Do You Need A Car?
So, you want to buy a car. Me too! In fact, I'll take that Bentley right now.
In all seriousness, though, buying a car is a big decision that will affect your finances for years to come. So rather than simply considering which car you're going to buy, we're here to ask the harder question: Do you need a car?
The most important thing to consider when deciding to buy a car is how much you're going to use it. Obviously, if it's just going to sit outside your dorm or apartment for four years, it's not worth it. And if you find yourself driving alongside university buses all the time, car ownership may still not be a great idea.
- Where is your school? Are you in the middle of nowhere, or are you in a city with public transportation?
- How comprehensive are campus shuttles?
- How many people on campus have cars? If the number is relatively small, you can probably get by with your student ID and walking shoes.
In big cities, public transportation can probably get you most everywhere you want to go without breaking the bank. Even if you have to use public transportation every day, you can get monthly or yearly passes that decrease the amount of money you have to pay per ride. Not only will it be cheaper than car payments, it might even get you places faster, particularly in the case of trains that don't have to contend with traffic.
One time you may need to use a car is traveling from school back home for weekend or holiday visits. How far is your family from your school? Is it logical to drive back and forth, or is flying a better option? While road trips are fun, driving halfway across the country six times a year may not be the best way to spend your vacations. Not only are flights cheap these days, but the time saved traveling by plane may afford you a few more hours — or days — with your family. And that's what's important, right?
Can You Afford A Car?
Though buying a car on your own may seem like an attractive option, chances are you're going to have to get your parents involved. According to Greg McBride, senior financial analyst for Bankrate.com, there are two necessities for buying a car that the average college student simply doesn't possess. The first is a good credit history. Because credit is based not only on payment history and amounts owed, but also length of payment history, most students simply haven't had credit long enough to qualify for a car loan. The second necessity is a steady income that can support car payments. Unless you're a night student who works a steady job during the day, McBride says, you're probably not going to be able to buy a car without your parents there to co-sign.
Good credit, proof of employment and low debt-to-income ratios are crucial. However you decide to go about it, you have to prove you can pay for a car before you buy one.
Meet Tom. Tom is a typical college student in his third year. He's moved off campus now, is 21 and enjoys throwing a party here and there. Here's how Tom's average monthly finances break down:
- $100 for food
- $50 for beer
- $10 for laundry
- $550 for rent and utilities
Because he lives near campus, he takes advantage of university shuttles to get around and typically spends little on public transportation. He occasionally goes downtown for a movie ($15 with public transportation) or throws a party ($40 per roommate). All-in-all, he spends about $750 per month. That budget would change dramatically were he to decide to buy a car.
Tom's parents have a relatively good credit score of 700, and therefore he will have an APR of about 7.8 percent for his new car. Since the loan period is 36 months and the car cost him $15,000, with no down payment, that leaves Tom with payments of about $469 a month.
But the costs of his new car don't stop there. Because Tom uses his car pretty frequently, he ends up paying about $100 a month in gas. On top of that, he has to register his car with his university and pay a fee for parking on campus. Campus parking and registration costs can be as much as hundreds of dollars a year, but let's say Tom's school simply requires him to register his car for $50 at the beginning of the school year.
Thus, with a car, Tom's monthly costs go up by about $574, bringing his grand total to around $1,325 — and this doesn't even include car insurance.
If you do indeed need a car but those numbers make your head spin, you might want to consider postponing your new-car purchase for a bit and borrowing the family hand-me-down sedan instead.