NerdWallet's Smart Money Podcast - Understand Your Options for Buying and Selling Cars

Episode Date: October 2, 2023

Understand how to avoid “dark patterns” companies use to trick you, then learn different financial approaches for buying a car. 01:11 This Week in Your Money: Dark patterns are manipulative tactics used by companies to influence customer decisions, often to the consumer’s detriment. To start the show, hosts Sean Pyles and Liz Weston explain how you can spot dark patterns, which are not exclusive to sketchy websites. Sean and Liz also discuss confirmshaming, a tactic companies use that could make it difficult for you to cancel paid subscriptions. 12:12 Today’s Money Question: A 19-year-old listener named Belenus joins Sean and Liz to get help thinking through how to navigate the financial predicament of needing to pay for both a new car and tuition for college. Despite having $20,000 in savings, Belenus is cautious about going into debt. Sean and Liz talk to him about the advantages and disadvantages of leasing versus buying a car and offer some tips for how to prepare before going into a dealership to make a car purchase. They also discuss the differences between student loans and auto loans. In their conversation, the Nerds discuss: car buying and selling, the auto industry, dark patterns, FTC crackdowns, private mortgage insurance, auto loans, federal student loans, budgeting, car payments, student loan debt, roadside car buying, vehicle history reports, car appraisals, and depreciating assets. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Selling and buying a car can be a nerve-wracking financial experience. So this episode, we've got some tips for you. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Liz Weston. Listener, you know that money question that you just can't figure out? Maybe you're sorting out your student loan repayment options or trying to manage your budget as a new parent or are wondering how much you should spend on rent. Well, whatever your money question, we are here to help you answer it. That's right.

So send your money questions our way. And being audiophiles, we would love to hear your questions. You can email a voice memo to podcast at nerdwallet.com or leave a voicemail on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. If you prefer written communication, you can text your questions to the Nerd Hotline or write an email to podcast at nerdwallet.com. In this episode, Liz and I talk with a listener, Bellanus, about selling his current car and buying a new one, including how to vet the reliability of a used car. But first in our This Week in Your Money segment, Sean and I are going to do one of our favorite things. It's time for another round of our money hot takes where we rail against something that's just grinding our gears in the personal finance space.

That is right. So, Liz, what's on your mind? Dark patterns, Sean. Dark patterns. Okay. A dark pattern is how companies trick you into making the wrong decision. And this isn't something that's limited to sketchy websites. It's all over the place.

Seriously. Well, think about when you navigate to a new site. Right away, you get a pop-up telling you that the site wants to collect information about you. Sometimes it's not clear that you can opt out. And often when you want to tell a site not to sell your data, the buttons for allowing the sale are a lot more prominent or worded in such a way that you think you're opting out when you're actually opting in. Yes, the comedian John Early had a bit about this in his latest stand-up special. He was talking about how on iPhones there's the prompt to allow apps to track you or not. And to deny apps permission to stalk you, the button reads, ask apps not to track, which

is just auditorily a very harsh combination of words. And the other option is simply allow. Yes. And there are lots of other dark patterns. Some sites don't let you cancel a subscription online. You have to call because they know fewer people are going to pick up the phone. Unfortunately, a lot of newspapers do this. Or you have to chat with a customer service rep, or even worse, a bot that will try to

eat up as much time as possible so that you just give up. A subscription that's easy to sign up for and hard to cancel, by the way, is known as a roach motel, which I just love. Or the company tries to distract you with other options. Hey, do you really want to unsubscribe? Or they use confirm shaming, giving you a choice between I'd like to keep getting amazing deals or no, I don't care about saving money. Confirm shaming is such a good term. That's a much more precise term for what I usually call passive aggressive BS. Yes.

And that kind of language can sound familiar if you have an Amazon Prime subscription. The Federal Trade Commission in July said it was taking action against Amazon for, quote, its years-long effort to enroll consumers into its Prime program without their consent, while knowingly making it difficult for consumers to cancel their into its Prime program without their consent, while knowingly making it difficult for consumers to cancel their subscriptions to Prime. And that's not the first time the FTC has fought back against dark patterns. Publishers Clearinghouse in July agreed to pay $18.5 million as part of a settlement following charges of deceptive practices, including the use of dark patterns to encourage sweepstake entries and purchases.

Wait, Publishers Clearinghouse, that's the company that shows up at people's houses with comically large checks saying they won some big amount of money, right? Exactly. I did not even know they were still in business. Maybe that's why they're doing this. Who knows? And in 2022, the FTC told Epic Games, which is the maker of the Fortnite video game, to pay customers $245 million as part of a settlement over allegations that Epic

tricked players into buying stuff they didn't want and allowed kids to make unauthorized purchases. So those settlements are for a lot of money, but I'm guessing the FTC is so mad about this because these dark patterns cost consumers a heck of a lot more money. Plus, they waste our time and they destroy consumer trust in companies. Dark patterns have become so normalized that companies use the excuse, well, everybody else is doing it. That didn't work with your mother and it shouldn't work with consumers. Very true. Okay, Sean, what's your beef? All right, let's buckle up because today I am mad about the overly complicated bureaucratic hurdles that companies make us endure to get what we want. I get the feeling you have something

specific in mind. Yes, yes, from personal experience. And this may be a champagne problem, but it's emblematic of what I'm talking about here. So I recently got rid of the private mortgage insurance on my mortgage, and the process was a saga, let me tell you. Oh, dear. Well, tell us. Okay. First, a bit of table setting. I had private mortgage insurance on my house because I put down less than 20% for my down payment. In my case, my PMI was about $120 a month. And I realized that isn't a lot relative to what other people pay for their PMI, but my house is pretty cheap. So that's how it works out. And I do understand why lenders want

this insurance, but it also feels like being taxed for not having had enough money when I was going to buy my house. So that is all to say that I wanted to get rid of my PMI as soon as possible. Okay. And for our listeners, for context, you can generally shed your private mortgage insurance when your loan to value ratio or how the value of your house compares to your mortgage principle reaches a certain threshold, like 75% or 80%. There are usually a couple of other requirements too. You typically need a good record of on-time payments. You can't have a lien against your property and you must have owned your house for two years. Also, I should note that I was one of those lucky people who bought a house early in the pandemic before house prices totally went through

the roof. Yes, that's a house pun. So after two years and many on-time payments, my house's value had gone up significantly and my loan-to-value ratio was around 70% according to estimates that I saw online. And so two years to the day of closing on my house, I began the battle of my life, or at least the battle over about $120 a month. Only a little dramatic there, Sean. I find a little bit of drama keeps things interesting. So anyway, here's what happened. First, the bank that owns my mortgage, a bank that is not to be named, requires you to call them to kick off this process. I had to pick up my cell phone and use it as an actual phone. So I'm going

to call that bureaucratic hurdle number one, shortly followed by bureaucratic hurdle number two, where the bank then physically mailed me an application to cancel my PMI. I then had to mail that back along with a check to cover the cost of an appraisal so the bank can confirm the value of my house. Okay, it sure seems like this bank that must not be named could have done this application over the phone when you called them or just had an online form. Yeah, yeah, I agree. And how many people would have given up after seeing that they had to call their bank? And how many people aren't even going to bother with a paper application? And who has checks anymore? I mean, I had to go and get some specifically for this. Anyway, so it takes a little bit over a week to get my application, which I, of course, promptly mail back. And from that point, the bank told me they would review my application and coordinate with an appraiser in my area.

And the bank said that could take a couple weeks. But here's the thing. Once the appraiser contacts me, I was told that I would only have five business days to schedule the appraisal or my application would be canceled and I would have to start all over again. So I'm going to call that bureaucratic hurdle number three, having to adhere perfectly to their timeline. And so I sent off the application and I waited and I waited for about two weeks. And this was happening over the summer, by the way, right before I had some travel plans. So I was getting a little bit nervous about the timing of all of this. Okay. So what happened? Well, I finally heard from the appraiser and I scheduled the appraisal for the very next day because I've been very on top of this, as you may have observed. And so after all that waiting,

the entire appraisal process took less than 10 minutes from the time the person stepped through my front door. And from that point on, I was told I might have to wait up to 90 days for my appraisal to be processed. And that's not exactly a bureaucratic hurdle, but maybe it's like an overly long stretch of track that I had to get through to continue the track and field metaphor here. But fortunately, about a month later,

I did receive notice that my PMI was canceled. Yay, so it did all work out in the end. It did, and I am loving saving that $120 ish a month. It will make my student loan payment a lot more manageable for my budget. Oh, I'll bet. Yeah. But the thing is, it really feels like the bank, which shall not be named, put as many barriers in place as possible so that I would fail. And compare that to my partner, Garrett, who recently canceled the PMI on his house. He simply sent a message to his bank through their online portal saying he wanted to

cancel his PMI and they just did it. There was no application, there was no waiting for an appraisal, just poof, gone. And that shows how easy things could be. So while I understand that I was in a very specific and privileged situation to even have PMI to cancel and to have a house that had gone up in value so much, I still get mad that banks and financial institutions put up barriers that make things that should and could be easy anything but. And you know, Liz, it reminds me of your high-yield savings account where you thought you were getting a rate that was automatically increasing as interest rates went up. But it turns out your bank had changed the rules on the down low, and so you were only getting 0.3% on your money.

And I was so ticked off. I moved all of our savings to a new bank, which actually is paying a high rate and bumps it up regularly. Yes, and I would have done the same thing. So my bottom line for listeners is that you have to be your own best advocate to get what you want from the financial companies that you work with. In my case, I can't choose who owns my mortgage. But if you are having a hard time navigating stuff that should be easy, I'd recommend shopping around and finding a bank or other financial services company with better customer service. Amen. Stand up for yourself. All right. Well, that is enough of my ranting. I did want to touch on one thing before we move on to this episode's money question.

And that is that, Liz, you will soon be leaving us again. Do you care to tell us where you're off to this time? We are going to Austria for a few weeks. My husband's teaching drawing workshops, and I'm going to go be a tourist. And I will be sitting in my PMI-free house, jealous of your adventures, but so happy for you that you're having them. Although, conveniently enough, our Smart Money co-host, Sarah Rathner, is about to come back from her maternity leave.

So she'll be back in the hosting seat. And just to make things confusing, listener, we'll still have Liz on some money question segments that we have already recorded. But having both of you with me and episodes of Smart Money is my ideal TBH. Oh, that's so sweet. It is the truth. Well, that is all for this episode this week in your money segment. The money question is up next, so stay with us. This episode, we're talking with a listener, Belanus, who's 19 and lives in Michigan.

Belanus has some questions about how to sell and buy a car. Welcome to Smart Money, Belanus. Hi, it's nice to be here. It's great to have you on. So you are in a very interesting situation with the car that you have right now that is pretty old. But before we get into all of that, I wanna hear about your finances in general right now. Like what's your income, expenses, savings, general things like that.

Yeah, absolutely. I actually recently quit my job and I have a new one right lined up, but I make about the same amount of money. I make about $24,000 a year and I rent my own place right now and I split it between me, my girlfriend and a roommate. I don't have a whole lot of output when it comes to where my money is going and I'd like to think I'm a pretty good saver. So I've got about $20,000 roughly saved up in money that I'm not touching for just whatever I need so far. And I haven't needed it, but I know I'm kind of on the precipice of some big spending.

I'm just about to go into college, which is going to be a big financial burden. And, of course, I'm looking for a car. I'm waiting for all that money to be scooped clean. Well, the fact that you have $20,000 staved at 19 years old is really remarkable, and you should be proud of that accomplishment. Thank you. I've worked real hard for it. I've saved every penny for a long time. Yeah. So what do you want from this money? Are you planning on dedicating it to school or this car that you're maybe going to buy? What are your thoughts on that? And that's a complicated question. I'm either going to be taking out a car loan or taking out

student loans. And that's kind of my predicament because I do have an associate's degree right now, debt free. Again, nice. Well done. Definitely something I've worked really hard for. But I've got two years for a bachelor's that I'm looking at, And that's probably gonna be about $20,000. So you know, it's really either $20,000 for a car, and I take out a loan for school or $20,000 to school and I take out a loan for a car. Because that's honestly what you know, it's looking like for something that's reliable, unfortunately. So you know, it's it's one or the other, but I'm not sure what would be the best idea given my situation. Yeah. Well, I will say there's a big difference between an auto loan and what you would maybe be getting from a federal student loan. There are much more

protections that you would have and opportunities for repayment under a federal student loan than an auto loan that you might get from a dealership or a credit union, something like that. Okay, Belenus, so tell us about your car situation. So I have two vehicles right now. One is my girlfriend's car, which I've been taking to work and everything, just my daily. And then I have my car, which has been given something of a death sentence lately. And so it's not been being taken very far. Okay, what do you mean by death sentence? So it started making a funny noise as all cars do. And I took it to the mechanic. I mean, I only paid $300 for this car, you know, so I'm willing to put some money into it if I needed to.

I was like, you know, if it's like 500 bucks or something to fix something and make the noise go away, I'll pay it, you know, and if not, I'll just pay the diagnostic fee and find something else. And I took it to him and he called me the next day and he said, I can't in good conscious, like touch this car. Everything's wrong with it um and I was like oh man that sucks I'll pay the diagnostic fee how much is he's like I won't even charge you for that I got the keys come pick it up you know yeah he was like this is a several thousand dollar job and if you gave me that money I would just tell you to buy a new car with it and so it's it was just so bad that I was like then i i have to look for something new and

i've never bought a car that wasn't off the side of the road so i really didn't even know where to start so i i'm assuming this is an older car and it's got a lot ofd explorer so it's you know it's not my old the oldest car i've owned um but it's it's still definitely not um looking good the reason i reacted like that is we had a ford explorer and it wound up lasting over 300 000 miles i mean those can really be troopers oh yeah thing is unfortunately this car has taken a lot of abuse there's a reason it was three hundred dollars um it was it was an estate vehicle um and the woman who had it before me uh it had pretty much rotted in the driveway for about two to three months and it they had to replace the engine because it had just rotted out and they

were like we'll give it to you for $300. And we have no idea if it's got, you know, 20 miles or 200,000 miles left in it. But it's yours. And I was really in the need of a car because I was in the same scenario where I had a 2000 Chevy S10. And the brakes went out and I really needed a car. So I kind of want to break this cycle that I'm in where the car breaks down or something terrible happens to it. And I just am really hard pressed for another vehicle and I get something that's not very good for it, you know? Yeah. So it seems like in the past you've been buying cars from people that you meet off of

Facebook marketplace or Craigslist maybe, or in the case of your current car, an estate sale, and now you're looking to maybe professionalize the way that you're getting vehicles and maybe getting rid of this one that you currently have. Have you thought about how you might want to sell or otherwise dispose of this car that's on its last legs? And that one, I'm not really sure because obviously I could go right back to her roots and then put her on the side of the road and sell her for $300. You know, you want some parts, but I know trade-ins are something that I could possibly do, but I don't know if that'll get me much. I know for a fact I could sell the car to the junkyard for probably $400 if I really wanted to for a profit.

Right, which would mean you would turn a profit if you did get it for $300, yeah. Not counting what you put into it. Yeah, yeah. So that's like my offer that I got from the junkyard, but I don't know if I could get more profit for trading it in. I don't know if that's a better option.

Yeah, and you also want to think about all the time it might take to do your due diligence and sell it in a formal way. That would be getting the car's paperwork, determining the fair price, maybe getting some quotes or an estimate from someplace like Carfax or Carvana, getting an appraisal. I mean, this can be pretty time intensive to do. And if you know the car isn't really worth that much, selling it for parts or scrapping it might just be the easiest thing so you can move on and begin to look at what your next car might be. That's one way that you might be able to go ahead with this. Yeah, absolutely. It'll definitely be the easiest way.

I've jumped a few cars before, and, I mean, I just call them. They take a tow truck, and my life's easy. They can't do the check. Yeah, yeah. So I want to turn to what your next car might be. Are you thinking about a used car, a new car, buying one outright, getting a loan? What have you been considering so far? Honestly, I've been kind of on and off about wanting a new vehicle because I've, you know, heard some things about how they just don't last as long, you know,

as they used to kind of thing. Used car is really what I've been looking at. I just, you know, heard some things about how they just don't last as long, you know, as they used to kind of thing. Used car is really what I've been looking at. I just, the only thing I'm wondering is how used I want it to be. Because I could get something from the past five years, and it's going to be more expensive than something from the past 10 years or further. We should point out the fact that your car currently is older than you are. But in your lifetime, cars have actually gotten much more reliable. So that's something to keep in mind. You can definitely hang on to today's cars for 200, 300,000 miles. But it is a huge upfront cost. And we're still dealing with supply chain issues that are just getting worked out. And the

fact that new cars are really super expensive. Yeah, the average price for a new car was around $48,000 in July of 2023, according to Kelley Blue Book. And that's 26% higher than three years ago. And average used car price in July of 2023 was around $27,000. So still expensive, but a good deal less than a new car. And, you know, that's definitely an issue that I'm worried about is that, like, if I get something that's too expensive, I'm going to have to take out student loans and a car loan. And I don't know if that's something I want to do. Yeah. Well, let's start with your car budget.

Have you looked into that? And do you know how much you have to spend on a car? I mean, if I want to not completely clean out my savings, somewhere between $10,000 and $15,000, which I don't know how much that'll really fetch me. Well, I know there used to be sites that would tell you all the great cars you could get for $5,000. I'm sure that's ratcheted up to 10 now, but I think that's possible to get a decent car for that amount. At least for your purposes. Yeah. I mean, honestly, I'm not super picky. Clearly what I could compare it to is something that is a complete hunk of junk that somehow gets me from A to B. So as long as all the doors open and close properly and the noises aren't too unbearable, I'm pretty happy.

Good to know. Well, I'll leave you with a rule of thumb to consider as well. Nerd wallet guidelines on how much car you can afford are typically that you would want to aim to spend less than 10% of your take-home pay on your car payment and less than 15 to 20 percent on overall car expenses. So that would include things like gas, insurance, and maintenance. Yeah, which is definitely something to keep in mind. And that's another thing is that if I get a newer car, I know that generally I'll probably do better on gas mileage, which is just something else to think about when it comes to, you know, the long term paying for this vehicle. How long is your commute? How much time do you spend in the car every day?

I currently am going to be working and I'm going to be a student at Oakland University, which is about 20 to 30 minutes away from me a few times a week. And repeated multiple times in a week. That adds up. Yeah. I used to work at the hospital right across the street from me. I could walk to work and I would most of the time, as long as the weather was amicable. And now that I definitely have a commute, that's really making not having a vehicle not as fun. Yeah. And Belenice, we were talking before the recording about how people kind of replace the car that they have without thinking about do I really need a car? Is this something that I could

share or do without or or do ride share, you know, some other solution, public transportation. And you're in the situation where you don't live somewhere where there's great public transportation. Which is really unfortunate because I definitely would use it if it were around me. I mean, that would be so much cheaper as a college student, but what else can I do? So really, I'm just hoping to find something that won't break down on me when finals are coming up or something like that. Yes. Yeah. No, reliability is so important. So with your new, maybe used car, have you thought about whether you'll go back to buying one off the side of the road?

Or are you thinking about going to an actual dealership? How have you thought about where you'll get the car? I don't think I want to go back to the side of the road just because, I mean, most of the people who resort to side of the road is because the car is just so old and junky that they they don't know what else to do with it it's like one step above scrapping it and you know that's really how it is i haven't bought a vehicle that had i think 200 000 miles is like the lowest i bought i mean my first vehicle was almost 300 000 miles on it when I purchased it. Wow. So but they're cheap, they're dirt cheap. And that's the only draw for me. Right. You know,

if I could buy a dirt cheap car, who knows how long it'll give me. But I just want something that can give me a sense of security because the anxiety of getting in the car and not knowing if it's going to start is really something I'd rather leave behind. So yeah, I probably will look for some sort of dealership. But I guess the problem is I wouldn't even know where to start or if I'm even getting a good deal or not. You know what I mean? Yeah. Well, this is where doing your research really comes in handy. When I bought a car about three and a half years ago now, I spent a full month scouring the internet. This was also the height of lockdown. So I had plenty of time to be doing this, but I put together a pretty elaborate spreadsheet for cars that just checked the box on the features

that I wanted. I was looking for a crossover that was relatively low in miles and also under $20,000, which three and a half years ago I could get. And so I just put together a spreadsheet that had things like the price that I was going to pay, the features, the link to the posting, and then also reviews of the car from places like Edmunds and Kelley Blue Book.

So I could have all these different options side by side and see what might be best for me. I think that might be a good place to start is really getting clear on the features that you want. You know, you want something that's reliable and will be able to get you through a Michigan winter and get you to class and to work and home every day. Like that's a pretty big thing to have locked down in a new car. But taking that time to see what's available, I think will be a really good first step. So that way, you know, what kind of cars you want. And then from that point, you can realize which ones fit into your budget, and then which ones you might actually enjoy driving. And that's where test driving comes in. I'm kind of narrowed down

generally what I want. But when I have been looking, you know, at my options, it really feels like I just am, it's impossible for me to afford something that is truly going to be reliable, which is why I've even considered, you know, the possibility of leasing something, which isn't my favorite. We do have resources that can help you out. We have a cheat sheet for buying a car that a former nerd put together that is absolutely terrific. And we'll include that in the show notes. And the other hugely important thing is to line up your financing first.

So we'll be discussing how to look at loans and all that. But before you ever set foot on a dealership, it's really, really helpful to know that you've got financing to know what your interest rate is going to be. That way, if the dealership gives you a better deal, you can take it, but you've also got it backed up. You're not at the dealership's whim, essentially. It can be really easy to get sucked into what the dealership is telling you in the moment. And if they can't get you a deal that fits your budget, you can just walk away. And the moment you try to

get it from a chair and head toward the door, the folks at the dealership will be in a panic and they'll try to get a good deal for you. So that gives you so much leverage going into this whole conversation. But yeah, it's hard because you want to know what the car is like before you go in, but you really won't know for sure if you like the vehicle until you're actually test driving it. And by that point, they have some of your information. They're going to try to get you right into the chair after that test drive to set up some sort of deal potentially. So just keeping a level head and realizing that you don't need to buy that car that's right in front of you, as fun as it might be to think about buying that car in the moment can really save you some money and some

strife in the long run just realizing you have lots of options. Yeah, which is something I definitely want to keep in mind because I think my my biggest fear regarding this whole thing is being taken advantage of because I don't really have a lot of people I can like be like, hey, does this sound like reasonable or does this sound super messed up to you? Like I don't have really anyone that I can just ask that question to. So I kind of have to trust some people. And so I really want to come to these situations fully equipped, you know, with everything at my disposal helping me. So I think that's definitely a good idea.

You know, I do work with a credit union that I, you know, could talk to about my financing options. Credit unions can be a great source of loans. They tend to be cheaper because they're member owned. And you might even have somebody there that you can talk to about the process of buying a car because most older people have been through it. Some of them are really good at negotiation. Some aren't, you never know, but it sounds like you don't have a buddy to take with you to the dealership. So that's a big concern. Yeah. Unfortunately, which is really my worry. I have my girlfriend, but she's just as lost as I am when it comes to these things, you know? Right. Yeah. So really I just have to load myself up with knowledge and walk in there because that's all I have. So definitely

having these things in my arsenal, so to speak, is really important to me and it makes me feel much better about this whole process. Yeah. One resource that I like to lurk through is the what car should I buy subreddit. And there are lots of people who are pretty knowledgeable about different types of cars in that community and take anything that any internet rando says with a pretty hefty pinch of salt. But I do find that the folks in that subreddit community tend to be pretty knowledgeable and it's at least a good place to bounce ideas off of people if you do feel like you don't have someone you can turn to to get a second opinion about a potential car you might buy. Yeah, absolutely. That's definitely something to think about. Bellanus, you mentioned leasing. What are your thoughts about that?

Well, first of all, I don't know how available leasing is to me because, I mean, I have a decent credit score, 7, 710, 700. Nice. And that's not bad. But I also am 19. And all I have is one credit card from my credit union and no further credit history. And so I just I worry that either if I do lease, my interest rates are going to be really high, or I won't be able to lease at all. As background, I used to hate the idea of leasing. I wanted to own my cars and drive them into the ground. But leasing can be better if you only are planning to own the car for a few years. If you were thinking that once you graduate, you will buy a car or something else. Leasing is not the worst idea in the world. Also, if you're

somebody that just has to have the newest and latest and greatest and can afford it, leasing can make more sense. You can't drive a ton, though, because typically the lease contracts will limit you to about 12,000 miles. I've seen some that were 15. But if you drive more than that, you're really going to pay when the lease is over. Yeah, I don't like being constrained to that sort of thing, but I worry, I guess that that might be the best way for me to get a reliable vehicle that I can also afford. Yeah. I'm not a big fan of leasing for a similar reason because I like being able to own my car and do whatever I'd like to it and put stickers on it or whatever, you know, whatever I want to do. And I like that,

but I'm willing, you know, to sacrifice that if it will give me a more reliable vehicle. Yeah, that's fair. And for me, my big reservation with leasing a vehicle is that it can lock you into having a car payment for many, many years. You have the term of the lease, which is maybe around three years. And then once that's up, you often will have the option of buying the car, which will then maybe be an auto loan, or you get another lease. And so you just have this perpetual car payment forever. And personally, I just am trying to get rid of my car loan as quickly as I can, because I just don't really want to have the debt hanging over me. It's been three-ish years, and I'm kind of over it. So that's something to think about too,

is how long you want to have a car payment for. But on the question of reliability for a used car, there are ways where you can determine whether the car will be reliable or not. You can look at the car's vehicle history report. That's a great source of information. And also, if you have test driven a car, you really like it, you think you might want to buy it. Oftentimes, people will recommend getting an actual inspection from a mechanic, maybe even two, just to evaluate the vehicle and make sure that there isn't anything shady going on under the hood. So that's a way where you can get a professional's thumbs up on whether the car will be reliable or not. Oh, okay. I guess that's interesting because I didn't know you could

have a mechanic look at it beforehand. It sounds like you have an honest mechanic. Do not put the money into it. That's the first place I would take it. No, I love that mechanic. I've taken it to him for all my cars because he always overestimates and then I end up paying less than I think I will. That's nice. Regards to leasing, if you are looking at electric vehicles or plug-in hybrids, a lot of times leasing is recommended because the technology changes so fast. So that's something to factor in on top of everything else. If it's a gas car, you know, and you want to own it forever, that's one thing. But if you are taking a chance on the technology, even Consumer Reports says,

okay, go ahead and lease. And by the way, we didn't mention Consumer Reports, but that's another great resource to check out cars. So the real question is then at the end of the day, should I put my money towards a student loan or towards a car loan? That's really hard to say. For student loans, you are investing in your future, some will say, and you may have potentially a better interest rate on that than a car loan. However, buying a car outright with cash can tie up a lot of your liquidity that you currently have. And that would then go into a depreciating asset. So there's no one size fits all solution with this. But like I mentioned at the outset, I think a potentially safer loan may be federal student loans if you have access to them because you have more repayment options if

you maybe are unemployed and you have trouble paying back this loan, where if you are unemployed and you have trouble paying your car loan, it may be repossessed. So you have to think about different circumstances for what would happen if I was in a difficult situation and I actually couldn't make a payment, realize that a auto loan might be slightly more precarious. I think that's a great point. I'm pretty afraid of debt. So I've avoided it up to this point. I mean, I have a credit card, but I pay it off on a weekly basis. So the safest debt is probably the best debt in that scenario. So that's definitely something, but I just, it's good to know. Oh, and I so get where you're coming from. A lot of people I grew up with were the same way.

They just absolutely refused to go into debt. And the problem with that is you can wind up not getting the education you need, which is a big one, or not being able to get ahead the same way. Like if you'd never got a business loan and couldn't start a business or couldn't expand your business. So it really is a tool, but you are so smart to be careful about it. And those federal student loans really do have so many safeguards built into them that it's not like taking out a credit card. It's a very different kind of loan. And Belenice, I really do want to compliment you again for where you are financially.

You've been able to save over $20,000 at 19 years old. You're being really careful with how you approach going into debt. You're not jumping into the fanciest, most expensive car you can qualify for, which I would say a lot of people 19 or 29, 49 would maybe be tempted to do. So I think take time to appreciate that, but really appreciate what you have done so far. And I hope that you take the time to do the right research to find the right car and the right form of debt for you. So given all that we've talked about thus far, what do you think might be your financial decision when it comes to buying a car and what kind of loan you might get?

All things considered, I probably will go for student loans just to even that out because I've already paid my first semester and that was a big chunk of change right there. So I think student loans might just spread it out a little more and have me be in safer debt and then use the money I have to purchase a reliable, newer used car that will hopefully help me get from A to B. I'm really excited for you and all that you have in store. So please keep us updated on how this all pans out. Absolutely. Thank you very much. So, Liz, what do you think about Bellanus's situation? I think he's a hero. Oh my gosh. Totally our kind of nerd. He's got money saved up at a young age.

He is understandably concerned about debt. He's more focused on staying financially healthy than he is on getting great wheels, which I think is absolutely awesome. But sometimes you have to nudge yourself into taking on a little debt so you can actually find something that's reliable and something that's going to meet your needs. Right. Well, what I really appreciate about him as a consumer and potential car buyer right now is that he is asking all the right questions. Sometimes you can't help it and you are rushed into buying a new vehicle. But the more time you can spend to really figure out your budget, really figure out what you need and don't need in a car,

and what car might be the right one for you, the better you will end up in the end making sure that you don't get a car that is too expensive or not quite right for your needs. So I just think he's doing all of the right things and I can't wait to see how this ends up for him. Yes, exactly. All right. Well, that is all we have for this episode.

If you have any money questions of your own, car related or otherwise, turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. This episode was produced by Liz Weston and myself with help from Tess Vigland. Kevin Tidmarsh mixed our audio and a big thank you to

NerdWallet's editors for all their help. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds. Thank you.