Used Car Buying for College Grads
Graduating from college is a major life achievement. It starts your life as a fully functional contributing member of society. However, in order to be a contributing member of society, you’ll probably need a car. With student loan debt skyrocketing, it is likely that you won’t be able to buy a brand new car, so it’s time to start looking for a used car.
The Student Loan Question
Some grads may have college loan money left over, and might be asking “can I use my student loan to buy a car?” This is a reasonable questions, as it is money you’ve already been given, and you’re not in school anymore. While it’s not against the law to use left-over student loan money to purchase a car, using student loans to buy a car isn’t the best use of that money. It’s a much better idea to save your student loan money and use it to pay back your student loans. Instead of wondering “can you use student loans for a car?” you should instead ask yourself if you can get a used car loan to help build your credit.
As a recent college graduate, you probably have some credit history, such as bills, your student loans, and maybe even a credit card. However, that may not be enough to establish the type of credit history you need in order to get the things you want. A great way to build credit are used car loans. Bad credit can make it harder to get a mortgage or business loan in the future, so building your credit now is important.
Things to Consider when Used Car Shopping
As a recent college grad, you may be tempting to start living the high life immediately, and get the most expensive car that you can afford. However before you spend all the money you haven’t earned yet, there’s a few things to consider.
What’s the Average Interest Rate for a Used Car Loan?
Interest rates have been going up lately, and that’s especially true for individuals that have a limited or no credit history, as well as recent college grads who may or may not have trouble finding a job. Therefore it’s important to understand how much your loan will actually cost you.
The more expensive your car, the more money you’ll pay in interest. Interest is the amount of money that lenders charge for the loan in order to make a profit. Age is part of the interest rate calculations, and recent college grads are in one of the most expensive age categories. Over the course of a five year car loan, a $30 difference in payments becomes an $1,800 gap. Therefore, saving any money on your monthly payment will save you a good amount of cash in the end.
What Will You Use Your Car For?
Another important consideration is what you intended to use your car for. If you’re only going back and forth between your home and job then you shouldn’t invest a great deal of money in a massive car. Recognizing how much car you need, and what you need in a car, can help you save money by making a better car decision. Buying more car than you need will mean that you’ll pay more than you should each month, and can also be wasteful in terms of gas consumption and the cost of insurance.
Don’t Forget Insurance!
Oftentimes recent college grads fail to take insurance costs into account when they are shopping for a used car. If you’re getting a loan for your used car, part of the conditions of your loan will likely be that you have to get comprehensive insurance. This can cost much more than state minimum coverage, and is designed to protect both you and your lender from zombie car payments should your car be totaled before paying off your loan. This is another reason not to max out your loan range, because the insurance will be higher on more expensive or risky cars.
As you can see, there are a number of important factors to be considered when you’re a recent college grad buying a used car. If you follow the advice in this guide you’ll make a sound and smart used car purchase.