Sure you want that tricked out, pimped out ride. We all do. But take my advice, as college students, we can’t afford it. College students must be very careful when buying a car. It is easy to get taken on a bad vehicle or to purchase one you can’t pay for.

A car buyer must be concerned with 1) how you are going to pay for the car and 2) what you can afford and then, 3) how much you are willing to pay. Trust me, that is the order for things to figure out.

So how to pay? Unless you have the cash lying around to go out and just buy a car outright, you are going to need financing. You can get a car loan from banks, finance companies such as Capital One, or car dealerships.
Most car dealers require you put money down immediately. This down payment is usually between 5% to 20% of a car’s price. One thing to keep in mind is that with the problems in the financial industry, many companies are requiring higher down payments when you apply for financing. Higher down payments are a good thing though. The more you pay upfront, the less you have to finance. The less you finance over time, the less interest you pay and the more you save. So let’s say that you are buying a car that costs $5,000. Here is what happens based on some different down payment and financing amounts:

Cost $5,000 – $0 down, 10% interest, 5 year loan

Monthly payment - $106
Total cost with $0 down payment and financing - $6,374

Cost $5,000 – $2,500 down, 10% interest, 5 year loan

Monthly payment - $53
Total cost with $2,500 down payment and financing - $5,687

Cost $5,000 – $4,000 down, 10% interest, 5 year loan

Monthly payment - $25
Total cost with $4,000 down payment and financing - $5,500

From these examples, you can see how much you can save in the long-term by putting more money down initially. Plus, you pay less monthly which can help you with you other bills. These are tremendous benefits even if it takes you longer to save up for the down payment or you have to buy a less expensive car.

For a copy of our free budgeting program, e-mail me. We’ll send it out right away. With our budgeting program, you can enter in the amount and length of the loan and the interest rate at which you financed, and you can find your monthly payments.

More from me.

More from College Life.

View Justin's Profile      Subscribe via RSS