Pay Cash or Finance first car???
Our child is graduating from community college this year. Originally, it was our plan that he goes to school for four years, but he wants to start working. The money we saved for his education is gone. If he wanted to go two more years, it would be on a student loan. As it stands now, he has $0 in debt and about $12,000 in savings from jobs he's had. We could give him some more as a gift.
His car is a piece of junk. He knows that to find meaningful work, he's going to have to commute a good 50 miles each way.
He tells us he wants to buy a 2007 Hyundai Accent 5 speed which will get upper 30's and cost about $14,000 delivered. Seems like a practical commuter car and we want him to work if that's his choice.
Should he buy the car for cash or should he get a loan? He doesn't make much now, so would we have to co-sign the loan? This is no problem, but would it help him?
I agree with the cheaper used car idea, but I'd say he should finance it, and keep some cash around for emergencies, bills, etc. Good payment history on the loan will earn him a good credit rating. Besides, at 100 miles/day, with a car that gets a respectable 25 MPG, that's 4 gal/day. At $2.50/gal, that's $10/day, $50/wk, $200/mo. His gas payments will be more than his car payments! Better yet, keep the clunker, and use $10k of the savings as a down payment on a condo closer to the job. Home ownership is the real key to financial success.
