Buying a New Car as 4th Year Med Student?

[hothause]

So my 11 year old car needs a very costly repair that will almost match what I paid for it. With interview season approaching (and snow season approaching), it's no longer reliable and I'm trying to decide between getting another clunker or putting say that 2k-3k as a downpayment for a new car. The thing is, I'm wondering if this is a sound decision from a financial standpoint.

I graduate in 8 months and am obviously not sure what part of the country I'll be in for residency, although I avoided applying anywhere really expensive to live in. I'm fortunate in that I'll be leaving medical school with "only" 92k in student loan debt at 6.8%.

So, do I finance a new car with 9ish months till I start drawing an income or just put a downpayment on a clunker and then get something newer when that breaks down?

---

Members don't see this ad.

 

[yunowu]

Buying a car (especially an expensive one) is definitely not the way to financial security.
http://www.fool.com/car/car01.htm

How big a bite is this depreciation? On average, cars (and trucks, too) lose more than 20% of their value in the first year. Some vehicles lose as much as 40%. The second year isn't much better, as they disintegrate another 15% or so in value. (Take heart, Fool. Each year the bite is a little smaller, i.e., 13% in the third year, 12% in the fourth, etc. And don't forget we are talking averages here; your new Foolmobile may depreciate by more, or less, in any given time frame).

Car Depreciation Calculator
http://www.money-zine.com/Calculators/Auto-Loan-Calculators/Car-Depreciation-Calculator/

Please keep this in mind if you decide to purchase your new vehicle...
Car dealer struck in catalytic scrap theft
http://www.journalgazette.net/article/20110916/LOCAL07/309169922

Catalytic converters, which contain precious metals that can be scrapped for cash, are a common target for thieves.

Catalytic converter theft: 'We've had a 200% spike'
http://www.kval.com/news/local/129165458.html

Thieves are targeting large parking lots like McKenzie Willamette Medical Center and the Regional Sports Complex.

However obtaining reliable transportation to your first paycheck is definitely more important at this stage of your career. Please keep in mind that Insurance companies (private and medicaid/medicare alike) are in the process of implementing austerity measures. Hence the income of most healthcare professionals are expected to drop in the next few years or so. I am sure you heard this before. Just keep your monthly car payment low and park in a "safe" zone

 

[shantster]

I was in that situation last winter when my truck died on me in December of 3rd year. I ended up biting the bullet and buying a new 2010 Honda Civic. I had two things going for me that pushed me in that direction.

1. At that point it was winter so they were getting rid of the 2010s. I did email quotes to find the dealers with 2010s left that they wanted to get rid of and how low they would go. I then used it to negotiate between the dealers since I had the quotes in writing. I was able to get it for $15k for brand new with warranty.

2. That was when everyone was doing great financing deals. It was 0.9% financing with 0 down for 5 years. That kept my payments extremely low. And I have no reason to think about paying ahead on that.

If I wanted a used Civic, to get financing I would have needed 2005 or newer with under 80k miles and on 6.2% financing with downpayment needed. In the current economy, those don't really exist. And if they do, it was about $10k. And these are without warranty. My choice came down to brand new with warranty for $15k with 0.9% financing or used without warranty with 6.2% financing. Obviously my choice was an easy one on that.

The other consideration is that if you are a fourth year now, as am I, you will be going on interviews. It would be good to have a reliable car for it. I figured that by switching vehicles I'm doubling gas mileage and now I know that I'll be in a reliable car that I will feel more comfortable about driving and will save money on transportation to places I might have flown to because the car is better.

I'd shop around for both used and new and consider your options. Your best option may be a new vehicle. The 2012 models have all been out since April so you might be able to get a good deal on the 2011s. Another thought is to see if they have any cars that were previously leased or used as company cars. My boyfriend got his from that situation. It comes with the warranty even though it's technically "used" but is "certified as new" (or some other terminology). Those are usually only a year or two old.

Oh, and email quoting dealers is awesome. Send messages with what you are looking for and they'll give you options in their stock. Do that with a few dealers to compare. Saves you the hassle of going there and dealing with a pushy salesperson. I had the deal done when I went for the test drive and we spent less than 2 hours there between seeing the car, the test drive, and getting all the paper work done.

 

[cincincyreds]

The first thing is your debt load is relatively low, under $100k. That is good.

Second, you said you are going to a low cost city. You will need a car. As long as you don't plan to go to a city like NYC where it is 600 bucks a month to store a car, I really don't see an issue financing a new cheap car like a corolla or civic. There is no greater pleasure to me to turn the key of a car and the engine starts without an issue.

What is nice now is the interest rates on cars are very low, or 0%. Actually, you can get a 4 year 1.99% auto loan from pentagon federal credit union for a new or used car.

I think I saw toyota had 5 year 0% loans. You really need to have a reliable car to get around. I tortured myself through med school and residency with a car that ultimately I had to replace my last year of residency. I just got a toyota with the 0% financing. And funny thing as an attending, I still have the car. I never upgraded it. It works fine, uses minimal gasoline, and is reliable. It is also cheap to insure. My collegues with the 7 series BMWs have had to get new transmission after 15,000 miles. Also, one tire on them apparently goes for 400 bucks.

 

[The White Coat Investor]

I vote for clunker. I drove a car that cost me $1850 as an attending. I sold it after 3 years for $1500. That $500 a month car payment was invested and used to pay down debt.

There's nothing magic about financial security. It's called spend less than you earn. Medical students don't earn much/anything. Don't buy things you cannot afford.

http://whitecoatinvestor.com/dont-buy-stuff-you-cannot-afford/

 

[Seldon1985]

I'd also vote on a used car. Be a shopper, look around. Ive had great experience and success this way with 3-5+ year old, relatively low mileage (for what you'd expect) cars, usually from private sellers. Shop around at the dealers for the car too, gives you a bargaining chip with the private sellers. Good luck!

 

[dragonfly99]

Female MD/fellow here...
this is a hard decision particularly since you are still a student and don't really have an income.
You don't have very much student loan debt, so I think if you need to buy a newish car, then you can do it. Looking around for a reliable used car would be good, ideally, but that might take more time than you have as a 3rd year medical student (unless you have a nearby family member or nice spouse or boyfriend/girlfriend who can do it for you). I actually bought a 1 year old used car about 10 months ago, after I wrecked my 10 year old car and was told it was totaled...didn't look totaled but that's what the insurance company said. I was in a similar situation to yours, needing reliable transportation, and having about 2000 to spend. I actually looked online to see what I could afford, not wanting to spend more than $7500-10,000 on a car. In my opinion you probably don't need something as expensive as a Corolla, Camry, Civic, etc. You can actually get a cheaper car I think, unless perhaps you need to drive on very snowy, not well maintained roads? You can get a little Chevy, Ford or that tiny little Toyota they sell.

I got a loan for 3.9% and this was obtained by the dealer for me - you may not know it but they have access to better financing than you will probably be able to get as an individual (even if your credit is good). What I'm wondering is whether you'll be able to get any financing without a job...unless your parents or someone with a job cosigns the loan, you may be unable to get a car loan.

When you go to the dealer you should have looked online to see what the car should cost. I got a car for right under 10k, that was a 4 door that looked new, only 15k miles, only <1 year old. My car payment is $189/month. Keep in mind the newer the car you get, the more expensive your car insurance will be...in my case I wanted a newer car, being female and living alone and needing to make sure I can get everywhere, such as to work, and not have to worry about breakdowns. If you get a car older than 4-5 years then breakdowns/frequent repairs becomes more of a possibility.

 

[quinsy]

I'm chiming in late on this but I don't think it's a hard decision at all. I don't see why anyone would take on more debt than they need to by choice. In 5 years this person will be able to buy a nice new to newish car with cash. No one "needs" a new car, but at that point if they want a new car, they can get one.

Why get a 'cheap' new car instead of purchasing a reliable "expensive" (really?) car like a Civic that's a few years old but could be expected to last until you're actually making good money without causing you much stress/repair costs?

That's just my point of view, but then again I come from a family where if you can't afford it, don't buy it (as wisely referenced above), and all cars have always been and will always be paid for with cash. And if I didn't have cash, I'd take out the smallest loan possible to get a decent quality car. I saw lots of fellow med students doing things like buying big flatscreen TVs or cars or whatnot on credit because "I'll be able to pay it off later". Saw new grad residents doing the same thing with houses and furniture. These people did not seem to be giving much though to what made the most sense financially or would result in a lot less interest in the future. Think about that old adage about the $3 latte and how much that ends up costing you when you buy it on credit. Now think about that times 1,000 (or more) and that's the potential $$ you lose on a car. It's not just the money the car costs, or the interest you pay, but the cost of what you could have been doing with that money (i.e. earning interest) if you had saved instead of spending.

Here's a really good post on that topic:
The Hidden Cost of Spending While In Debt

 

[psych]

I'm female and I'd like to buy a car right before residency. I need something reliable that won't cause me too much trouble. I have some questions. I've always paid cash for a car but I can't do that now.

Will I need a letter from where I match that promises income? I'm hoping that's easy to obtain because I'll need that when I'm trying to find a place to rent as well. Also should I try to put 20% down or will I be able to find a good deal that's 0 down + low interest rate? I have a HUGE amount of debt - like $350k. Is that going to be a problem if it's still in deferment or if I switch it into forbearance? I'm looking to buy at the beginning of May so it will probably be in deferment.

 

[cincincyreds]

I'm female and I'd like to buy a car right before residency. I need something reliable that won't cause me too much trouble. I have some questions. I've always paid cash for a car but I can't do that now.

Will I need a letter from where I match that promises income? I'm hoping that's easy to obtain because I'll need that when I'm trying to find a place to rent as well. Also should I try to put 20% down or will I be able to find a good deal that's 0 down + low interest rate? I have a HUGE amount of debt - like $350k. Is that going to be a problem if it's still in deferment or if I switch it into forbearance? I'm looking to buy at the beginning of May so it will probably be in deferment.

Being a female, you need a reliable car that won't break down. The used car market is very expensive because of cash for clunkers. What I would if I were you is email all the Toyota dealers within a 20 mile radius and tell them you want to finance a brand new 2011 Toyota corolla le automatic and want the monthly price for a 3 year finance at 0 percent. You don't need to put any money down including fees. You don't need an extended warranty. This car should be around 500 per month. Again, you don't want to be late because your car broke down. Just my 2 cents. Sure you can buy a 5000 dollar used car, but if is not from a relative I would really not trust it.

 

[shantster]

Being a female, you need a reliable car that won't break down. The used car market is very expensive because of cash for clunkers. What I would if I were you is email all the Toyota dealers within a 20 mile radius and tell them you want to finance a brand new 2011 Toyota corolla le automatic and want the monthly price for a 3 year finance at 0 percent. You don't need to put any money down including fees. You don't need an extended warranty. This car should be around 500 per month. Again, you don't want to be late because your car broke down. Just my 2 cents. Sure you can buy a 5000 dollar used car, but if is not from a relative I would really not trust it.

The email quoting is key. I did that last December for my 2010 Honda Civic and got it for $2k below the invoice value. Everyone wants to get rid of the 2011s at this point. Once you have multiple quotes, take the lowest one and tell the others that you have that one and want to know what they can do for you otherwise you'll go to the cheaper dealer.

And yes, the used car market is really expensive right now. Too much demand for the little supply so the cost has gone way up. If you look at my post above, you'll see what I had found last year for Civics.

Since the supply is so decreased, Honda has been calling me, emailing me, and sending me letters since April trying to get me to trade my 2010 in for a 2012 because the monthly payment will be the same (they don't mention in those letters that it adds another year or so to the life of my loan). My boyfriend said that the Jeep dealer he bought his car from a few years ago has been doing the same thing to him since a few months after he bought his for the same reason, which was before Cash for Clunkers. Once the economy went down the demand for used went up and people held onto their old cars longer than they had previously so the supply went down. Cash for Clunkers has just made the supply side worse.

I'm not completely convinced in this economy that the used is the better option. When I looked last year, the difference in price between used and what I payed for my new car was only ~$4-5k and new came with a loan that did not have a 6.2% financing and new came with a warranty so no worries that anything will be a major expense for the next many years. And gas mileage was better. So I think I easily made up that 4-5k in the price difference once you added in those additional used car costs.

 

[psych]

I wasn't really considering buying new but it sounds like this makes the most sense financially as long as the interest rate is very low. I can't afford a $500 car payment. Is it possible to get a low interest rate on a 5 year loan? Or even 4 year loan? I can put some money down. A loan payment more than $350 is out of the question because the insurance is also going to be high on a new car.

 

[shantster]

I wasn't really considering buying new but it sounds like this makes the most sense financially as long as the interest rate is very low. I can't afford a $500 car payment. Is it possible to get a low interest rate on a 5 year loan? Or even 4 year loan? I can put some money down. A loan payment more than $350 is out of the question because the insurance is also going to be high on a new car.

Whenever Honda starts their "Happy Honda Days" for the season, it was 0.9% for 5 years, no money down last year. I expect the same from them this year given that the economy has not improved. You will need a cosigner though if you don't have any income. My interest over the life of the loan comes out to ~$390 for the entire purchase, including taxes, with no money down. (Over the life of the loan I will be paying the same amount that was listed as the invoice price for my car so I have no financial incentive to pay ahead). The way I look at it, I should get close to 15 years out of the car (which I fully intend to drive it that long) with minimal headaches. And I bought a car that holds resale value very well so it was not a bad idea. Much better than what I was looking at with the used cars last year.

 

[psych]

Whenever Honda starts their "Happy Honda Days" for the season, it was 0.9% for 5 years, no money down last year. I expect the same from them this year given that the economy has not improved. You will need a cosigner though if you don't have any income. My interest over the life of the loan comes out to ~$390 for the entire purchase, including taxes, with no money down. (Over the life of the loan I will be paying the same amount that was listed as the invoice price for my car so I have no financial incentive to pay ahead). The way I look at it, I should get close to 15 years out of the car (which I fully intend to drive it that long) with minimal headaches. And I bought a car that holds resale value very well so it was not a bad idea. Much better than what I was looking at with the used cars last year.

I'm not buying until May after I graduate. I'm hoping I could still get a low interest rate but is that not the case in the middle of the year? Also I should have a letter from the residency program I match at stating my income, right? I don't have a co-signer. I could put money down but I don't want to. I would love to get a deal similar to yours...

 

[shantster]

I'm not buying until May after I graduate. I'm hoping I could still get a low interest rate but is that not the case in the middle of the year? Also I should have a letter from the residency program I match at stating my income, right? I don't have a co-signer. I could put money down but I don't want to. I would love to get a deal similar to yours...

If you want a deal like that, December is the best time of year to do it. Everyone is trying to get rid of the 2011s and so then they will price competitively and will also have the best financing offers. I don't think you'll find anything that good in May when they aren't as eager to get rid of their existing stock. Unless something catastrophic happens to my car in years from now, I'm never buying a car any other time of the year.

I don't know your situation, but do you have a parent that would be willing to co-sign? Also depending on how much you were thinking of putting down, you could use that money each month to pay the loan since you won't need to put anything down. I'm also not sure about when they will allow you to use your income after the match. They might want to see a pay stub for starting a new job after not having one so it would push it off into residency. That would be something to check out from each individual lender.

 

[psych]

I hear ya. Well I guess I'll find out what the difference in deals are in May when I go to buy and how they go about my residency contract for proof of income. And perhaps I have to wait a month to get my first paycheck...

 

[cincincyreds]

I wasn't really considering buying new but it sounds like this makes the most sense financially as long as the interest rate is very low. I can't afford a $500 car payment. Is it possible to get a low interest rate on a 5 year loan? Or even 4 year loan? I can put some money down. A loan payment more than $350 is out of the question because the insurance is also going to be high on a new car.

so I just looked. toyota now has 0% financing for FIVE years on the 2011 corolla. So just get an le automatic model. Probably will be about 17k total, maybe 16k total if you are good at negotiating. So over five years will cost about 267 bucks a month of you can get the total out the door price at 16k.

Also, you get a 3 year warranty, and all the service work for the first 2 years is free.

Sounds like the best deal of all as you get a reliable car for 267 bucks a month that is BRAND NEW that no one has abused. This way if you have to drive to different hospitals, your chance of being stranded because of problems is extremely low. Will they have this offer in May, who knows. It all depends on supply and demand.