Home > Student Loan vs New Car

Student Loan vs New Car

April 23rd, 2024 at 06:50 pm

Lately, I've been focused on paying down my student loan, putting any extra money towards that debt. 


However,  I completely neglected to save for a new car. Recently, I had to fork out $2,000 for car repairs, which was a frustrating realization because I haven’t been saving at all for a car—just saving to cover my insurance.


Now, my car is running smoothly again, but it has nearly 300,000 miles on it. I'm faced with a decision: should I pause the extra payments on my student loan to start saving for a new car, or should I continue as is and try to minimize my student loan debt? 


Currently, I’m accruing $5.40 per day in interest on my student loan, and my monthly payment has been around $800, this includes about $500 extra a month. I'm considering reducing this to $360, which is actually my monthly payment and putting the rest towards a down payment for a new car.


A few months ago I had the new car itch, finally got through that only to be in the dumbs due to a breakdown. 


I feel like I’m never going to get ahead of this debt, feeling down. 

2 Responses to “Student Loan vs New Car”

  1. Lots of ideas Says:

    There are a lot of variables in play.

    How much would a new car cost?
    Would it be significantly more fuel efficient?
    What would you pay in sales tax (if any)?
    How much would your insurance go up?
    Would you buy thru a dealer? What would interest rate be on a loan?
    If you’ll buy privately, what would your interest rate and excise/wheel tax be?
    What would your monthly cost net out too
    It will cost you a small amount in lost interest reduction to save $2000 or so. If you can put money into a 5% HYSA or cd for 3-4 months you’ll minimize the hit on your loan interest costs.

    I don’t know how you efund is banked - if it’s in a HYSA, just add $500 per month to it. If not, take $2000 from it to put it in a cd and pay it back $500 per month. (And look for a HYSA or to ladder your efund into CD’s - you would never need the full amount all at once)

    Then start the research on the kind of car you want, what that will cost you.
    If you decide to hold off, just put the $2000 towards the loan or hold on to it for your down payment when you’re ready.

    If you decide to buy, limit your loan payment to $500 per month less the increased insurance/tax costs.
    The student loan with theoretically take longer but you’ll have money you aren’t throwing on car repairs to put towards it.
    I hate the uncertainty of a car breaking down more than slow but steady debt payoff. I wouldn’t go 4 years with an unreliable car and if you are going to replace it, it’s do it.

    And don’t let any dealer into ‘must buy now to get this deal.’ Just gather information.

    But that’s my priorities. You have to figure out yours.

  2. LuckyRobin Says:

    I would not buy a brand new car. I'd buy a used one, maybe a Corolla or Camry with 150,000 to 200,000 miles, because it will still have up to 300,000 to 350,000 to go. Something under $15,000. Toyotas go forever, so they are a good brand, and they trade in well. Get something old, like 2008 to 2014, preferably with one owner. You don't need brand new while you are in debt. That's a trap. You just need better than what you have. That is assuming you can meet your other bills, still pay down your student loan, and not stress out over it. Otherwise, just baby your old car and start putting money aside for car maintenance. Which can always be used towards a down payment on a used car if another repair is going to cost too much. Another $2000 repair would be my no point if I were in your situation, but only if you spent no more than $15K towards the next used car. I would completely say no to a new one.

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
Will not be published.

* Please spell out the number 4.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]