Car loan questions- College student

[Kaida]

This is my first post, so Hi!!!!

I have been lurking on the forum for the past month or so, and have finally decided to ask a few questions.

Some background first:
I am a 20-year-old community college student. I will be attending community college through May of 2012, and then a four-year institution in August of 2012, and graduating in May of 2014. The school I am interested in has a tutition bill of under $7000 a year, currently. I currently live at home, and plan to do so until after college graduation/getting a real job. I currently work two jobs, both with varying income. I work 4-6 hours a week at a retail job (more like a hobby that pays about $20, after taxes, each week), and I work 20-30 hours a week as a receptionist at a car dealership. I bring in anywhere between $200-$300 every 2 weeks. These are my only source of income. I have no real bills (parents pay for phone, living expenses, and all that), except a credit card that I charge $20 a month on for gas, and then pay when the bill comes in, just to build a credit history. Last April, I was hired into the receptionist position, and in total in 2010, made $11,500. I have nothing to show for it. I blew through all that money and feel so bad about it. This year I want to be different. I will make about $11,000 again this year (I used to work more hours, but school has gotten in the way). This year, scholarships and grants paid for school completely, and I can expect that to happen again this next school year. I only have one debt, an unsubsidized Stafford loan from my first year in school, originally $3500, but now just under $3800 because of interest. I want to pay this off now. I have plans to do so by June (using my receptionist paychecks and my tax return).

This is where my question comes in:
After doing so, I plan to save for a car, which I don’t have one yet. My parents cannot help me with a car, so I will be completely on my own. I will need to buy a car before August of 2012, as I will need transportation to and from the four-year school I plan to go. The car I am eyeing is a 2007-2009 VW GTI. I want these years, of this car for personal reasons, and can't see the worth of buying much else, as this is the car I want. The car currently retails for $17000-$19000, but I hope it will drop to $15000-17000, by August of 2012, when I need to purchase it. I plan to have about $8000 saved up before purchasing. Would you guys suggest a car loan to cover the rest? Could I (or should I) get a student loan to cover the rest, instead of a car loan? I can plausibly get a student loan, because loan companies see transportation as a college expense. Do you think $7000-$9000 is too much debt for a then-21 year old to have, since it is almost all of one-years income? I will have no other debt at that point in time, but may acure some in the following two years. I was looking information up about debt-to-income ratio, but none of it seemed to apply to me, since I don’t have to cover living expenses. I just need some guidance, and would appreciate the thoughts of everyone here. Help?

[disneysteve]

Welcome. I absolutely think you should reconsider your car plan. It sounds like you are way too hung up on that particular car. I don't know what the "personal reasons" are but get over it. It's just a car. If you expect to have $8,000 saved, you should be looking for a car costing no more than $8,000 - not $17,000. You can get a very nice and dependable car for less than $8,000. And don't forget that you also need to insure that car. The more costly the car, the more expensive the insurance, so be sure to factor that into your planning.

I'd also suggest looking for better work. The retail job is really a waste of your time just to bring home $20/week. And you aren't making very much at the car dealer either. Have you looked into waitressing? I bet you'd make more in tips than the minimum wage (or less) that your current jobs are paying.

[snafu]

I'm not sure I read this correctly, you are in 2nd year of a 2 yr community college program. Scholarship & grants paid school costs, parents paid living expenses [room/board, phone, + ?] Earnings $ 11,000. BUT a Stafford Loan $35,000 + $3,000. interest? How was the Stafford Loan used? How was $ 11,000. used? You've 'burned through' $46,000. primarily for ?????

I don't want to seem harsh but I know most high school, college and university students take summer jobs working as many hours as they can get, earning as much as possible no matter how grotty the work to contribute as much as possible for tuition and books. Student loans are very serious since they require full payback no matter your circumstances even in bankruptcy. The choices you make have the potential to affect opportunities for a dozen years. How much interest will your current Stafford Loan cost you by the time it's paid off?

What is the current interest rate on car loans? You need to assemble facts and figures before making irreversible decisions.

[disneysteve]

Stafford Loan $35,000 + $3,000. interest?

You misread that. The loan is $3,800, not $38,000. Big difference.

[Like2Plan]

Kaida,
You have a lot of things going for you right now.
1. You have a small student loan that you are going to get rid of in short order.
2. You have a good sound plan for getting your education.
3. You are planning ahead and setting goals for a major financial purchase.

A lot of folks would have plunged ahead and would be wrting this post after the purchase was made and they found themselves in a pickle.

...I want these years, of this car for personal reasons, and can't see the worth of buying much else, as this is the car I want....
...I plan to have about $8000 saved up before purchasing. Would you guys suggest a car loan to cover the rest? Could I (or should I) get a student loan to cover the rest, instead of a car loan?

I think it is excellant that you are planning to save up money for this car purchase. Is it technically possible for you to get a loan for the additional $$? Absolutely. But, the terms may not be favorable--ie you may end up paying a higher interest rate because of the amount of your income. You may be able to get a student loan and use the money for a car, but look at how hard you are working to retire the student loan you currently have--why would you want to turn around and get a loan for any more than you absolutely need to get yourself through college?

This will not be the only car you will ever purchase. Do you want to burden yourself with extra debt for a car that is a want and not a need? I believe $8,000 would buy a pretty good used car and it would take some pressure off of you.

[bjl584]

Why do a want a VW 2007 to 2009 GTI and nothing else? I agree with Steve. Get over your personal reasons for wanting this car. It's just a car. It's actually a German car. That means good quality, but it also means expensive repair and maintance bills. I would take whatever cash you have saved up ($8000 in your case) and buy a car for cash. There are plenty of reliable vehicles out there for that amount or less. Once you graduate school, get a better job, and save up some money, then you can worry about getting something more in-line with your personal wants.

[Tree0164]

Get an older car-something that is $5k-$8k and pay it in the cash.

[littleroc02us]

Welcome to the forum. I think you need to take a step back and look at what your asking. You make around 11k a year, which is actually considered poverty level by the IRS and you are going to college and wanting to purchase a 15-17k car by 2012. Does that sound like a good idea to you? Here is what I would suggest.

1. Pay off the $3800 school loan asap. (By June as you stated)
2. Because your going to college and you will have new expenses when you go to the new college, I would put the rest in the bank. Dont touch the money because your going to need it to pay for college. I would work on paying for school with cash so that when you graduate you don't have any debt.
3. Before 2012 pay cash for a $5000 used car just to get you by while going to college. This is more than adequate for you at this point. It's not like your going to drive a cheap car all your life, but you should't spend much money on a car at this point. A 07-09' VW GTI is a luxury not a necessity, a 5k car at this point in your life is a necessity.

* Just know that I warned you before you go and put yourself in jeopardy.

[disneysteve]

a 5k car at this point in your life is a necessity.

Even that is being a bit generous. I drive a 1998 Toyota, currently worth maybe $3,000 and probably less. It is a perfectly good car. My one receptionist just started having car trouble last week on the car she bought 3 years ago for $800. This is the first time she's had to do anything but routine service. My medical assistant drives a 1998 Toyota with over 300,000 miles on it. Probably not worth a damn thing today but she commutes 45 minutes each way to work in it and does just fine.

OP, buy a cheap car and hang onto your cash. Definitely don't take on any debt to get a car at this point in your life (or ever if you can).

[MonkeyMama]

In college I drove the car I paid $1500 for when I turned 16. It lasted until a few months out of college (I drove it 7 years).

Heck, my spouse paid $8k for his current vehicle (a little less) and we expect to drive that one at least 15 years (we are 10 years in).

You can do with much less, but something in the $5k range would probably do you well. Shop carefully and you don't have to spend much for a reliable car that will last you until you graduate and make more money.

[DebbieL]

I agree. You can find really nice cars (even here in Canada - where they cost way more than in the US) for $8K and less.

DH paid $7K for his 2004 Alero a few years ago - it's a great car and still going strong.

I paid $4.7K for my 2000 Chevy Monte Carlo SS (very sporty). I love it, but I'm thinking of selling it and getting something a bit more practical for me. My budget will be under $7K.

[dczech09]

OP, I am a 23 year old college graduate with a good job and income. I am essentially your future. There are two things I have done financially that I regret: student loans and a car loan. I took out a 60 month car loan for about $11,000 and will finally have the thing paid off before June this year. I will have had this car loan for just under 2 years total, which is not bad considering other people's situations.

When you get out of college, the less debt you have, the better. If you graduate with no debt and find a solid job that pays more than $30k every year, you will be setting yourself up for a SWEET life. Pay off that student loan, save up that $8000 and buy an inexpensive and reliable car for $7000 or less. Set up a nice $1000 emergency fund and you will be ready to rock. Trust me, car debt is probably the worst debt you can have. I will never ever take out another car loan after I am done with this one.

[baptiste.tyrell]

As a student I wouldn’t look at picking up a loan so early in life. Maybe go for a used car which you can pay for outright.