The Car Loan for College Student Ad: 5 Borrowing Basics

Seen a Car Loan for College Student ad yet? After writing an article recently about my experience with a student car loan, I realized I had left out some important information. Mentioning that I had bought a car that drove into a house is always fun.

I’m going to share 5 things you can do to improve buying a car. Let’s get the first one out of the way right now:

1. The Best Amount of Money for You to Borrow

Don’t be surprised when I tell you this. It’s the same for every student: zero. Don’t saddle yourself for years in school or out with a car loan if you can avoid it.

But if you really can’t get the money together, I’ll give you some more ideas below. 

Side Note for Rich Kids

Perhaps you think, yeah, but my parents own a business and need a way to spend a bunch of money instead of paying taxes. They bought me a Porsche to save money. You wouldn’t be the first to fall into this belief.

Two quick ways to tell if this is true:

- Did the car cost more or less than the amount they needed to spend as a business expense? If more, than your car is too nice, and you are probably spoiled. (Somebody had to say it, right? Don’t hate the messenger ;o)

- Do you pay cash for all your school expenses? I mean tuition, rent, textbooks, and other money for college like dating and concerts. If not, then you didn’t need to buy a Porsche. If you want to offset business income in a private company, you can set up an employee tuition payment program as a benefit of the company, and spend the money in that as a legitimate business expense. Note: you would have to be an employee for this to work. Talk to a professional – this is just the idea.

If you buy something to save taxes, you want the expense to provide something you can use while reducing what you pay. Spend too much, and you've lost the benefit. Back to that car loan for college student ad you may have seen.

2. Don’t Buy New, Get a Used Car

While this seems obvious, many students fall into the trap that the the special loan is only for new cars. The dealer probably has an offer for students on used cars, too.

Buying a new car, while fun, only lasts a short time. I’m guessing here, but you probably will be able to tell your car is used within 3-12 months. After that, you will know that your car has lost some value, and you still have the same payments :(

Cars decline in value so fast. You'll soon learn the term upside down - meaning you owe more than the car is worth, so you can't sell it and completely pay off the loan. Too often, dealers don't mention these problems when you respond to the car loan for student ad you see in your school paper.

If you need money now, adding a car payment usually won’t help. Keep your debts low and you’ll enjoy life more.

3. Shop Around

I prefer to buy a car from an individual if I can, since they will usually charge less for the car than a dealer would. Also, they will usually let me see the car as is, and I can tell if it has real problems.

I once took a test drive in a car that had an empty radiator - decidedly NOT the car to buy with a car loan for college student ad! You may not know how to check that, and I understand. But individuals will also let you have the car checked out, usually. And if one won’t, go on to the next one.

Dealers often will fix a car before selling it, but then charge extra for the car. The dealer may also only fix the minimum. It’s a trade off.

4. Go to a Credit Union or a Bank for Financing

I have always gotten a better rate on a loan from my own credit union or bank than at a dealer. If you get the loan straight from the dealership, you are under pressure to take their deal, and you don’t have portable financing.

Believe it or not, the phrase in the ad “car loan for college student” isn't really a different loan. It just means they want to sell cars to students. If it is different, it probably has a higher interest rate, and your bank or credit union may be able to beat it.

5. A Simple Phrase

One simple phrase can save you money: Is that the best you can do? You can ask this or a similar phrase when you buy your car, from a dealer or an individual. You can ask the finance person at the dealership this, or the loan officer at the bank. You might be surprised that they will offer you extras or discounts just to get your business.

By the way, Richard Paul Evans recommends this in his book The Five Lessons a Millionaire Taught Me. Funny thing - the Millionaire that taught him got rich running car dealerships! Great book.

A Few More Tips

Okay, that’s the 5. Here are a few tips just to help a little more:

- Rumor has it that Tuesdays at the end of the month are best time to shop for a car to get a low price. That's not in the car loan for college student ad!

- Typically, the warranty a dealer offers isn’t worth it. They sell you the warranty in hopes that you never use it. It may not cover everything, and you may have trouble using it. Just like the whole theme of a car loan for college students, you have to be wary of the extras.

- Keep the term short. Cars decline in value, and you won’t want to still pay on this car when you have had it for 6 or 7 years. Notice that this also means to keep the price low. I would say well under $10,000. You don’t really need a new SUV, full size truck, or luxury car while in college.

- Student loans can be used for transportation costs, but be responsible, don’t use a student loan for a down payment on a car, then wonder how to make the payments! Bad idea.

Stay out of debt when you can, and finish school!

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