Car Issues

[wjd]

How many of you guys have bought a car (used/new) by using the loans you get in school?
I mean, I know many people in here will be bashing on me, but I have always wanted to own a car but due to family issues, I wasn't able to. Now that I got into the d-school that I wanted to, I would like to buy myself a car.

SO, if anybody have bought a car by using loan money, let me know how it went, and whether your choice was good or not, and any advices would be appriciated. Thanks guys/gals.

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[KinKs]

I bought a care in undergrad using the loans - it was the most horrible financial decision ever and has ruined my credit - but if given the opportunity I would do it again

 

[wjd]

Kinks,
Thanks for you reply,
why did buying a car ruin your credit? Were loans not enough for maintenance/gas/insurance etc? Since I have no credit accumulated, I thought buying a car and paying it monthly would improve my credit and possibly help me when I buy a house/practice later on in my life.

 

[wigglytooth]

moving to the financial aid forum.. this is an issue that most pre-health would benefit from discussing

 

[TMP-SMX]

Kinks,
Thanks for you reply,
why did buying a car ruin your credit? Were loans not enough for maintenance/gas/insurance etc? Since I have no credit accumulated, I thought buying a car and paying it monthly would improve my credit and possibly help me when I buy a house/practice later on in my life.

Get a couple credit cards and pay off the balance in full every month. Plus, you'll be getting rewards and rebates for using the card rather than a check or debit card. In addition, you will not any interest if you are paying off the balance in full each month. A car loan can never hurt your credit (except for a dip in the beginning and if you have a lot of debt) as long as you pay the minimum balance each month.

 

[wanabdoc]

Can anyone please tell me why it is such a big deal to buy a car with student loans (I assume this means making monthly payments?) Do people require receipts for everything they buy with student loans? How does this ruin your credit if unless you make late payments on your car? Do private loans matter as much as federal loans (ie, if I take out some extra private loans, can I use them for whatever I want, and am I required to tell them why I want the money for?) Also, is getting a motorcycle different, or is it just a car loan's little annoying brother?

 

[Sol Rosenberg]

Can anyone please tell me why it is such a big deal to buy a car with student loans (I assume this means making monthly payments?) Do people require receipts for everything they buy with student loans? How does this ruin your credit if unless you make late payments on your car? Do private loans matter as much as federal loans (ie, if I take out some extra private loans, can I use them for whatever I want, and am I required to tell them why I want the money for?) Also, is getting a motorcycle different, or is it just a car loan's little annoying brother?

Other than underestimating the costs of owning a car, no, there is nothing inherently credit-ruining about buying a car. However, using loan money to finance a car is not good business (You are paying interest on the loans that you are using to make your car payments (your car loan is also accruing interest at the same time.))

 

[KinKs]

It ruined my credit cause I miss payments alot. For good reasons thouhg, for example I wanted take a course at Kaplan, Biochem text books, my computer crashed bla bla bla - all of that adds to missed payments and poor credit

 

[alwaysaangel]

Technically you're not supposed to buy a car with your loan money - so if you misbudget and run out of money before the year is up - you'll be in trouble.

Make sure you consider how much a car would cost. And you should probably get someone who knows cars and just buy a CHEAP used car DIRECT FROM SELLER. These are way cheaper. I have a 99' Taurus I bought 3 years ago from a guy in my hometown for just over 3k. Paid for it outright and was done. Haven't had many problems with it and those I have had were minor and fixable by my dad. Buying from a dealer and having car payments while in school is a bad idea.

As far as building credit - using a car to build credit is a really horrible idea. With no credit your interest rates would be sky high and you would be wasting a lot of money on interest payments for your car. Build credit with a credit card. Put all your bills on it and then pay it off every month. You are building credit without actually paying a bunch of interest to a bank.

 

[KECKington]

Just buy the car with loan money. You look cool in a new car and you will be using it all thru residency without any problems (hence a new car). Many people do this. Just think of it as a present for going thru the hell that is medical school. You must enjoy life while you are young too. Who wants to drive an old crappy car you bought for $3kand look poor. Medical student s must look sharp.

 

[pmoney]

Just buy the car with loan money. You look cool in a new car and you will be using it all thru residency without any problems (hence a new car). Many people do this. Just think of it as a present for going thru the hell that is medical school. You must enjoy life while you are young too. Who wants to drive an old crappy car you bought for $3kand look poor. Medical student s must look sharp.

Are you for real?

 

[xanthines]

I'm a big fan of carmax.com as well as carfax.com for car buying. Sure you probably pay a bit more for your car, but you also get a little peace of mind with their limited warranty (for the ones out of original warranty anyway). Private owners rarely give you a warranty.

Agree 100% on using a credit card for building credit.

-X

Make sure you consider how much a car would cost. And you should probably get someone who knows cars and just buy a CHEAP used car DIRECT FROM SELLER. These are way cheaper. I have a 99' Taurus I bought 3 years ago from a guy in my hometown for just over 3k. Paid for it outright and was done. Haven't had many problems with it and those I have had were minor and fixable by my dad. Buying from a dealer and having car payments while in school is a bad idea.

As far as building credit - using a car to build credit is a really horrible idea. With no credit your interest rates would be sky high and you would be wasting a lot of money on interest payments for your car. Build credit with a credit card. Put all your bills on it and then pay it off every month. You are building credit without actually paying a bunch of interest to a bank.

 

[AMDFAO]

This comes from the other side of the FA desk: really not such a great idea. I had a kid with a motorcycle and an monthly payment. I encouraged him to sell it and eliminate the monthly payment but he "needed" his bike (keep in mind he lived across the street from the school). Two years later he decided to sell it since he had no time to ride it and the other costs (insurance, registration, excise taxes and parking) were eating into his monthly amount to live. He basically conceded I was right and wished he had sold it... My other "car kid" had his car broken into the first week he moved with no theft-- cost to repair was beyond what he had in the bank. He couldn't sell it to pay it off since it was pretty damaged. My 3rd "car kid" showed up with a payment monthly and finally after running the numbers with him realized it needed to be sold but he could not get back what he still owed on it even after the selling it. I told him to talk to the dealer about buying it back... The dealer did so they wouldn't have to go through a repo-- he considered himself very lucky. I have a girl who had her lease car for 7 years, borrowed to cover it and now that she's in repayment realizes what a bad decision it was to finance this car for that long... If you want more car horror stories, let me know since I don't know of too many kids on FA borrowing money who looked back and said "Gee, what a brilliant idea that was." Trust me, they all conclude it's a really bad idea and never had time to drive it due to studying. Most will rent a car or do zipcar if they need it (way more economical).
I would certainly run the numbers on what is the max you have to live on after tuition and fees are paid because there isn't a lot of "fluff" built in. I would also clarify that I could not allow you to borrow more to cover a car payment etc... prohibited by law and not just the FA Office. The whole "go borrow private loan" is beyond me and I have yet to find one credible source for these magical private loans for students. I think what they are are really a consumer loan replete with monthly payments while in school. Someone can correct me if I'm wrong on this one and name a lender. I would also add that the feds are trying to crack down on these types of loans by leveraging the banks ability to participate in federal loans and any lender is smart enough to realize they won't dare jeopardize that part of the portflio.
As for the credit card thing to build your credit: if you have a card and pay it in full every month it does NOT increase your credit score since you haven't really used the credit. What you should consider is floating a balance for a payment cycle and then settle it. For example, you charge $300 for the month, pay $250 and float the other $50 into the next month then settle it all out. Yes you do pay a bit in interest (on the $250 since it wasn't settled entirely) but it's negligible, maybe $25 bucks (12%/365 days x 30 days for example). What you accomplish is you have used the credit and paid it off. Always hang onto the oldest one forever since the length of time a card is open is factored in. You only need to do this once and not every month...
Car loans (closed ended loans) will increase your score but should you ever be in a position to not be able to pay can ruin you pretty quickly. If you need to start borrowing GradPLUS loans there is a credit check that looks for among other things: late or missed payments beyond 90 days. If you get denied a GradPLUS because you were missing car payments you are sunk... Best advice: concentrate on becoming a DMD and then once you have achieved that goal, your next can goal be a car owner.

 

[Sol Rosenberg]

As for the credit card thing to build your credit: if you have a card and pay it in full every month it does NOT increase your credit score since you haven't really used the credit. What you should consider is floating a balance for a payment cycle and then settle it. For example, you charge $300 for the month, pay $250 and float the other $50 into the next month then settle it all out. Yes you do pay a bit in interest (on the $250 since it wasn't settled entirely) but it's negligible, maybe $25 bucks (12%/365 days x 30 days for example). What you accomplish is you have used the credit and paid it off. Always hang onto the oldest one forever since the length of time a card is open is factored in. You only need to do this once and not every month...

I was with you up until here. This is absolutely untrue. Charging and paying off does count as using credit. Indeed, one can get into the opposite situation, (getting the "Revolving balances too high" warning) if one charges everything to their cards (to build rewards, for instance) and pays the card off every month. I think the CC companies just report the balance as of each statement. Even if you pay the card off every month, there is still a statement balance each month, it's just that finance charges are waived if the entire balance is paid during the grace period.

 

[AMDFAO]

I agree with the running the balance up etc but what I quoted was said by an expert in credit building who did an entire presentation on how to build your score and how the various types of credit and inquiries can make or break the score. Up until then I thought the "pay it in full" every month was the way to and would help increase your score so I was a bit surprised to hear that myself. The suggestion was to do it once and not over several months with a small balance. I would think you could accomplish the same with a 30 dollar balance over 2 months. I'm more than willing to ask a follow up question to the presenter and reconfirm (or retract since I can be wrong) and let you know. I also agree with the "rewards" part-- you'd be better off simply paying for the flight outright rather than floating balances and paying interest to get it for "free"-- call me jaded but nothing in life is free in my world.
And since I mentioned it earlier, I read today that Sallie Mae has thrown their support behind the part of the bill introduced in Congress that all education loans (read that as private/alternative) should be certified by a school; the others will surely follow suit.

 

[TMP-SMX]

The rewards are not free. You are taking money from merchants and giving it to the credit card companies. If you carry a balance, they are getting even more from you.

 

[alwaysaangel]

I was with you up until here. This is absolutely untrue. Charging and paying off does count as using credit. Indeed, one can get into the opposite situation, (getting the "Revolving balances too high" warning) if one charges everything to their cards (to build rewards, for instance) and pays the card off every month. I think the CC companies just report the balance as of each statement. Even if you pay the card off every month, there is still a statement balance each month, it's just that finance charges are waived if the entire balance is paid during the grace period.

Agreed. I've had a credit card for almost 5 years now (now I have 2), and I ALWAYS pay it off. There was only 1 month in 5 years that I left like 50 on it and that was paid off the next month.

That is the only sort of credit I have in my name (no loans, no car payments, NOTHING else except my pathetic checking balance and utilities in my name) and I have a 735+ credit score at the age of 23.

So even paying it off every month DEFINITELY builds credit. Whoever told you it didn't AMDFAO was feeding you a line of crap.

 

[TMP-SMX]

Agreed. I've had a credit card for almost 5 years now (now I have 2), and I ALWAYS pay it off. There was only 1 month in 5 years that I left like 50 on it and that was paid off the next month.

That is the only sort of credit I have in my name (no loans, no car payments, NOTHING else except my pathetic checking balance and utilities in my name) and I have a 735+ credit score at the age of 23.

So even paying it off every month DEFINITELY builds credit. Whoever told you it didn't AMDFAO was feeding you a line of crap.

I agree. I'm 22 and I have 4 credit cards paid off in full each month. At my highest point before getting my student loans last semester I was around 750. All I've had is credit cards.

 

[plauto]

It's a bad financial decision because you're paying an interest that is a lot bigger than what a dealer/credit union would charge you.

 

[treasurefull2]

As someone who has purchased 2 used cars in the recent past, I think I can provide some insight. My first car was lost in a flood.

1. Although for med, dental, grad student, we don't want to, cant afford and don't want the financial burden of purchasing a used cars, we usually don't have a choice!!! Even if it's financially unsound.

2. It's a good idea to buy a used car that is approximately 2-3 years old. Much less expensive than a brand new car, but still safe, reliable and affordable.

3. Buy toyota or honda (ie, non-american) if possible.

4. Do your best (in my opinion, you should always) get an extended warranty. Even if it costs $1000 on top. This will be a small addition to the monthly payment. But, if something goes wrong with your car, IT WILL BE EXPENSIVE, GUARANTEED. With an extended (especially, BUMPER-TO-BUMPER), you will just pay the deductible

5. Try and buy a car, or make a down payment that will leave you with an affordable monthly payment.

HERE IS MY SITUATION. I THINK IT WAS A WISE ONE, FINANCIALLY FEASIBLE FOR SOMEONE LIVING ON STUDENT LOANS, AND SAVED MY A S S WHEN MULTIPLE MECHANICAL PROBLEMS OCCURRED.

1. I bought a 2003 Chrysler Sebring
2. List price about $8500, brought it down to $7900
3. FORCED the dealership to give me a bumper-to-bumper 3 year warranty to cover my *** through med school. I think originally it was $1000 for 2 years, but they gave it to me for 3 years, 36,000 (on top of current miles)
4. I knew that I can only afford a monthly payment of $150-$170, so I made a down payment of approximately $4500, WITH LOAN MONEY, so that the final auto-loan from the bank was $5000 (the minimum), with about 8% interest.
5. Of course I'm not happy with the interest, but ****, there's no phucking choice
6. PAYING FOR EXTRA WARRANTY COVER MY *** BIG TIME. I've had 2 or 3 problems with the car already, and all I had to pay was the $100 deductible. If it has one more problem, i'm going back to the dealership to "clear up" the issue.

Yes, of course, if it was a brand new car, I probably wouldn't have these problems, but I also couldn't afford a brand new car right off the bat.

Unforeseen expenses:
1. Accidents can and DO happen. They will cost alot and raise your insurance deductible.
2. If you can, pay for $500 deductible on your insurance. If you REALLY have to save money, get the $1000. If possible, pay for all 6 months at once, or if you pay monthly, try and get AUTOMATIC DEDUCTIONS from your account. Missing an AUTO INSURANCE bill is MORE SERIOUS than other bills.
3. Parking and Traffic violations. This happens even to the best of us. Expect this happen to you.
4. Registration, Inspection, Emission. $50-$150 per year
5. Repairs, Tune Ups
6. Tires

SUMMARY: Buying a used car is not ideal, but sometimes there's no choice. Be frugal and CYA. Keep your monthly payments LOW, even if you have to extend your loan plan (either extend your repayment 3 years is reasonable in my opinion, or higher down payment). Keep in mind OTHER expenses, esp Insurance.

 

[plauto]

3. Buy toyota or honda (ie, non-american) if possible.

Why? Just because you had bad luck with Chrysler (and the model you bought is notorious for having many issues) it doesn't mean anything. In fact, in the 2-3 year old range you can get a much better deal on a Ford or GM than honda or toyota. Don't get me wrong, I like hondas a lot (not toyotas) but you can save yourself some money by looking at american brands. Just not Chrysler.....

 

[treasurefull2]

Why? Just because you had bad luck with Chrysler (and the model you bought is notorious for having many issues) it doesn't mean anything. In fact, in the 2-3 year old range you can get a much better deal on a Ford or GM than honda or toyota. Don't get me wrong, I like hondas a lot (not toyotas) but you can save yourself some money by looking at american brands. Just not Chrysler.....

I'm not sure what you mean by "better deal". But, American cars are well known to be of lesser quality than foreign cars. This is the reason, at least I found, that across the board, foreign cars are more expensive and keep their value much longer, and have less problems. Of course this is on average and you can find poor cars in either category.

In fact, this was the very reason why I bought an American car, because they are less expensive. I knew ahead of time that I might come across mechanical problems, which is the reason I purchased a full warranty.

 

[plauto]

I'm not sure what you mean by "better deal". But, American cars are well known to be of lesser quality than foreign cars. This is the reason, at least I found, that across the board, foreign cars are more expensive and keep their value much longer, and have less problems. Of course this is on average and you can find poor cars in either category.

In fact, this was the very reason why I bought an American car, because they are less expensive. I knew ahead of time that I might come across mechanical problems, which is the reason I purchased a full warranty.

I meant that they are cheaper. Yes some of them are not as good (and, too bad for you but the Sebring is notorious for being a mess, even the current version). Many american cars are also cheaper because rental companies buy mostly american so when they sell their fleet the price of the used car goes down, even though you are not buying a rental car, also the press always bashes GM so there is another reason. While I do agree that Hondas or Mitsubishi are good cars, I also think that if you do your homework you can buy an american car just as good and save money (some suggestions I have are Ford Fusion, Saturn Ion, Chevy Impala). No matter what brand just please don't buy SUVs
SUVs=unsafe and polluters

 

[TMP-SMX]

Keep in mind that many foreign cars require specific components that many auto shops will have to special order at higher costs.

 

[john9192]

My question is, is it possible to get approval for finance if you do not have an income? I mean, I tried out for pre approval for one of the banks for car loans and I got rejected for low income. My credit score is decent (~740) though. Let me know how you guys were approved for finance.

 

[treasurefull2]

My question is, is it possible to get approval for finance if you do not have an income? I mean, I tried out for pre approval for one of the banks for car loans and I got rejected for low income. My credit score is decent (~740) though. Let me know how you guys were approved for finance.

If you go through the car dealership, you should get approved. And just write that you have higher income than you do...

 

[AMDFAO]

My statement about floating a payment was partially true. The credit specialist was referring to if you pay the balance off before it is due, there is no balance to report to the credit agencies, thus it would appear that no credit was extended by that company. What she meant was if the payment was received and credited before they reported the balance up so you'd be paying the balance way in advance of the bill which I don't know anyone that ever would.
Apologies for misquoting her and confusing you all.
Good use of the word "crapp" by the way.