To make shrewd college choices, act like you're buying a car

No matter how complicated your life is now, you simply cannot adopt the “we’ll figure it out when we get there” methodology of financial planning.

I’m cursed/blessed with the affliction of preplanning. This makes me the most annoying person on the planet to go on a date with. I can’t leave the house without checking traffic on at least three apps. I can’t select a destination without having a parking place in mind, and a backup space to boot. And I can’t go out to eat without scouting the menu online at least a week in advance. Some people — by that I mean my wife — may label this as crazy. But I want to know as much as I possibly can to make an informed decision.

Pete the Planner: $503 avg. car payment too rich for most of us

Maybe I go overboard planning for a night out, but most people don’t go nearly far enough planning for life’s most expensive ordeals — like financing college. The devil is in the details.

Smart shoppers don't buy too much car

To put how crucial planning for college is into perspective, let's compare your decision-making process to that of buying a new car. You'll quickly see why doing research matters.

This isn’t just any car lot. It’s the weirdest dealership on the planet. You can buy any car you like, whether it's $35,000 or $150,000. It’s your choice.

Inside the dealership is a huge slot machine. You get to pull the handle to see if you win any rebates or special financing.  Then you head into the finance office. This makes you nervous. While you did a ton of research on the car, you didn’t do much on the cost or how to pay for it. You're hoping this goes quickly, because all you want to do is drive the car off the lot. Besides, you’re feeling lucky — the giant slot machine just gave you a $2,500 discount.

The finance manager is awesome. She’s doing her best to help you get into the car of your dreams. The lender, well, he’s a bore. It feels like he’s trying to crush your dreams. He mentions something about only being able to lend you a certain amount of money. Unfortunately, the new car smell has distracted you.

The good news is that you’re borrowing at a relatively low rate: 4% or so. You’re trying to make the purchase over a four-year period, and based on the cost of the car, the loans may only carry you to the end of year two. Then you’re on your own. You’ll have to find alternate financing.

Don't be debt delusional: Quit buying stuff you can't afford!

You don’t really care, because you don’t have to start repaying the loan until the four years are up. You’ll figure it out when you get there. “I’ll take that one!” you say, pointing to a $135,000 car. You sign on the dotted line and roll out in your sweet new ride.

Uh, oh: Now what?

The first two years fly by.  Before you know it, you've reached the limit you’re allowed to borrow. Now, because you maxed out the amount of cheap money, you’re faced with a tough decision:

• You can abandon the car in the alley, leaving you with tens of thousands of dollars in debt, and no car. One of your friends recently did that. He’s living with his parents rent-free.
• You could go to a secondary lending market and borrow at more than a 10% interest rate.
• Your parents could step in and borrow at a 6% rate. 

You choose the 6% or 10% loan ... you don’t remember which because you accomplished your goal. You now own the car, and you still haven’t made one payment. Even better, you won’t have to make a payment for six months.

Including interest, your car will now cost you well over $215,000. The payments are brutal. You’re starting to think the $40,000 car would have made more sense. Anger sets in, and you wonder why your parents didn’t do more to talk you into the more practical vehicle. Then you learn they’re on the hook for your car, too. They’re wishing you would have chosen the more practical vehicle, too.

Who’s at fault? The finance manager? The lender? Or the person who could have discovered all of this prior to selecting their car by digging deep into the details?

You better put that car to good use. You’ve got student loans to repay.

Peter Dunn is an author, speaker and radio host, and he has a free podcast: Million Dollar Plan. Have a question about money for Pete the Planner? Email him at AskPete@petetheplanner.com