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 gasoline mileage. We presently have two vehicles, however since we largely work at home, we do not really want each. I believed we may 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 underneath 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 will be very best to attend and save, however our Prius wants repairs now.
I am additionally a web based scholar however pay for my training with largely grants and scholarships. At the moment I logged into my monetary support account to reject my scholar mortgage affords like I often do and one thing caught my eye. It says the federal government pays the curiosity when you’re in class and for six months after. I’ve two years left. Principally, we may get an interest-free mortgage. I really feel assured we may pay it again earlier than any curiosity begins accruing.
It looks as if an important 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 fee paying loans off early, although we keep away from them once we can. If it helps, it is simply me and my husband, and we do not need youngsters.
-Frugal Scholar
Expensive Frugal,
I’m not a part of the all-debt-is-terrible college of considering. The place this will get tough is that you just need to use a scholar mortgage to pay for the Prius. Scholar loans are based mostly in your price of attendance for college.
The U.S. Division of Schooling’s price of attendance system contains an allowance for books, provides, transportation and miscellaneous private bills. However the Federal Scholar Help 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 college, however not for the acquisition of a car.”
In your case, utilizing scholar mortgage cash for transportation bills is very 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 may 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 definately’d unencumber cash in your finances for the automotive fee.
Realistically talking, you possibly can’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, 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 price 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 could possibly at all times get a private mortgage for $3,500. Since you could have sturdy credit score and it’s a small quantity, you wouldn’t pay an excessive amount of in curiosity.
In the event you’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 not too long ago hit the 200,000-vehicle milestone, so barring legislative adjustments, that $7,500 tax credit score will probably be decreased 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 case 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 if you use it to purchase a life-style you possibly can’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 incorrect with taking up this small quantity of debt.
Robin Hartill is an authorized monetary planner and a senior author at The PNW. Ship your tough cash inquiries to [email protected].