Readers: Should I Take Out a Loan to Buy a Car?

I would NOT get a car loan, especially in this case. When you don’t have much wiggle room in your budget to start with, a payment will make it MUCH, MUCH worse.

I would agree with you that she needs to get an extra job and save up. Work like crazy this summer, realizing it’s only short-term. But, the harder she works, the nicer of a car she’ll be able to afford for cash! Every time she’s tired, she should pull out a picture of a car that she would love!

She could even stop paying extra on her other debt to pile up for this car. The first step to getting out of debt is to never go into debt again.

I sure hope this helps!

She should also keep in mind that she may have $300.00 cash flow per month now, but after she gets the car that will decrease due to expenses such as insurance, gas, and maintenance for the vehicle she buys, as well as possibly tolls and parking pass while at school.

Without knowing the details of Alyssa’s course or job, I’m not making any assumptions. However, I’m going to throw this into the pot. University is almost always more work than you think – both in terms of time and energy. Have you really thought through whether staying at home is a better option than moving to Jacksonville (and staying in digs or sharing). Your tutors will not be sympathetic to you being late / missing class because of your job or your choice of home.
It sounds to me like you’re taking up a full-time course (I may be wrong). In this case, how important is it really for you to keep your current job.
What I’m suggesting is that, as well as working out the cost of a car, you work out the cost of moving, not needing a car, but maybe not being able to get such a good job close to college. Is there anything else you could do to supplement your income? Could you be eligible for any scholarships?
Don’t take this as criticism, I accept that there may be good other reasons for you not to move, but make sure you’ve considered the options.

With her current cashflow of $300 I just don’t see a loan as an easy answer. lostAnnfound mentioned the price of expenses, her cost of gas is going to go up dramatically with multiple weekly hour long drives. That expense adds up fast. I used to commute my car got 23 mpg and I moved closer because it was actually cheaper to live in the city then to take that drive. Of course at the time gas was at it’s peak.

Alyssa’s only feasible option is to get a second job and work extra hard. Not to mention having a second job will cut out her want to spend money on extra-curricular activities.

I got a second job as a server when I had a loan to fix my car, and banked over 2K in little time.

Sooner you get started Alyssa, the more money you’ll have!

She should check the car pooling options in her home town and at the University. If she can find someone even temporarily, it buys her more time to save.

In Quebec, Canada, we also have a system called communauto where you can pay a fee to have access to cars at a very low fee.

Also, she must not forget that buying a used car will probably cost her 1000$ / year in maintenance in both cases so if she buys the car then that’s 4 months of economy that will go out of the window. Add to this fuel for 6 hours a week (solution: carpool), insurance, registration, etc. and she does not have much money.

So, I would definitely look into car pooling. First with someone Else’s car, second with her car (used or new). Carpooling 3-4 persons in your car should pay for the fuel and maintenance.

good luck!

This may be controversial advice here, but I’ll give it anyway. I would just decide how much you are prepared to spend over 3 years, on transportation. Let’s say you accept $7000 as a reasonable budget for it: that’s all you can spend on the car (including the interest if you take a loan to pay for it). Any value left on the car after the 3 years is a bonus. If you are driving a lot I would consider a leasing contract so you can get out (with some penalties) if circumstances change . You need to think about the total cost of the car over the number of years you’ll use it. That is your figure.

J.D. is right about buckling down and saving during the summer and trying to get a second job to increase your cash flow for a car.

If it is at all possible, can you try and car pool to school from jacksonville, perhaps there are others that maybe taking classes where you live. It’s worth finding out, before strapping yourself into a loan or working a second job. Take a step back, think of other transportation options besides buying your own car. I am assuming you won’t try to find a job near your university because you are living at home and don’t have the on campus housing cost to deal with if you’re living at home.

If you have exhausted all options and have to buy a car, you should buy a car outright. You can definitely find a cheap reliable car on craigslist these days. A car loan with your previously repossessed car will make it tough for you to get a decent rate.

Get a second job over the summer, that plus the $1000 you already have saved will be enough for a used car. The risk is an cheaper used car often will have more maintenance costs, and you just killed any emergency fund you have (plus, 2 hours of driving a day is not cheap as far as gas prices go, that plus insurance will eat up most of the excess $300 you have a month). Really try to find more work over the summer, and also babysit or mow lawns or other positions you can do on the off hours. I would try to not spend that $1000 and make an extra $3000 over the summer for the car. You will probably never have to work like that again (hopefully!), so you should be able to get through one summer.

Also, try to cut expenses. If you are living in a town so far from the college, I assume it’s to be close to family? Maybe they would be willing to give you free rent if you keep up your grades and don’t screw up financially again.

I have a friend who had bad credit, and he got a car loan a few years ago (back when they were giving out credit like candy) and his interest rate was 15%, more than my credit card’s rate! Now that credit is tight, I would recommend against the loan since it will likely have an awful awful interest rate, if she can even get one, subprime loans are tougher to come by, especially at reputable places. I would never recommend this usually, but can you take out a student loan for living expenses (a common practice that is usually really dumb) to use towards the car, its interest will be lower. If you absolutely must must take out a loan, consider that first, as the itnerest rates are usually fixed, regardless of credit score.

She might look at mopeds if she is not scared of them. A car loan is out of the question with her current status. Always wear a helment!

With her low income I don’t see how it’s going to work. School is expensive and the commute (including car costs) will be expensive.

I think she should move to the place where she is going to school and look for a job there.

It seems like she is trying to change the wrong variable. A high speed Internet connection is a lot cheaper than a car, why not check out one of the online university programs? Lots of them only require one or two campus visits, which could be done with a borrowed car.

Agree w/mobtown (#21) to look into online courses OR w/the others who say that the OP should move closer to the school.

That will be a tough commute (esp. if her car is unrelaiable) and having to travel 2 hrs./day will limit the whole educational experience (getting involved in special projects/assignments, using the campus resources, etc.); the only thing she will be thinking about is when she can get on the road to avoid the rush-hour traffic.

If you can afford $700/mo. living expenses while living at home, you should look for a similar paying job near J’ville and find some roomies (or a family/house renting out a room if a roommate isn’t her thing).

Good luck!

With a repossession on her record in the past 3 years, she may only qualify for “pay on the lot” financing as high as 17% interest. I would avoid this type of car loan at all cost.

I would look to relatives, family and friends to see if anyone has a cheap beater that they don’t use sitting in the driveway. Set aside $100 a month for maintenance and deal with minor issues like possibly not having air conditioning, and she can probably find a neighbor or friend who has a car they are willing to sell for $1,000 or possibly even less.

After I hit a deer and “totaled” my car according to the insurance company, they “sold” the car back to us for $500. My brother bought the car from us and drove it for 3 more years. It ran fine, just had some body damage. My dad recently sold his 20 year old, 200k+ Toyota to a neighbor in need for $500. It still runs great, but the door leaks a little bit from an accident several years ago.

Moving to Jacksonville and getting a different job close to school is definitely the way to go. $12,000/yr is NOT a good job. You can make more than that with a regular babysitting gig, waiting tables, cleaning houses , weekend yard/landscaping work, painting houses, and many other low-barrier to entry part-time jobs.

And you can probably cut your living expenses if you had roommates. According to Craigslist, you can rent a room in a shared house/apt in Jacksonville for $200-500/month. Other expenses will be split with roommates as well, meaning Alyssa could almost certainly cut her monthly living expenses below her $700/mo costs right now.

Cars are generally financial liabilities, and any type of upkeep (new tires, mechanic costs, whatever) can easily spiral into a $1,000+ expense. She’d be able to pay down her debt and save more if she moved and shared an apartment.

Other people have brought up the added expense of gas, and when you crunch numbers, you are looking at an estimated $60/week in gas costs alone, assuming gas hovers at $3/gal. (driving around 120 miles per day, 4 days a week, in a car that gets 25 mpg)

That means if you were given a car tomorrow by the car fairy, you would already be on the edge with your monthly budget. It doesn’t appear that you would even have $$ for regular maintenance, let alone the sorts of unpredictable repairs that can plague older “beater” cars.

You don’t go into a lot of details about your current situation, but unless there is a very compelling reason (i.e. your current job is a good stepping stone for what you are studying to do) for remaining in your current town, it *does* seem like moving within walking distance to your studies and getting a job in that area is a much better solution in terms of your financial well-being than staying put and commuting via car. A $12K/year job seems very close to minimum wage, so it seems very likely, especially given a college employment office, that you can find a similar job in your new location. The only question would be housing, although quickly scanning Craigslist, it also seems like rooms are available in the Jacksonville area for similar costs to your present situation. That said, I can appreciate if there is an emotional component involved in staying put.

I have to agree with those recommending a move closer to school so a car is not necessary. I highly recommend the book, How to Live Well Without Owning a Car. It’s a real eye-opening on the real expenses associated with owning vehicles. Good luck!

Quit your job and move closer to campus. A one hour commute either way is a waste of time, add in wear and tear on a used cheap car, gas, time spent driving in lieu of studying or working.

You could do a work study program on campus and make 10k a year and do better than commuting 2 hrs three times a week and making 12k a year. Put on some rubber gloves and wash dishes in the school cafe if you need to or work at the campus libary shelving books until you find another job.

If you are going to buy a car (meaning you won’t be looking for a different job in Jacksonville or other arrangements), start looking around for cars being sold by private parties particularly on the outskirts of town. Second, find a friend that is a really good mechanic. This is equally as important as finding a good car because a good friend can help you do some of the maintenance and help keep the costs down. The first two cars I owned were mid-80′s Firebirds from 2001-2006. They were great cars because I could do most of the maintenance myself and I knew enough to understand what was necessary and what could wait. A good mechanic will know this as well.
When you find a few cars you are interested in, take your firend and drive them around to get a feel for what your getting for your money. If you’re dealing with an individual I would pay cash or see if you can work out a creative payment plan such as paying half up front, no payments for maybe 3 to 6 months, and then monthly payments after that of 10%+ of the original amount. With a private seller you have options.
Late 80′s American brands or 90′s Toyota’s or Honda’s are good choices. European cars can be good choices as well but can be more expensive to maintain. (Disclaimer: This is just my opinion. I have no data to support the European car claim.)
Good luck!

I think I agree with most of the people on here. Overall, vehicles cost a lot more than just the initial cost of the car. Adding in insurance, gas (driving 2 hours a day minimum!), and the cost of maintenance will eat up most or all of her extra money that she has per month. Getting a loan on top of that may get her the vehicle, but it would be really tight.

I agree with the general consensus. Taking out a loan would just be too much of a financial burden and there isn’t enough discretionary income left to put towards a car, no matter how cheap it will cost – maintenance will put strain on the wallet.

It feels like the best way to deal with this is to reduce the distance from home/work and school. That would probably include:

a) moving closer to school and probably quit the job.
b) moving equal distance between school and work and possibly take public transportation.
c) attend a school that is closer to home/work.

If none of the above options will work, then boosting income would be the only way to make it affordable to buy a car (without incurring debt).

I wouldn’t buy a car.

If you were accepted to a university an hour away, why are you driving back and forth from school to work? Why not move to where the school is and find a job (or find a job first, then move).

It seems silly to keep a job so you can afford a car so you can drive to school and work. If you just moved, there would be no need for the car and no need for the job anymore either. Then you could focus on your education and maximize your experience there.

I did the whole work/school thing and it affected my grades in a major way. Now that I have quit my job and am attending classes fulltime, my grades are great (currently a 3.9 GPA). Add in the 2 hours of drive time and I think you are probably spreading yourself very thin for things like homework and a life.

Find a job close to or on campus. Most universities have excellent work study options, especially for grad students (I’m assuming you’re doing a graduate program because you mentioned the first car was purchased in college.) If your current living situation was cheaper (or if you made GREAT money), it MIGHT make sense to buy a car and commute. But you don’t have any real financial advantage – 70% of your income is going to expenses! The time/energy/money you will spend to commute will far outweigh the inconvenience of relocating/job hunting.

This isn’t about a car – you’re about to go through a major life change (entering school) and you’re trying to keep everything else in your life static. That’s like new parents trying to keep up their social calendar right after their baby comes along. Sometimes you have to completely chuck the old way of doing things and develop a new plan of action to adapt to changing life circumstances.

The only things I’ll bring up are her rent and her job. It’s been a while since I was in school, but I lived in dorms, which amounted to a small cinder block box that ran me about $400/quarter (water, internet and electricity included). Yep, $400/quarter…you read it right.

Now let me say that it was indeed a slum in many senses, but I was in college and didn’t really care (it was actually pretty fun at the time), and saved me quite a bit of $$.

While her job’s back home, she’s honestly not making that much, and I think it’d be worth moving, getting a new job and lowering expenses while she’s in school.

I am sure I am going to get slammed for this one but it IS an option:

Use student loans to help finance a quality used car. I know financing any car is a bad idea but the interest is low and tax deductible. You don’t have to make payments until you are out of school.

I normally would not recommend this but I had to do something similar in college myself. I didn’t have enough to cover a car payment so I used a student loan. Yes I am paying for it now but I needed it for school and work. When push comes to shove you have to make do sometimes.

Doing this doesn’t change your current cash flow.

I agree with the others in saying move to Jax. the money saved on gas and time lost at work allows you to work more and spend less. Find roommates. I am sure the college can help with that. Find another job in Jax as well (easier as it is a much bigger city) and save for an emergency fund. Get a job near school if you can.

Once you have at least $2000 in that emergency fund for car repairs and other incidents you can consider putting money toward the student loan to pay off the car.

Remember: You can always go home for the weekends if you want. Doing it once a week is a lot cheaper than every day.

Foo

I bought my first car for $250 (in 1997 dollars). It was 12 years old, had no power anything (not even steering), no AC, and a four-speed manual transmission. I drove it from California to Florida to new York and back home. I flipped it on its side in a ditch and drove it home. It had 130k miles on it when I bought it and 180k when I finally got rid of it, by driving it to the junk yard under its own power.

I bought my current car in 2007 for about $26,000. It’s certainly more comfortable, but it really doesn’t get where it’s going much more effectively than my first car. If i only had $1000 to buy a car, I know what I’d do.