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I'm an 18-year old male, about to start college in a week. I will be attending a GM specialized Auto Technology Work/Study program. One requirement for the program is that I get a position at a GM dealership. The program consists of 2 months of full time classes, and 2 months of full time work experience (paid internship). This pattern repeats over the course of two weeks.

My pay rate is a mere $8/hour, at about 40 hours per week (10 hours a week during full time classes). My daily commute is about 60 miles total. My current car is a full size Mercedes Benz which averages about 15 mpg. I would rather not waste the money on gas.

While making about $245 a week, would I be able to pay for this brand new car throughout college? The total cost of the car is about $22,000. Now because I work at the dealership where I plan on buying this car, I receive about $1,500 off the initial price, as an employee discount. I also have $2,000 saved up for the down payment, and my current car is worth $4,000 in trade-in value.

With all this in mind, the initial price of the car is about $15,300. That would be the size of the loan I would need. I also figured insurance would be about $100/month. I figured, since I make about $1000 a month, while working full time, I could save the money for 4 payments (the two months that I work full time plus the two months I have classes full time). Would this be an acceptable purchase, or should I wait until after graduation?

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    Do you really have to buy that car? Do you really have to trade the Mers in and not sell it? The answers here might help you : money.stackexchange.com/questions/8149/… – littleadv Aug 21 '13 at 21:58
  • I think this is a little subjective - why blow almost all your money on a brand new car if you can wait until after graduation vs. you're young and if your family is relatively well off, why not enjoy it? – im so confused Aug 21 '13 at 21:58
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    I'll second @littleadv's point, and I'll add my two cents. Even if you buy a more fuel-efficient car, you'll still need to pay for gas. That means you'll need to cover a) the car payment, b) gas, c) auto insurance for a young driver (read: high-risk, from the insurance company's perspective), d) repairs. If you're going to graduate after four months, you can afford to wait. – John Bensin Aug 21 '13 at 22:11
  • I wonder what Suze Orman would say.... – Dilip Sarwate Aug 21 '13 at 22:12
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    In almost all cases you really don't save money trading in a paid off gas guzzler for a new car with better MPG. You can buy quite a bit of gas for ~$500/month. – JohnFx Aug 22 '13 at 2:26
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Forget the savings for a moment. If the base price of the car is $22,000, you get $1,500 employee discount, and $4,000 trade in, that leaves $16,500. Let's assume there are no additional fees on top of the $22,000 or that these aren't enough to matter. If you borrow $16,500 at 5% interest (that's what I paid for a car loan about a year ago) for 5 years, your monthly payments will be $311.

You say you're considering this because the new car would get better gas mileage? If that's the primary reason, then consider: Will you save over $300 per month in gas? If your commute is 60 miles per day, assuming you work 20 days a month that's 1200 miles. At 15 mpg you'd burn 80 gallons of gas per month. If the new car gets, say, 50 mpg -- which I think is pretty optimistic -- you'd burn 24 gallons of gas per month. So you'd save 56 gallons per months. Does gas in your area cost $6 per gallon? If not, this will not save you money.

Also bear in mind that insurance on a new car is more than insurance on an older car, which would eat into any gas savings.

On the flip side, maintenance on a new car should be less, as presumably it will come with a warranty.

Of course there are other reasons to buy a new car, like greater reliability, impress the girls, etc. Even if it's costing you more, you might prefer to put your money into a shiny new car than into gas. Etc.

I note you say you'll cut back to 10 hours per week when classes get going. At that point you're making $320 a month, barely enough to make the car payment, let alone pay for gas, insurance, or any other expenses.

In my humble opinion, this sounds like a bad idea. Wait until you're out of college and have a permanent, full-time job before buying a new car. I don't think I bought a new car until I was in my 30s. I'm 56 now and make an above-average income and I drive a used car that I bought for, umm, I think $6,000.

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    +1 and as an anecdote: My company started hiring managers in an attempt to ramp up to a new contract. The new managers always went out to purchase brand new cars, as the pay increase was significant. When the company didn't get the contract and we had to demote people, the people who didn't spend the money for the newest toy were still able to make it work. I sat in my '94 Camry I got from my grandmother, and have much more to spend than those that have to keep their car payments going, even if I don't have amazing gas mileage.. – Anoplexian Mar 2 '17 at 17:54
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There's more to it than that.

What would the interest rate be, and amortized over how many months? This will dramatically affect your ability to repay.

Are you able to trade in your current car? If so it could save you quite a bit.

Are you willing to throw away $8,000 tomorrow, and another $1,700 over the next five years? Generally the car will lose between 20% and 50% of its value the moment you drive it off the lot. The additional cost is the interest you could end up paying (and I was being generous on the rate, assuming you could qualify for 4%, which is doubtful given your age).

Are you paying for housing? If so, how much? Generally you want your housing to be <25% of your income.

Do you have other loans or debts? Any credit cards? The sum of all your debt payments, plus your housing payment, should be 40% or less of your income. Since a loan for this amount at 4% over five years would have a monthly payment of almost $300, that only leaves $100 for housing / credit cards / other debts.

Also, are you willing to shackle yourself with this loan for longer than you will be in college?

If you give us more information we can give a better answer for you. Also, don't trust the willingness of the dealership to give you a loan. The fact that someone is willing to loan you money does NOT mean you should take that loan.

However, based on what you've told us so far, I would recommend being patient. Many people your age (and going to school) don't have any vehicle... don't be in a hurry to take on debt. If you truly aren't happy with a car getting 15 miles to the gallon, you can spend $3,000 and get a car that runs at 25-30.

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    Many employers in the auto industry require their upper-level employees to lease (or buy) a new car every three years (they offer discounts which makes this close to an employee benefit) and use that car to commute to work because it creates a bad public image for, say, Ford's development division parking lot to have lots of non-Ford cars or ancient Fords in it; it would hint at a lack of faith in their own past work! So the OP might not have an option here. – Dilip Sarwate Aug 22 '13 at 13:21
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    @DilipSarwate I've had friends worked for GM who have told me that they really frowned on non-GM cars in the parking lot. But would they really REQURIE an intern working 10 hours a week for $8 per hour to buy a brand new GM car? That seems a little unreasonable, as the payments would almost certainly be bigger than his salary. Not to say that people aren't unreasonable at times, but, etc. – Jay Feb 27 '15 at 22:24
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Do you have $14,000 to throw away? If so then by all means buy the car.

Using this site you can calculate how much the average car will depreciate.

Why not go for a third option that you did not present? Sell your car and buy a used one that is better on gas mileage.

You probably have new car fever, take two aspirin and don't buy it.

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