‘Graduated college last May. I really need to buy a new car. Thoughts on where I am and any advice?’: I am stuck between getting a car loan or buying used with limited credit. How can I make the best financial decision?

Hi Money Minder,

I’m finally getting around to budgeting and trying to figure out what I can afford for a car payment. Right now, I’m spending 79% of my take-home pay on the cost of living. I really need a new car because the one I have is basically a death trap. My credit is just average because I only got a credit card last summer. I’m thinking about either getting a car loan or buying a used car for around $16k. I could handle a $400 car payment if I had to.

I’m a 24-year-old guy with $10k in a high-yield savings account that I wish I had opened sooner. I also have $38k in checking and $6.8k in random stocks. Luckily, I don’t have any debt. I joined the National Guard in my state to help pay for college, which covered tuition and put some extra cash in my pocket. Since I grew up poor, financial aid mostly went straight to me.

I graduated from college last year and now work as an engineer making $54k. I’m in a professional development program where my pay will go up by $10k each year for the next 3 years. Eventually, I’ll be making around $100k when I finish my master’s degree next fall.

I’ve only had two old beat-up cars that I paid cash for, and I’m really afraid of getting into debt. Any advice on how I can approach getting a car? Just to clarify, I definitely won’t be buying a brand-new car. I’m looking for something used, around $16k, and made after 2017.

Thanks for your help, Money Minder!

Best,

Road Trip Dreamer

Response from THE MONEY MINDER:

Hello There,

Congratulations on being proactive about budgeting and evaluating your financial situation in order to make an informed decision about purchasing a car. It’s great that you have no debt and that you’ve been able to save a significant amount of money, including having a high-yield savings account.

Given your income, saving habits, and future financial prospects, it sounds like you are in a good position to afford a car within your budget. Since you’ve had concerns about taking on debt, it’s wise to opt for a used car that fits your needs and price range. Your target of a used car post-2017 around $16k is a reasonable choice and should provide a reliable vehicle without the depreciation hit of a new car.

Considering your current financial state, it may be a good idea to save up a bit more to put down a larger down payment to reduce the loan amount and monthly payments. With your disciplined saving habits, this should be achievable. When seeking a car loan, make sure to shop around for the best interest rates and terms that fit your budget. You may also want to consider getting pre-approved for a loan to have a clear idea of your purchasing power before visiting dealerships.

Overall, it seems like you are taking a thoughtful and responsible approach to this decision. By sticking to your budget, being cautious about debt, and leveraging your financial stability, you should be able to find a suitable vehicle without compromising your financial well-being. Best of luck in your car search journey!

Farewell from THE MONEY MINDER