Pricey 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 vehicles, however since we largely do business from home, we don’t 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, principally zero miles and is underneath guarantee, with a negligible distinction in value 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’m conscious that we’d have to attend to get it again till we file our taxes.) I do know it could be superb to attend and save, however our Prius wants repairs now.
I’m additionally a web based scholar however pay for my schooling with largely grants and scholarships. Right now I logged into my monetary help account to reject my scholar mortgage presents like I often do and one thing caught my eye. It says the federal government pays the curiosity whilst 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 inside 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 price paying loans off early, although we keep away from them once we can. If it helps, it’s simply me and my husband, and we don’t need youngsters.
-Frugal Pupil
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Pricey Frugal,
I’m not a part of the all-debt-is-terrible faculty of considering. The place this will get difficult is that you simply wish to use a scholar mortgage to pay for the Prius. Pupil loans are based mostly in your price of attendance for college.
The U.S. Division of Schooling’s price of attendance formulation 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 scholar to and from faculty, 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.
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There’s an apparent work-around, although. You’ll be able to 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. You then’d liberate cash in your finances for the automobile fee.
Realistically talking, you’ll be able to’t decide whether or not you’re spending scholar mortgage funds or cash from different earnings sources as soon as the scholar mortgage will get deposited into your checking account — until, after all, you open a separate account for scholar mortgage disbursements. However the level is, so long as you don’t borrow greater than your price of attendance, minus grants and scholarships, you shouldn’t be breaking any guidelines.
Within the unlikely state of affairs that your scholarships and grants cowl all of your prices of attendance, you possibly can at all times get a private mortgage for $3,500. Since you might have robust credit score and it’s a small quantity, you wouldn’t pay an excessive amount of in curiosity.
For those who’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 will probably be diminished to $3,750 on Oct. 1.
Additionally keep in mind that EV tax credit are non-refundable, which means the credit score solely applies to cash you owe at tax time. For instance, in the event you 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 accomplished the maths and decided that this buy is smart. There’s no sense in sinking cash into repairs for a car you’re planning to do away with.
A mortgage is a foul concept whenever you use it to purchase a way of life you’ll be able to’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 fallacious with taking over this small quantity of debt.
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Robin Hartill is a licensed monetary planner and a senior author at The Penny Hoarder. Ship your difficult cash inquiries to AskPenny@thepennyhoarder.com.
