College Kids Don't Need New Cars

Devon is driving a beater, and he has the cash to pay for a new car. But every time he goes to a dealer, they want him to finance it. Should he pay cash for it?

QUESTION: Devon in Gainesville is driving a beater, and he has the cash to pay for a new car. But every time he goes to a dealer, they want him to finance it. Should he pay cash for it? Dave strongly advises Devon against buying a new car.

ANSWER: Car dealers make more on the financing package than they do on the sale of the car. Who gives a crap what they want?

You absolutely do not need to buy a new car under any circumstances. A new car loses 60% o its value in the first four years, and you're going to put the majority of your total financial nest egg into something that's going the wrong way—a new car. No. They blessed you by running you off the lot. You need to buy a used car.

You don't need to finance a car. You're a 24-year-old broke college student who somehow has been smart enough to scrape up $30,000, but you shouldn't buy a new car unless you have a $1 million net worth, because a new car goes down in value. A $28,000 car will be worth $11,000 in four years.

If I were in your shoes, my budget for a car would be $10,000 or less. Pay cash for a great used car with low mileage.

Financing absolutely helps your credit score, because your credit score is completely composed of you borrowing money and paying it back. Your credit score is not an indication that you're smart. It's not an indication that you're winning with money or that you have money. It's an indication that you borrowed money and paid it back a lot. You love to play kissy face with the bank. That's what your credit score is.

Devon, here's what you've got to remember: Everybody is broke, so we really don't care what they think about money. You don't listen to broke people's financial plans. The truth is that you can get a mortgage if you have an absolute zero credit score, if you have rented and paid your rent on time for two years, you've been steady on the job for two years, and you have a reasonable down payment, which you will have all of those because you're an unbelievably responsible and industrious 24-year-old. You're ahead of the game. Please pay cash for a car $10,000 or less.

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