Note: This post was submitted to Student Caffé by Sam Casteris. Sam Casteris is an avid traveler, a lifelong lover of education, and a strong proponent of financial literacy. She is a regular contributor to Transfer Ways and Fresh U, where she writes tips for students and student transfers. Follow along with her work here. We would like to thank her for her submission and credit her as the author of this blog post.
After putting countless miles on your good ol’ Nikes and having your other college friends drive you around in their rides, you have decided to invest in your own car. Hurray! This is an exciting decision, and one that shouldn’t be taken lightly.
Perhaps you’re worried about how you’ll afford a car. You don’t want to spend less money and end up with a clunker that will only last you another year or two, but you’re also not sure that a new car is worth the price tag. Luckily, car ownership isn’t a niche topic. There are plenty of best practices to pull from. Here are the most crucial of those practices to help you get out of your head and on the road toward your first real investment: a vehicle you can call your own.
1. Assess your expectations.
Before you start daydreaming about your shiny new car, take a good, hard look at your finances. Make a comprehensive budget that includes all of your fixed expenses (these are the same each month) like rent, internet, or the phone bill, and your variable expenses (these change each month) like groceries, utilities, or books for classes. Figure out how much money you have left after you have budgeted all of your other spending.
This will tell you how much money you have for a car payment and car insurance each month. If that number isn’t very high, that’s okay. You have options. Knowing that number will give you a better idea as to what you can really afford.
If you’re hoping to buy a brand new vehicle, don’t. The second you drive that car off the lot, it loses up to 40% of its value. That means that your beautiful $15,000 Jeep is worth closer to $9,000 the second your odometer hits mile one. Ouch. Instead, find a pre-owned car with few miles on it. You’ll pay the $9,000 price tag for pretty much the exact same car.
2. Consider your needs.
Envision what you’ll be using the car for. Do you love camping? Do some research on the best SUVs within your price range. Is it strictly a commuter car that will be driving in town? Find a small four-door sedan. Are you an art student who needs to transport giant canvases across campus? A truck may be your best bet. No car is one-size-fits-all. Know what you’re looking for and go for it.
This first-time purchase doesn't need to be your be-all and end-all acquisition, but you should still pay attention to your want list, as this isn't a process you need to repeat every 18 months. Better to stretch a bit for those things in a car that satisfy you, than to be hit over the head—and pocketbook—with buyer's remorse before you've emptied your first tank of gas. If getting what you want costs $40 per month more, spend it—and skip a couple happy hours to make up for it.
3. Check your credit and consider a cosigner.
Unless you have $6–10k laying around, you’re probably going to need auto financing. This is when the dealership gives you a loan in order to let you drive the car off the lot without paying the entire price tag. You’re responsible for paying a certain amount on that loan each month.
When you finance anything, the terms of your loan are dependent on your credit score. Generally, the higher your score, the more favorable your loan terms will be. You’ll have lower interest, which means in the long run, you’ll pay less for your ride. There are lots of places to check your credit score for free, including Credit Karma. If, like most young folks, you don’t have a high credit score, or you have no score at all, it doesn’t mean you’ve done something wrong. It just means that you don’t have a history of payments on credit cards, loans, or mortgages. To a bank, a young person is like a wildcard. They have no proof you’ll pay on time, so they assume the worst.
In most cases, a first-time buyer will need a cosigner. A cosigner can be a family member or friend, and when they cosign, they are trusting you to pay down a loan on time. Otherwise, the credit sharks are coming for them. If you can find a cosigner, you’ll also build up your own credit via the loan and next time, you might not need one. Auto loans are one of the best ways to build up credit as a young person. In the long run, this saves you money on utility deposits, car payments, house payments, and anything that involves financing at all.
4. Do your homework.
You’re a college student, so you already know how this goes. Find information on your chosen vehicle from multiple sources and check the average cost to insure it. Buying a car is nothing like it used to be. Now, you can buy a car online using a variety of sites without ever having to haggle with a salesman on a car lot. In some ways, this makes the process easier because you’re not confronted with the pressure of an in-person negotiation. In other ways, it makes it more difficult. You need to be thorough about your research to ensure you are buying a quality car that will last. Here are some considerations to keep in mind when you’re choosing a make and model:
- What is the car’s MPG? How much will gas cost you over time? Use this MPG calculator to find out.
- How much does auto insurance typically cost?
- How often does the car need routine repairs and part replacements? Are the repairs expensive?
- Does the car make sense for where you’ll be driving it?
- Are there any recalls out on the vehicle?
- What’s the resale value of the car at a specific mileage point?
Once you’ve found your dream car, let the seller know that you are ready to move forward. Have an independent mechanic check the condition of the vehicle and be sure it has a clean title and no liens (outstanding debts). Basically, this means you’re looking for a car that hasn’t been in an accident and has a good bill of health so you’re not saddled with bills later on if parts begin to fail or debt collectors come calling.
5. Ride into the sunset.
Well, not really. But once the sale goes through, enjoy your new independence! Buying a car is great way to begin building solid credit, increase your mobility, and expand your opportunities. Now you’re able to drive where you want, when you want. Just be sure to take the purchase for what it is: an investment and a responsibility, as well as a way to blast your favorite music while on your way to campus.