Buying a Car as a Medical Student
I am nervous when Dr. Haywood speaks to the medical students at our campus visits about the need to have reliable transportation. He looks to me and suggests to students to contact me inferring that I will be able to help them secure the funds to get that reliable ride. Unfortunately, the issue is that medical students who borrow through the federal student loan programs are not able to get funding specifically to purchase a car or adjust the Cost of Attendance (COA) for car payments. For the frugal medical students who still have room to borrow additionally, they can use the funds to purchase a car, if needed. But, to simple adjust the COA to purchase a car or maintain car payments, this is a federal guideline no-no.
Student’s freak out at the thought of having to purchase a car, especially those who come from places like Boston, New York or Washington DC where there is actually a Mass Transit system that allows for the absence of a car. Mass Transit that does not exist in Indiana. Here, a car is a need and not a want. I sometimes marvel at the four cars parked in my driveway (my clunker van, my daughter’s car, my wife’s car and our recent $11,000 used van purchase). I am proud to say that I have only purchased used cars for most of my life and they have all been good to me. Three out of the four cars in our driveway sport over 100,000 miles. My spouse finally convinced me to sell my daughter’s car (2003 Mitsubishi Lancer with 80,000 miles). A nice little car and clean, too. It is in pristine condition, but probably won’t get more than $2,500 for it according to the blue book. In fact, we already have a buyer, a 3rd year PhD student from India who wants the freedom of being able to drive everywhere they need, but not until she gets her license. Now, she has motivation to get that license. We will her with the parallel parking test.
For medical students, the purchase of a car is necessary for their upcoming clinical years, which will require them to travel to hospitals around town at odd hours of the morning and night as well as throughout the state of Indiana for those away rotations.
People lose their MINDS over cars!!! These useful toys often become one of the biggest barriers to living debt free. Remember that outside a mortgage or rent, car payments are usually the biggest costs in someone’s budget. Below a list that I recently saw posted in a blog that was written by a medical student detailing the list of car-madness pitfalls that students should avoid.
- Don’t Buy a New Car. The second you drive your shiny new debt-mobile off the lot it depreciates 11%. Is the new car smell really worth thousands of dollars? NO. Over the next 5 years, a new car is estimated to depreciate 15-25% of its current value per year. This means that you can buy a lightly used car for far less the cost!
- Take Pride in your Junker Car. In a society that values a person by the fanciness of their car, you have the opportunity to show how hip you are and stick it to the man. Instead of flaunting your wealth (or in most cases your pretend-wealth), flaunt your sensibility.
- Avoid monthly car payments. If you have to make payments, then you can’t afford it.Buy a cheaper car, or save up more money. Somehow the car industry has sold the idea that having a car payment is the American Dream. People nowadays get excited about paying off their car because it means they can rush down to the nearest dealership and sign up for a new and bigger pile of debt! (But it’s ok, because the newer debt-mobile has a built in coffee maker, touch screen controls, shinier paint, seats made of the finest leather from the soft underbelly of a water buffalo, and 200 more horsepower that you will definitely need while complying with legal speed limits). This is madness! Cars instantly and continuously depreciate in value. Yet rational human beings willingly pay interest on something that is GUARANTEED to be worth less every single day.
Use this simple rule: if you can’t afford it, don’t buy it. Instead of taking out a car mortgage, use foresight and save up before you buy the car. One common argument against my rule employs opportunity cost. The argument is that car payments allow you to invest the money you would’ve spent by paying for the car in cash, and that the investments will earn you a higher percentage than the mortgage rate. This argument is also used against people who want to pay cash for a house. While technically true, my response is this: The opportunity cost argument is only valid if you actually invest the money you would’ve spent on the car. However, I am willing to bet that in most cases the extra money is not invested, but rather it mysteriously vanishes out of your wallet due to creeping lifestyle costs. Opportunity cost only works if the alternate scenarios are things that you actually plan on doing.
- Don’t Lease a Car.The only logical reason to lease a car is if your profession requires you to drive a new car at all times. This certainly does not apply to a medical student in debt. DON’T DO IT. A common argument for leasing a car is that it saves you from costly repairs. Here’s my reply:
Imagine you lease a car, and the contract is $200/month for 24 months. Over those 2 years you will spend $4,800. Now let’s imagine that instead of leasing a car, you bought a used sensible car for $4,800. That car only has to last 2 years and 1 day for it to be better than leasing a car. Even if the engine falls out of the frame on the very last day, it still comes up equal. More realistically, you’ll put in a couple hundred dollars of work over the years, and the car will last much longer than the opposing 2 year lease contract, saving you more money per extra year compared to the person who leased their car.
- Find a mechanic you trust. This is a lesson I have learned from my father in law. He has the talent of building relationships with owners of business establishments. Both of our cars were purchased from a dealer that he knew, and inspected by a mechanic he trusted. The used car market can be scary, and making friends with professionals can help you avoid lemons. When buying a used car, make sure to have it inspected by someone who knows what they’re looking for.
- Learn about the used car market. When students realize they will need to purchase a car, they shouldn’t rush out and purchase the first car they see. Instead, they should start watching the market. Comb through the classifieds and pay attention to the asking price in relation to the year, model, and mileage. You need to be able to pick out a good deal, as well as avoid something that is too good to be true (often a lemon). A nice guide for the worth of used cars is thekelly blue book.
- Realize that a car is not an investment. The only thing you should be worrying about is the amount of miles you expect to get out of your car, compared to the cost. Repeat after me: Miles per dollar. Miles per dollar. Miles per dollar.
Maybe it’ll help if we make it into an equation: Value of car = (expected miles it will last/cost). Notice that according to this equation, the more expensive your car is, the less real value it has. Remember this when you’re tempted to upgrade to a fancier model that has gps services, professional sound system quality, gold-lined seat upholstery, extra horsepower, etc. Remember, your car is a tool, and its purpose is to get you from point A to B, and since you are swimming in debt, you want this tool to be as cheap as possible.
What better advice than coming from a medical student himself. Keep it simple. Buy smart. Buy inexpensive (not cheap!… I didn’t like that… you can get good quality items for less, but you must be an intelligent consumer to do so). Get the most bang from your buck! Get the best you can with what you have now! It will save you money in the long run!