Car question (not stupid I promise)

[Patelkai]

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hear me out:

DO 4th year
60k student loans as of end of MS3 (45k from Med school living expenses) (other 15k from undergrad - all subsidized so no interest has accrued on it)
I’ve been able to live off of an average 15k/year (I live in the midwest) through out Med school.
This year, I plan on taking the full ~35k in loans offered since I don’t know what to expect during interview season and moving expenses for residency.

Now, I need a new car for residency. Current one is dead. I paid cash for it so I have no experience with financing or leases. Even though residency apps and travel is expensive, I don’t anticipate spending 35k this year. I expect to have 10k left or so, in addition, I can still take out an additional 10k for this school year. Essentially I can have up to 45k during MS4 year.

The question is should I use the excess ~20k on the purchase of my car? Rather than taking out another loan with a bank or car company? Yes my loans will have an average of 6% but I am refinancing my loans next year with hopefully an interest of ~3%. Credit score is 775. No credit card. No other loans, debts etc. Single, no kids.

I would be graduating with ~100k in debt which I plan on starting to pay off in residency. Is it better to have my loans coming from one place rather than dealing with the stress of car financing and etc. Plus will the car be cheaper paying cash?
I know this question is common but given my plan to refinance, would it really make a significant difference whether I take out a car loan or use the cash from my final year? Also arent student loans more flexible in payments (10 -20 yr repayment plans) vs a standard car loan (over 5-6 years)? I see it as if I’ll be paying back about your the same amount but over a longer period of time which will be more manageable as a resident.

 

[watermelon master]

hear me out:

DO 4th year
60k student loans as of end of MS3 (45k from Med school living expenses) (other 15k from undergrad - all subsidized so no interest has accrued on it)
I’ve been able to live off of an average 15k/year (I live in the midwest) through out Med school.
This year, I plan on taking the full ~35k in loans offered since I don’t know what to expect during interview season and moving expenses for residency.

Now, I need a new car for residency. Current one is dead. I paid cash for it so I have no experience with financing or leases. Even though residency apps and travel is expensive, I don’t anticipate spending 35k this year. I expect to have 10k left or so, in addition, I can still take out an additional 10k for this school year. Essentially I can have up to 45k during MS4 year.

The question is should I use the excess ~20k on the purchase of my car? Rather than taking out another loan with a bank or car company? Yes my loans will have an average of 6% but I am refinancing my loans next year with hopefully an interest of ~3%. Credit score is 775. No credit card. No other loans, debts etc. Single, no kids.

I would be graduating with ~100k in debt which I plan on starting to pay off in residency. Is it better to have my loans coming from one place rather than dealing with the stress of car financing and etc. Plus will the car be cheaper paying cash?
I know this question is common but given my plan to refinance, would it really make a significant difference whether I take out a car loan or use the cash from my final year? Also arent student loans more flexible in payments (10 -20 yr repayment plans) vs a standard car loan (over 5-6 years)? I see it as if I’ll be paying back about your the same amount but over a longer period of time which will be more manageable as a resident.

Try the white coat investor forums.

 

[Patelkai]

Try the white coat investor forums.

I’ve looked at that forum but hoping to find someone with some sort of personal experience. In case there are details that I am unaware of that will complicate my idea.

 

[SpartanWolverine]

I would take out a car loan instead of using your student loan 'cash'. Not sure how you have a credit score of 775 with no credit card and no other loans (no real credit history?)? Car financing is not inherently stressful and I don't think you get any better of a price for using your loans as a 'cash' purchase. Possibly a little but that 'cash' price comes with your student loan 6%/year. You should be able to get a car loan in the 2-3% range.

Personally got a really solid car for residency for 10k. Financed the majority at 2.2% for 36 months -- about $200/month for three years and then own it outright for the last half of my residency/fellowship. A pretty minimal monthly burden.

 

[Patelkai]

I would take out a car loan instead of using your student loan 'cash'. Not sure how you have a credit score of 775 with no credit card and no other loans (no real credit history?)? Car financing is not inherently stressful and I don't think you get any better of a price for using your loans as a 'cash' purchase. Possibly a little but that 'cash' price comes with your student loan 6%/year. You should be able to get a car loan in the 2-3% range.

Personally got a really solid car for residency for 10k. Financed the majority at 2.2% for 36 months -- about $200/month for three years and then own it outright for the last half of my residency/fellowship. A pretty minimal monthly burden.

Thanks for your input. Sorry I meant to put no credit card debt. I have only one card that I opened at 18 that I use only a couple times a year just to maintain my credit. I pay off the balance as soon as I make my rare purchases.
But if I Factor in the refinancing wouldn’t my student loans be much less than 6%?
Also I plan on buying at 15-20k car because I know nothing about cars and want a very good car that will last long with virtually no maintenance

 

[libertyyne]

You should finance through the car company/credit union etc . Used car financing can be had below 5%.

 

[Spectar]

I'd just buy a 7k honda with the loans.

 

[wholeheartedly]

I would do the car loan.


it's worth noting that you can't discharge student loan debt in bankruptcy but could potentially on the car loan. Now there mght be a pretty low likelihood you'd need to ever do that, but all it takes is a little bad luck to financially ruin people like a serious illness or an accident that leaves you disabled, etc.

 

[mistafab]

I am stupid but I would totally just pay for it with school loans.

You will refinance the rates anyway amirite? Might as well pay off all them loans in one big chunk.

 

[Patelkai]

I am stupid but I would totally just pay for it with school loans.

You will refinance the rates anyway amirite? Might as well pay off all them loans in one big chunk.

Yeah I’m refinancing. Not doing PSLF or any of that sort - I Think I can pay it off quicker than it will take for the loan forgiveness programs to kick in.

Does anyone know how monthly rates are calculated for refinanced loans? I know I will no longer qualify for IBR or PAYE if I refinance

 

[Treebeard]

This is illegal. Read the student loan terms.

 

[ndafife]

Figure out what your car loan rate would be. See how much extra you need to take out in student loans to cover the downpayment and payments until residency. Calculate the interest in that loan amount.

Then figure out if that comes out cheaper than taking out the loans and paying your student loan interest on the full amount.

Pick the cheaper

 

[CherryRedDracul]

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Straight from the site's Term and Rules.

 

[thegreengreatdragon]

I will also say that often, car companies run deals for 0% financing on new cars. While new cars will be more expensive than used, since you say you want a "very good car that will last long with virtually no maintenance," and you're worried about financing, maybe a new car is an option you should think about?
I say this because I just bought a car and was set on buying a used car to save money, but when I actually started looking at cars, I realized that new cars were more affordable than I'd originally thought (especially with the 0% deals, which happen more often than you'd think) and that I'd probably save money in the long run by buying new. To each his own, but I thought I'd give my 2 cents.

 

[mppcc]

Do not use student loans to purchase a car. Car loans have protections for you the borrower that student loans don't (dischargable in bankruptcy).

 

[Raney Schauer]

Find something certified pre-owned, where the depreciation is already taken and has a CPO warranty on it.

 

[Save a life]

My question is if he was to take out this car loan, how would he pay for it? With student loans?

If he takes out 15k in a car loan and has to pay 250 a month, that’s an extra expense. Unless his parents are going to float the bill or he has a part-time job, he will have to use student loans.

 

[SpartanWolverine]

My question is if he was to take out this car loan, how would he pay for it? With student loans?

If he takes out 15k in a car loan and has to pay 250 a month, that’s an extra expense. Unless his parents are going to float the bill or he has a part-time job, he will have to use student loans.

As far as I am aware, the Master Promissory Note stipulates that 'transportation' costs are considered acceptable and are included in the Cost of Attendance at any school. In turn, the CoA is covered in full for medical students by Stafford and Grad PLUS loans. To be explicit the Higher Education Act "Section 472 [20 USC 1087ll]" states that, included in CoA, is:

• "an allowance for books, supplies, transportation, and miscellaneous personal expenses, including a reasonable allowance for the documented rental or purchase of a personal computer, for a student attending the institution on at least a half-time basis, as determined by the institution"

So yes, he could and likely would pay for it with student loans. I don't see where that is prohibited by law (not that you personally have stated otherwise, but I believe earlier someone said it was not legal to spend loan money on a car). I don't suggest the outright purchase of a vehicle with loan money -- but think there's nothing legally wrong with it -- though I'd be happy if someone could demonstrate otherwise!

My school budgeted >$500/month for 'transportation' which certainly covers a reasonable car payment plus gas and insurance. I personally financed a used car at the end of medical school and used loan money for the first few payments before starting residency.

 

[Shigaliketoxin]

My spouse and I just bought a new car and went through a lot of discussion about the various scenarios. It comes down to this (in my opinion -- and my husband works in finance, FWIW):

You can get a car loan cheaper than school loans (~3% interest vs. ~7% interest). Finance the car.

 

[Save a life]

As far as I am aware, the Master Promissory Note stipulates that 'transportation' costs are considered acceptable and are included in the Cost of Attendance at any school. In turn, the CoA is covered in full for medical students by Stafford and Grad PLUS loans. To be explicit the Higher Education Act "Section 472 [20 USC 1087ll]" states that, included in CoA, is:

• "an allowance for books, supplies, transportation, and miscellaneous personal expenses, including a reasonable allowance for the documented rental or purchase of a personal computer, for a student attending the institution on at least a half-time basis, as determined by the institution"

So yes, he could and likely would pay for it with student loans. I don't see where that is prohibited by law (not that you personally have stated otherwise, but I believe earlier someone said it was not legal to spend loan money on a car). I don't suggest the outright purchase of a vehicle with loan money -- but think there's nothing legally wrong with it -- though I'd be happy if someone could demonstrate otherwise!

My school budgeted >$500/month for 'transportation' which certainly covers a reasonable car payment plus gas and insurance. I personally financed a used car at the end of medical school and used loan money for the first few payments before starting residency.

Yeah my point is that either he is paying with the graduate loan money. Whether he pays for it outright with the loan or with a car loan, he would still have to take out the money to pay monthly for it with the graduate loan at 6%.

Although, if he does the car loan at a cheaper rate, he will have to pull out extra loans for that 250$ per month payment but then in residency he could pay with his income. That way, he only has pull out 3K at the graduate loan rate. That’s probably the better option.

OP - go for the car loan if you qualify, it’s cheaper and you can make the payments during residency. Or buy a cheaper car outright.

 

[Matthew9Thirtyfive]

You should finance through the car company/credit union etc . Used car financing can be had below 5%.

Agreed. Used a credit union for a car and my loan was at 1.9%.

 

[Crayola227]

You can use FA to buy a car. What they won't do is increase your COA and loan limit and loan you extra beyond that to buy a car. Make sense? They will loan you more for reasonable repairs to one you already have. They will loan you extra if you have medical expenses above and beyond. I know these points for a fact.

 

[SouthernGent]

Look for recent grad financing options, most company's have them, you just need to ask. I went through Nissan and got a huge reduction in rate that made it possible to get a new vehicle right before school started (my old one died abruptly). I would advise on staying on the low end of the cost spectrum, but it is more than doable.

 

[FreeRadicals]

You have a ton of options. I'd recommend buying a used car with cash. A budget of $10k-$20k gives you tremendous options in the used car market. If you choose to finance or possibly lease for 2-3 years then it would eventually be more expensive down the road.

 

[mehc012]

You have a ton of options. I'd recommend buying a used car with cash. A budget of $10k-$20k gives you tremendous options in the used car market. If you choose to finance or possibly lease for 2-3 years then it would eventually be more expensive down the road.

Normally this is what I would recommend as well, but...cash isn't really cash when you're living on loans. Cash IS a loan. OP doesn't have $10-20k in cash laying around, they have access to a $10k-$20k line of credit with an interest rate around 5-7%. The posters above have some good points.

 

[mehc012]

Financing is a big mistake. Buy cash. If you dont have much cash then buy an old car in decent condition that you can afford. Save money and use public transport, bike, walk, carpool until you have enough money saved

Cars are like food: they serve a practical purpose. Use a car for what it is: transportation. Dont give a car any weight or significance more than it is due: a means to get you from Point A to Point B.

Having a loan of any kind is undesirable in the long term. Banks and financing agencies arent making loans because they care about you or are being charitable. They are there to make money at your expense. Dont let them

Aim for being debt free.

Again, this perfectly reasonable when your cash is actually cash. OPs 'cash' is actually a loan. So the way to minimize debt is to spend as little as possible and/or to lower the interest rate.

 

[libertyyne]

Financing is a big mistake. Buy cash. If you dont have much cash then buy an old car in decent condition that you can afford. Save money and use public transport, bike, walk, carpool until you have enough money saved

Cars are like food: they serve a practical purpose. Use a car for what it is: transportation. Dont give a car any weight or significance more than it is due: a means to get you from Point A to Point B.

Having a loan of any kind is undesirable in the long term. Banks and financing agencies arent making loans because they care about you or are being charitable. They are there to make money at your expense. Dont let them

Aim for being debt free.

obviously debt free is the goal.

However Dude is 60k in debt and about to start residency. They need a dependable car that will not break down and will cause headaches. depending on where the OP will be going public transport may not be an option. a large portion of the country does not have public transport that is reliable.

Also with intrest rates the way they are it is currently cheaper to finance and put the money you do have to earn a return on the market considering rate of return exceeds the interest rate on cars.

 

[mehc012]

obviously debt free is the goal.

However Dude is 60k in debt and about to start residency. They need a dependable car that will not break down and will cause no headaches.

Also with intrest rates the way they are it is currently cheaper to finance and put the money you do have to earn a return on the market considering rate of return exceeds the interest rate on cars.

To be fair, a decent used car is just as reliable as a new one. If 'dependable' is your goal, you can have that for $5k or less, though likely not less than ~$2500 and that only with knowledge, a lot of legwork, and luck.

Many people consider 'putting money to earn a return on the market' to negate the 'headache' factor you're talking about. If I wanted to play with markets, I'd have gone into finance.

 

[libertyyne]

To be fair, a decent used car is just as reliable as a new one. If 'dependable' is your goal, you can have that for $5k or less, though likely not less than ~$2500 and that only with knowledge, a lot of legwork, and luck.

Many people consider 'putting money to earn a return on the market' to negate the 'headache' factor you're talking about. If I wanted to play with markets, I'd have gone into finance.

The person does not have money to buy a car outright. In my post I never said to buy a new car, rather I had said to go to a credit union to get a loan for a used one. The point of financing a decent car even if it is 5-7k rather than buying a car for 500-1000 and finding out you need a to put in More money to get the car in a reliable state. The blanket statement of avoiding loans at all cost is dumb, they are a tool, use them appropriately especially for something like reasonable and reliable transport. It is doubly dumb if you have cash lying around to make a big purchase when credit is cheap and market returns are higher.


Just to be clear the OP's option are buy a car with student loan money @6.9 or buy a car with car financing which can be 2-10% . OP should obviously go with the lowest rate they can, telling the OP to save up money while they are not working is not really helpful.

And this is not going into finance, this is just knowing the basics of personal finance.

 

[mehc012]

The person does not have money to buy a car outright. In my post I never said to buy a new car, rather I had said to go to a credit union to get a loan for a used one. The point of financing a decent car even if it is 5-7k rather than buying a car for 500-1000 and finding out you need a to put in More money to get the car in a reliable state. The blanket statement of avoiding loans at all cost is dumb, they are a tool, use them appropriately especially for something like reasonable and reliable transport. It is doubly dumb if you have cash lying around to make a big purchase when credit is cheap and market returns are higher.


Just to be clear the OP's option are buy a car with student loan money @6.9 or buy a car with car financing which can be 2-10% . OP should obviously go with the lowest rate they can, telling the OP to save up money while they are not working is not really helpful.

And this is not going into finance, this is just knowing the basics of personal finance.

I ageed with you on the getting a loan thing. I did misinterpret and think you meant 'get a new car', so I'm sorry about that. I don't know why you're talking about a $500-$1000 car when I clearly stated a range of $2500-$5k, skewed towards the $5k, and also made it clear that doing your research is necessary to make sure it's dependable.

The finance part is whatever it is you're talking about when you say 'market returns'. You want to talk about avoiding a headache, leave that crap out of it. It's not relevant to OP's question on buying a car.

 

[libertyyne]

I ageed with you on the getting a loan thing. I did misinterpret and think you meant 'get a new car', so I'm sorry about that. I don't know why you're talking about a $500-$1000 car when I clearly stated a range of $2500-$5k, skewed towards the $5k, and also made it clear that doing your research is necessary to make sure it's dependable.

The finance part is whatever it is you're talking about when you say 'market returns'. You want to talk about avoiding a headache, leave that crap out of it. It's not relevant to OP's question on buying a car.

We agree on a lot in terms of buying a used car. The finance part was meant for the poster who indicated that all loans are to be avoided at all costs.

 

[libertyyne]

All loans should be avoided at all costs if possible.

OP stated she needed a car. People often confuse need vs want.

If you are doing a Residency as OP, as a 4th year DO student, it made no sense to buy a car for Residency unless if she had stated the distance between her new home and the medical center for her Residency. She did not state. All we know is that she said she needed one. Did she? Probably not

it would be advisable to live near the hospital to walk, bike or take the school shuttle, all of which I do

My husband has a car and I have a car. Mine is fully paid, his is not...he acquired it before our marrying. We are about to sell both cars, pay off his car note, and buy a car that will solve his transporation needs for work, occasional outings, etc. We walk to the grocery store, church, local pubs, etc

If OP had stated more information back in April as to her rationale for buying a car, we could have had a more productive conversation. Since she disappeared from her initial post, the commentary therein has been conjecture

I would never incur debt unless if I really needed the item and I had no other financing option. I Have owned multiple cars debt free each time. I owned a nice home with a 15 year mortgage which I paid in 14 years. I had a college loan bc my family could not pay for my education so I took a college loan, one I eventually paid. Since then I have learned my lesson

Dont incur debt at all costs if possible. Even medical school can be financed by alternate means. I did.

The Millionaire Next Door is a good read and has relevance in this thread
Amazon product ASIN 1589795474
Needs are not wants. There is a difference

im sure a third year medical student is going to be able to buy a home debt free, or a car without a note.Or OP has a spouse willing to pay for it. And every city, town and village in america has amazing public transport.
Even if OP does not need a car for residency OP clearly needs one now for the rest of school.

You havent really answered my question.
You have 10K that is getting you 5% return
You can buy a car with cash for 10 k
Or you can buy it with 2% interest.
What do you do ?

 

[libertyyne]

No, as already stated, need does not equal want.

once people grow up they realize, as many of us did, how silly and foolish they were when they were young. and you are quite young. check your attitude. the world owes you nothing

cheers

lol. Must take a lot of mental gymnastics to arrive to the fact that OP does not need a car.

 

[Weirdy]

No, as already stated, need does not equal want.

once people grow up they realize, as many of us did, how silly and foolish they were when they were young. and you are quite young. check your attitude. the world owes you nothing

cheers

Little chip on your shoulder much?

I didn't have a car (gifted by a relative) until podiatry school.

Walked, biked, and borrowed friends' cars throughout high school undergrad and masters.

Missed out on a ton of opportunities having to do that.

OP should get a car if it 1) helps them meet better opportunities 2) makes their life easier.

Why should OP suffer just because wants do not equal needs?
This want will eventually become a need. Having it earlier prevents them from missing out on opportunities and makes their life so much easier.

 

[mehc012]

No, as already stated, need does not equal want.

once people grow up they realize, as many of us did, how silly and foolish they were when they were young. and you are quite young. check your attitude. the world owes you nothing

cheers

I don't know OP's school, but at mine you essentially DO need a car for third year. The rotation sites are spread out, not all accessible by public transportation, and there's not always someone to carpool with. I mean, you don't need one in the sense that you don't need to pass med school rotations in the grand scheme of things...you can always drop out and do something else, but it is necessary to either have a car or many generous friends with cars in order to finish med school.