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 at the moment have two vehicles, however since we principally make money working from home, we do not actually need 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 value from the used hybrids.
The lengthy and in need of it’s, when you consider 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 might have to attend to get it again till we file our taxes.) I do know it could be splendid to attend and save, however our Prius wants repairs now.
I am additionally an internet pupil however pay for my schooling with principally grants and scholarships. As we speak I logged into my monetary assist account to reject my pupil mortgage provides 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. 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 like 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 wonderful 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 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 faculty of considering. The place this will get difficult is that you simply wish to use a pupil mortgage to pay for the Prius. Scholar loans are based mostly in your price of attendance for varsity.
The U.S. Division of Training’s price of attendance system consists of an allowance for books, provides, transportation and miscellaneous private bills. However the Federal Scholar Support Handbook explicitly states that pupil mortgage cash can be utilized for “prices for working and sustaining a automobile that’s used to move the coed to and from faculty, however not for the acquisition of a automobile.”
In your case, utilizing pupil mortgage cash for transportation bills is very murky. You’re an internet pupil, so presumably, you aren’t commuting to and from campus.
There’s an apparent work-around, although. You’ll be able to take out a pupil 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 funds for the automotive cost.
Realistically talking, you possibly can’t decide whether or not you’re spending pupil mortgage funds or cash from different revenue sources as soon as the coed mortgage will get deposited into your checking account — except, in fact, you open a separate account for pupil 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 would at all times get a private mortgage for $3,500. Since you have got 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 not too long ago hit the 200,000-vehicle milestone, so barring legislative modifications, that $7,500 tax credit score will likely be lowered 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 finished the mathematics and decided that this buy is smart. There’s no sense in sinking cash into repairs for a automobile you’re planning to do away with.
A mortgage is a nasty concept whenever you use it to purchase a way of life you possibly can’t afford. However that’s not the case right here. So long as you don’t run afoul of Division of Training guidelines, I don’t see something improper with taking up this small quantity of debt.
Robin Hartill is an authorized monetary planner and a senior author at The FinanceGrabber. Ship your difficult cash inquiries to [email protected].