How Should I Go About Buying a Car? (College Student)
So you want to buy a car but have no money saved up.... That's going to be hard!! I'd suggest you get a part-time job, save up and buy a used car. Even with the minimum wage pay in the U.S., if you are in the U.S., you could save up and buy a car in less than a month. This route would be the quickest way for you to get a car but it would also teach you the responsibility of having one since it appears you have never owned a car before.  Now the car will most definitely not be fancy or look like the cars that your peer's parents bought but at least it will get you from point A to point B.  I'd look on Craigslist or your local neighborhood for cars that have not moved in a while or have for sale signs. Bring a mechanically inclined friend with you and contact the owner and explain them your situation. There are nice people out there that would give you deep discounts based on the fact that you are a student trying to get by. Now you have to get registration and insurance. There are many insurance companies that give discounts to students as well who have good GPAs and driving records. If you happen to get a car for a good deal, take good car of it. Once you graduate and further your career, you can resell it for a profit.  I also would not suggest you get any loans for a car given your situation.
If you have no credit score it is generally far easier and more affordable to establish credit the cheapest way possible, which is usually in the form of a small credit card (student card if you are a student, low credit line unsecured, or even secured if you need). Your local bank/credit union will usually be keen to offer you something to start out, but you can also apply online to some of the major credit card vendors. As always, look out for annual fees, etc. In general, trying to get a larger loan to establish credit will cost you a lot as you will not qualify for any legitimate 0% or ultra-low APR car loans - those are reserved for people with established and generally pretty good credit. I expect you'll find a car loan that will have a lower APR than you could get investing your money otherwise - especially if you do not have established excellent credit - to simply be a phantom (you won't find it), and even if you could it is more risky than it is worth. Furthermore, if establishing credit is important to you (such as for buying a house down the road), you can build an excellent credit score without ever having a car loan. So you don't have to buy a car on borrowed money just to hope to get approved for a house some day - it's just not a requirement. Finally, I urge you to make a decision on the best car for you in your situation, ignoring the credit score - especially if you are more than 3-5+ years away from buying a house. Everything else about buying a car is more important - the actual cost of the car, year, mileage, suitability for your needs, gas mileage, maintenance and insurance costs, etc.  Then, at the very end of your decision making process, ensure that buying the car would not put you dangerously low on savings by squeezing your emergency fund. Decide if you really need a loan or as expensive of a car, considering the costs over the expected life of you owning the car (or at least the next 2-5 years). Never get trapped into just thinking about monthly payments, which hide the true cost of loans and buying beyond what you can afford to purchase today. Presumably you need a car to get to work, so let's start with the assumption that you need to buy something to replace the car you just lost. The biggest difficulty to overcome in buying a car is the concept of the monthly payment. Dealers will play games with all of the numbers to massage a monthly payment that the buyer can swallow, but this usually doesn't end up giving the customer the best deal. The 18 month term is not normal for a lease, typically you'll see 24 or 36 months. You are focusing on another goal of paying your student loans by then which would free up much more money for other wants (like a car) but at what cost? The big difficulty of personal finance is the mental mind game of delaying gratification for greater long-term benefit. You are focusing on paying your student loans now so that you can be free of that debt and have more flexibility for the future. Good. You're tempted to spend another $5400 (assuming no down-payment or other surprise fees) to drive a car for 18 months. That doesn't sound any wiser than $5,000 for an unreliable used car that gave you more problems than you bargained for. Presumably you got some percentage of that money back from the insurance company when the car was totaled, but even if not, the real lesson should be finding a car that you can afford up-front, but also one that you can still use when the loan is paid off (like your education--that investment will keep giving even when the loans are a distant memory). My advice would be to look for a car that has about 30k miles on it and pay for it as quickly as possible, then drive it at least for 70-120k more miles before replacing it. You may wish for a newer car, especially in 3 or 4 more years when it starts to show its age, but you'll also thank yourself when you can buy a newer better car with cash and break out of the monthly payment game that dealers try to push on you. You might even enjoy negotiating with car salesmen when you see through their manipulations and simply work for the best cash price you can get. You should plan 1-3 months for an emergency fund.  Saving 6 months of expenses is recommended by many, but you have a lot of goals to accomplish, and youth is impatient.  Early in your life, you have a lot of building (saving) that you need to do. You can find a good car for under $5000.  It might take some effort, and you might not get quite the car you want, but if you save for 5-6 months you should have a decent car.  My son is a college student and bought a sedan earlier this year for about $4000. Onto the house thing.  As you said, at $11,000*2=$22,000 expenses yearly, plus about $10,000 saved, you are making low 30's.  Using a common rule of thumb of 25% for housing, you really cannot afford more than about $600-700/month for housing -- you probably want to wait on that first house for awhile. Down payments really should be about 20%, and depending upon the area of the country, a modest house might be $120,000 or $520,000.  Even on a $120,000, the 20% down payment would be $24,000. As you have student loans ($20,000), you should put together a plan to pay them off, perhaps allocating half your savings amount to paying down the student loans and half to saving? As you are young, you should have strong salary gains in the first few years, and once you are closer to $40,000/year, you might find the numbers working better for housing. My worry is that you are spending $22,000 out of about $32,000 for living expenses.  That you are saving is great, and you are putting aside a good amount.  But, you want to target saving 30-40%, if you can. "I usually recommend along these lines.  If you are going to drive the same car for many years, then buy. Your almost always better to buy, and then drive a car for 10 years than to lease and replace it every 2 years. If you want a new car every two years then lease. You're usually better off leasing if you're going to replace the car before the auto loan is paid off or shortly there after. Also you can get ""more car"" for the same monthly money via leasing. I honestly would advise you to either buy out your lease, or buy a barely used car. Then drive it for as long as you can. Take the extra money you would spend and spend it on an awesome vacation or something.  Also, if you're only driving 15 miles a day, then get a cheap, but solid car. Again, just my advice." "You can find out the most money they will loan you for a car loan when you approach your current bank/credit union. They should be willing to layout options based on your income, and credit history. You then have to decide if those terms work for you. There are several dangers with getting loan estimates, they may be willing to lend you more than you can actually handle. They think you can afford it, but maybe you can't. They may also have a loan with a longer term, which does bring the monthly cost down, but exposes you to being upside down on the loan. You then use this a a data point when looking at other lenders. The last place you look is the auto dealer. They will be trying to pressure you on both the loan and the price, that is not the time to do doing complex mental calculations. The Suntrust web page was interesting, it included the quote: The lowest rate in each range is for LightStream's unsecured auto loan   product and requires that you have an excellent credit profile. It also induced the example the rate of 2.19% - 4.24%   for a 24 to 36 month loan of $10,000 to $24,999 for a used car purchased from a dealer. Also note that my local credit union has a new/used loan at 1.49%, but you have to be a member. Sunstrust seems to be in the minority. In general a loan for X$ and y months will have a lower rate if it is secured with collateral.  But Suntrust is offering unsecured loans (i.e. no collateral) at a low rate. The big benefit for their product is that you get the cash today. You can get the cash before you know what you want to buy. You get the cash before you have negotiated with the dealer. That makes that step easier. Now will they in the near future ask for proof you bought a car with the money? no idea. If you went to the same web page and wanted a debt consolidation loan the rate for the same $ range and the same months is: 5.49% - 11.24% the quote now changes to: The lowest rate in each range requires that you have an excellent   credit profile. I have no idea what rate they will actually approve you for. It is possible that if you don't have excellent credit the rate rises quickly, but 4.24% for the worst auto loan is better than 5.49% for the best debt consolidation. Excellent Credit Given the unique nature of each individual’s credit situation,   LightStream believes there is no single definition for ""excellent   credit"". However, we find individuals with excellent credit usually   share the following characteristics: Finally, it should be noted again that each individual situation is   different and that we make our credit judgment based on the specific   facts of that situation. Ultimately our determination of excellent   credit is based on whether we conclude that there is a very high   likelihood that our loan will be repaid in a full and timely manner. All the rates mentioned in this answer are from 15 July 2017." Generally, banks will report your loan to at least one (if not all three) credit bureaus - although that is not required by law. The interest you're paying, in addition to your insurance isn't justifiable for building credit. I would recommend paying the car off and then perhaps applying for a secure credit card if you are worried about being rejected. Of course, since you have very little credit, applying for an unsecured card and getting rejected won't hurt you in the long run. If you are rejected, you can always go for a secured credit card the second time.  As I mentioned in my comments, it's better to show 6 months of on-time payments than to have no payment history at all. So if your goal is to secure an apartment near campus, I'm sure you're already a step ahead of the other students. You have a good start (estimated max amount you will pay, estimated max down payment, and term) Now go to your bank/credit union and apply for the loan. Get a commitment. They will give you a letter, you may have to ask for it. The letter will say the maximum amount you can pay for the car. This max includes their money and your down payment. The dealer doesn't have to know how much is loan. You also know from the loan commitment exactly how much your monthly payment will be in the worst case. If you have a car you want to trade in, get an written estimate that is good for a week or so. This lets you know how much you can get from selling the car. Now visit the dealer and tell them you don't need a loan, and won't be trading in a car. Don't show them the letter. After all the details of the purchase are concluded, including any rebates and specials, then bring up financing and trade-in. If they can't beat  the deal from your bank and the written estimate for the car you are selling, then the deal is done. Now show them the letter and discuss how much down they need today. Then go to the bank for the rest of the money. If they do have a better loan deal or trade in then go with the dealer offer, and keep the letter in your pocket. If you go to the dealer first they will confuse you because they will see the price, interest rate, length of loan, and trade in as one big ball of mud. They will pick the settings that make you happy enough, yet still make them the most money. "Any one of your three options is viable and has its advantages and disadvantages. Personally, I would go for the used option, but I am can-do kind of person. If you don't like micro-managing a car, you may prefer leasing. A new car is sort of the middle of the road option. Leasing will be most expensive and most liability. If you have an accident, the leasing arrangements are designed to extract money from you... heavily. Even a minor accident can require you to pay for expensive repairs, usually much more expensive than if you had your own car fixed. So, not only will you pay more per month, but your accident liability will be a lot higher. With your own car, you will need to sell it (or bring it back to the UK) obviously. A used car will be the cheapest option. A non-descript used car from the local area can also make you ""blend in"" and be less like to be targeted by a criminal as an outsider. As long as you stay away from dealers and buy the car from a private person of good reputation, you have an odds-on chance of getting a decent car. Make sure you check out the person and make sure they are ""real"". Some dealers, called ""curbstoners"", try to pretend to be original owners. You can always spot such frauds because the title will be new. Make sure the same owner has had the car for at least 3-4 years and that it says that on the title. Also, try to buy from somebody who is financially well off--they have less reason to try to screw you. Students, people under 30 and working class are bad people to buy from. Married professionals over age 35 are the right kind of person to buy from." Ideally you would negotiate a car price without ever mentioning: And other factors that affect the price. You and the dealer would then negotiate a true price for the car, followed by the application of rebates, followed by negotiating for the loan if there is to be one. In practice this rarely happens. The sales rep asks point blank what rebates you qualify for (by asking get-to-know-you questions like where you work or if you served in the armed forces - you may not realize that these are do-you-qualify-for-a-rebate questions) before you've even chosen a model. They take that into account right from the beginning, along with whether they'll make a profit lending you money, or have to spend something to subsidize your zero percent loan. However unlike your veteran's status, your loan intentions are changeable. So when you get to the end you can ask if the price could be improved by paying cash. Or you could try putting the negotiated price on a credit card, and when they don't like that, ask for a further discount to stop you from using the credit card and paying cash. "This was a huge question for me when I graduated high school, should I buy a new or a used car? I opted for buying used. I purchased three cars in the span of 5 years the first two were used. First one was $1500, Honda, reliable for one year than problem after problem made it not worth it to keep. Second car was $2800, Subaru, had no problems for 18 months, then problems started around 130k miles, Headgasket $1800 fix, Fixed it and it still burnt oil. I stopped buying old clunkers after that. Finally I bought a Nissan Sentra for $5500, 30,000 miles, private owner. Over 5 years I found that the difference between your ""typical"" car for $1500 and the ""typical"" car you can buy for $5500 is actually a pretty big difference.  Things to look for: Low mileage, one owner, recent repairs, search google known issues for the make and model based on the mileage of the car your reviewing, receipts, clean interior, buying from a private owner, getting a deal where they throw in winter tires for free so you already have a set are all things to look for. With that said, buying new is expensive for more than just the ticket price of the car. If you take a loan out you will also need to take out full insurance in order for the bank to loan you the car. This adds a LOT to the price of the car monthly. Depending on your views of insurance and how much you're willing to risk, buying your car outright should be a cheaper alternative over all than buying new. Save save save! Its very probably that the hassles of repair and surprise break downs will frustrate you enough to buy new or newer at some point. But like the previous response said, you worked hard to stay out of debt. I'd say save another grand, buy a decent car for $3000 and continue your wise spending habits! Try to sell your cars for more than you bought them for, look for good deals, buy and sell, work your way up to a newer more reliable car. Good luck." sadly, it is illegal in most states to buy a car directly from the manufacturer. as such, most manufacturers do not offer the option even where it is legal. if you really do know exactly what you want (model, color, options, etc.) i recommend you write down your requirements and send it to every dealer in town (via email or fax).  include instructions that if they want your business, they are to reply via email (or fax) with a price within 7 days.  at least one dealer will reply, and you can deal with whoever has the best price. notes: One point I don't see above: Consumer's Union (the nonprofit which publishes Consumer Reports) has a service where, for a small fee, they'll send you information about how much the car and each option cost the dealer, how much the dealer is getting back in incentive money from the manufacturer,  and some advice about which features are worthwhile, which aren't, and which you should purchase somewhere other than the dealer.  Armed with that info, you can discuss the price on an equal footing, negotiating the dealer's necessary profit rather than hiding it behind bogus pricing schemes. Last time I bought a new car, I got this data, walked into the dealer with it visible on my clipboard, offered them $500 over their cost, and basically had the purchase nailed down immediately.  It helped that I as willing to accept last year's model and a non-preferred color; that helped him clear inventory and encouraged him to accept the offer. ($500 for 10 minutes' work selling to me, or more after an hour of playing games with someone else plus waiting for that person to walk in the door  -- a good salesman will recognize that I'm offering them a good deal. These days I might need to adjust that fair-profit number up a bit; this was about 20 years ago on an $8000 car... but I'm sure CU's paperwork suggests a current starting number.) It isn't quite shelf pricing. But at least it means any haggling is based on near-equal knowledge, so it's much closer to being a fair game. As someone who was just recently a salesman at Honda, I'd recommend buying a Honda instead :). If you really prefer your Toyota, I always found quote-aggregation services (Truecar, I'm blanking on others) very competitive in their pricing. Alternatively, you could email several dealerships requesting a final sale price inclusive of taxes and tags with the make, model, and accessories you'd wish to purchase, and buy the vehicle from them if your local dealership won't match that price. Please keep in mind this is only persuasive to your local dealership if said competitors are in the same market area (nobody will care if you have a quote from out-of-state).  As many other commenters noted, you should arrange your own financing. A staple of the sales process is switching a customer to in-house financing, but this occurs when the dealership offers you better terms than you are getting on your own. So allow them the chance to earn the financing, but don't feel obligated to take it if it doesn't make sense fiscally. "This is my opinion as a car nut. It depends on what you want out of a car. For your situation (paying cash, want to keep the car long-term but also save money) I recommend seriously considering a slightly used vehicle, maybe 2 or 3 years old, or a ""certified pre-owned vehicle"". Reasons: Much less expensive than a brand new car because the first two years have the biggest depreciation hit. Cars come with a 4-year warranty, so a 3 year old car will still be in warranty. Yes, a certified pre-owned car will have a bit of a premium compared to a private-party used car, but the peace of mind of knowing it's in good shape is worth the extra cost considering you want to keep it long term. Consumer Reports will have good advice on the best values in used cars." I have used car buying services through Costco and USAA.  Twice with a Ford, and once with a Honda.  In all instances I was directed to sales people that were uncommonly friendly and pleasant to work with.  I was given a deep discount without any negotiation.  In two of the three cases I did not have a trade.  In one case I had a trade, and negotiated a deeper discount then was originally offered.   Did I get a good deal?  Eh, who knows?  Really it depends what your goal is.   If your goal is to avoid negotiation, avoid idiot salesmen, and receive a good discount then a quality car buying service may be for you.  My research, a few years old, indicated Costco's program was better then the USAA one. If your goal is get a deep as a discount as possible on a new car, well then you have some work cut out for you.  Keep some hand sanitizer handy when you meet one of the slime ball salesmen.  Keep in mind that not everyone understand the difference between the words value and cheap. If your goal is to pay as little as possible for quality transportation.  Avoid most dealers and new cars. But I don't think that is what you are looking for.