Student Loans for a car?

ohmandiboo · #1 (**permalink**) 10-01-2009, 12:01 AM

Hi everyone!

I'm a college student and I'm wondering if it would be smart to use a federal stafford subsidized loan to buy a car.

i'm a junior, and so far I only have about $4,800 in loans out. This year I wasn't offered a subsidized loan at all, but when I was talking to Financial Aid about a different question, I was told that there had been a glitch in the system and I am actually eligible for $5,500 for the year.

Me and my mom have been on a payment plan with the school, we still have over half the semesters worth to pay for (its about 500, the rest is paid for through some scholarship programs)...i work for very little, one job gives me room and board and a $100 stipend every month, and i babysit occasionally, averaging out to about $40 per week...i tithe 10% of that and that amount is non-negotiable for me.

I KNOW that i'm going to run out of food on my meal plan, probably in the next month...so i'll be down to using all my money for food. next semester shouldn't be nearly as bad because i won't have to pay as much for tuition...i also need to somehow find enough money to buy a car next year, because I have to do a 20 hour internship and 10 hours of class per week, and my University and internship wont be anywhere near each other.

so my question is, should I take out the full amount of the loan and put most of it toward my car next year? would it be better just to take out a regular loan? what does everyone think?

sapphirecapital · #2 (**permalink**) 10-01-2009, 02:17 AM

you still have a while to go and I'm not sure about the terms of the student loan, probably better than a used car loan for cars in the range you are looking for, I'm generally frugal when it comes down to using a loan for an asset which is loosing value fast, if you do not make many miles a cheap leasing may be better, there are some with no money down, requires good credit, if you really need the car.......

Vytautas · #3 (**permalink**) 10-01-2009, 05:39 PM

You should decide what you plan is long term with the car. Do you plan to keep the same car for a long time or would you like to purchase a new one when you graduate and find a job?

If you plan to buy a cheaper car and keep it for a long time then using the student loan to pay for it may be a good idea. Just compare the rate you are getting from the loan to the rate you could get on a used car loan and if it's better (which it likely is) go ahead and use the student loan for a car purchase. But remember when buying a used car that there can, and likely will, be quite a few unexpected expenses you might have to contend with.

The other option is, like sapphirecapital mentioned, to lease a car. This would have quite a few advantages for you. It will be temporary which means that if you wanted to upgrade in the future, you wont have to deal with selling your used car. Also, if you lease a new car, you will have a warranty for the entire period of the lease so you don't have to deal with unexpected expenses beyond general upkeep.

It will be slightly higher overall to lease a new car but having been a college student, it may very well be worth the value of knowing your monthly expenses. I had a used car and had to spend $2k to repair it, a month later it broke down again and the bill was another $2k, this already exceeded the value of the car and the first $2k drained a lot of the savings I had. After that I went ahead and got a lease and it was well worth it.

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