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HomePersonal FinanceOught to I Tackle Pupil Mortgage Debt to Purchase a New Prius?

Ought to I Tackle Pupil Mortgage Debt to Purchase a New Prius?

Expensive Penny,

Our Prius wants repairs. We belief our mechanic and the repairs are legit. It has 170K+ miles on it and the newer fashions get even higher fuel mileage. We at the moment have two automobiles, however since we largely work at home, we do not actually need each. I assumed we might consolidate and get one nicer Prius. 

I used to be shocked to see that even a 2016 Prius goes for like $18K. The bottom mannequin for the Prius Prime is $28,500 and qualifies for a $7,500 tax credit score. So, $21K to purchase a brand new Prius with electrical capabilities, mainly zero miles and is below guarantee, with a negligible distinction in worth from the used hybrids. 

The lengthy and wanting it’s, when you think about our trade-in values, financial savings and the tax credit score, we’d nonetheless want a mortgage of about $3,500. (I am conscious that we would have to attend to get it again till we file our taxes.) I do know it might be supreme to attend and save, however our Prius wants repairs now. 

I am additionally a web-based scholar however pay for my schooling with largely grants and scholarships. Immediately I logged into my monetary support account to reject my scholar mortgage presents like I normally do and one thing caught my eye. It says the federal government pays the curiosity when you’re at school and for six months after. I’ve two years left. Mainly, we might get an interest-free mortgage. I really feel assured we might pay it again earlier than any curiosity begins accruing.

It looks as if an incredible deal, however my interior frugality is antsy. Is taking a mortgage ever a good suggestion? For reference, we’re very accountable and have glorious credit score as a result of we at all times pay our payments and have a 100% success charge paying loans off early, although we keep away from them after we can. If it helps, it is simply me and my husband, and we do not need children. 

-Frugal Pupil 

Expensive Frugal,

I’m not a part of the all-debt-is-terrible college of pondering. The place this will get difficult is that you simply need to use a scholar mortgage to pay for the Prius. Pupil loans are primarily based in your value of attendance for college.

The U.S. Division of Schooling’s value of attendance system contains an allowance for books, provides, transportation and miscellaneous private bills. However the Federal Pupil Support Handbook explicitly states that scholar mortgage cash can be utilized for “prices for working and sustaining a car that’s used to move the coed to and from college, however not for the acquisition of a car.”

In your case, utilizing scholar mortgage cash for transportation bills is particularly murky. You’re a web-based scholar, so presumably, you aren’t commuting to and from campus.

There’s an apparent work-around, although. You possibly can take out a scholar mortgage and use it to pay for allowable bills, like tuition and provides that aren’t coated by your grants and scholarships, housing and groceries. I’m guessing these prices will add as much as greater than $3,500. Then you definitely’d unencumber cash in your price range for the automobile fee.

Realistically talking, you may’t decide whether or not you’re spending scholar mortgage funds or cash from different earnings sources as soon as the coed mortgage will get deposited into your checking account — except, in fact, you open a separate account for scholar mortgage disbursements. However the level is, so long as you don’t borrow greater than your value of attendance, minus grants and scholarships, you shouldn’t be breaking any guidelines.

Within the unlikely situation that your scholarships and grants cowl all of your prices of attendance, you might at all times get a private mortgage for $3,500. Since you’ve robust credit score and it’s a small quantity, you wouldn’t pay an excessive amount of in curiosity.

If you happen to’re assured about shopping for the Prius, don’t maintain off an excessive amount of longer. As soon as a producer sells 200,000 electrical autos, eligibility for the credit score begins to part out. Toyota lately hit the 200,000-vehicle milestone, so barring legislative modifications, that $7,500 tax credit score might be lowered to $3,750 on Oct. 1.

Additionally keep in mind that EV tax credit are non-refundable, that means the credit score solely applies to cash you owe at tax time. For instance, if you happen to had a $7,500 EV credit score however solely owed $2,000, you’d wipe out the $2,000 tax invoice however wouldn’t get a $5,500 refund.

It’s not simply concerning the tax credit, although. You’ve clearly performed the mathematics and decided that this buy is sensible. There’s no sense in sinking cash into repairs for a car you’re planning to do away with.

A mortgage is a foul thought while you use it to purchase a way of life you may’t afford. However that’s not the case right here. So long as you don’t run afoul of Division of Schooling guidelines, I don’t see something flawed with taking up this small quantity of debt.

Robin Hartill is an authorized monetary planner and a senior author at The Penny Hoarder. Ship your difficult cash inquiries to [email protected].



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