Loan for a new (well not new) car, bad idea?

[ironman]

If that's what you want to do, sure, do it. But don't pretend it's the wise option.

Huh?! What do you mean pretending? Do you realise businesses operate through loans and credit for cash flow benefits and also allows them to effectively use their operating capital in other areas?

It is the wise option if you know your finances.

 

[[DOD]Asprilla]

If that's what you want to do, sure, do it. But don't pretend it's the wise option.

I'll type it again, since I do every time these threads come up:

Most financial failures, by some considerable distance, are the result of lack of cashflow, not the lack of assets. Consequently keeping your savings in the bank and buying something using a loan instead can be the wise option.

Anyone who states catagorically that credit is unwise knows nothing about micro economics.

 

[leaskovski]

The way I see it there is nothing wrong with borrowing money to help buy a car as long as you can comfortably afford the repayments with no adverse effects on your lifestyle.

You also have to factor in costs that are not included in the repayments such as tax, mot, insurance, service costs and potential repair costs.

I would never borrow money for longer than a 3 year period and as already stated shop around to get the best deal.

And as for choosing what car you want, what do you want from a car? Do you do much mileage?

I probably do about 10k in miles a year max.

 

[Dr Jack]

Huh?! What do you mean pretending? Do you realise businesses operate through loans and credit for cash flow benefits and also allows them to effectively use their operating capital in other areas?

Could you find some more oranges to compare with your apples? What an utterly stupid comparison.

Does buying a car: a) make you more money, or b) not? Borrowing for a business is an investment, the assumption being that you'll make more money as a result of borrowing in sufficient quantities to pay back the loan and the interest. Buying a car is not like that*, it's an expenditure - generally if you're taking about getting a loan - for increased personal pleasure.

That may be something you wish to do; but it is not the financially sensible option.

* - unless, say, you were buying a car to get a job with.

 

[ironman]

Could you find some more oranges to compare with your apples? What an utterly stupid comparison.

Does buying a car: a) make you more money, or b) not? Borrowing for a business is an investment, the assumption being that you'll make more money as a result of borrowing in sufficient quantities to pay back the loan and the interest. Buying a car is not like that*, it's an expenditure - generally if you're taking about getting a loan - for increased personal pleasure.

That may be something you wish to do; but it is not the financially sensible option.

* - unless, say, you were buying a car to get a job with.

You really don't get it, there are some business costs which don't necessarily make you more money but they are still costs, which are usually split into several payments due to cash flow benefits. By having a car as a regular monthly cost, I can use the remaining money that would have otherwise gone to pay for the car in a more efficient way, ie making me more money....

If you don't understand this basic economic principle then I give up.

 

[mr tommo]

To be honest I would prefer to not take a loan. I hate debt, but I am getting very bored of my car now after driving it for 5 years, so that pretty much leaves me dry on options if I want to get shot of it fast.

There are a lot of options out there which can be done for 5k, but I was hankering after something relatively new. Ive been looking at the trades on autotrader with the options set to...

10k max
5 years old max
Petrol (not enough miles for the dirty stuff)
2L upwards (lol, yes i know, very shallow, but it cuts out 116i's!)

So this is pretty much turning into a spec me thread.

I have been hankering for a z4 but the price doesnt really allow it, and I really dont want to skimp on practicallity, but at the same time, I dont want a huge 5 series/barge.

Edit:

A list...

1/3 series (3 ata push)
a3/a4 (a4 at a push)
Mazda3

Im sure there are some more I could stick on this list.
Im gonna badge snob on the fords and vaux's as well

£10k is perfect for a Z4 3.0i, fully loaded with sat nav, ugraded stereo etc etc with around 50k on the clock.

You know it makes sense. The boot space is suprisingly large so don't rule it out because of that.

 

[mattyprice4004]

I'm an advocate of the buy what you can afford regime, but if it is a genuinely good credit deal and you're sure you can repay it, I don't see why not.

 

[leaskovski]

Im thinking I need to add the c30 to the list as well.

 

[s0ck]

If you've driven a corsa for 5 years then you're obviously very sensible.
Go nuts this time fella

 

[ajgoodfellow]

Im thinking I need to add the c30 to the list as well.

Honestly I wouldn't

I had one as a hire car in Italy a few years ago and it was dreadful

 

[Bennah]

Why does the new car have to be less than 5 years old?

 

[Kingy]

£10k is perfect for a Z4 3.0i, fully loaded with sat nav, ugraded stereo etc etc with around 50k on the clock.

You know it makes sense. The boot space is suprisingly large so don't rule it out because of that.

I thought that, but he'd have to relax the age limit by a year...

 

[leaskovski]

Why does the new car have to be less than 5 years old?

Thats a good question. I think its probably because I am being a bit of a snob to older cars, and generally want something with 50k on the clock which is relatively fresh inside and not looking a bit old and tatty.

Apart from a z4 that would then start to fall into the range, what else is there?

 

[DanF]

Definatly buy what you can afford not what you can borrow, have you done the maths to work out what a potential 10k car will cost you financially in the long run?

I think you said that you'd have 300-400 per month to fund the car, 10k loan over 4 years at 7.9% is £242 per month which leaves enough for insurance, servicing and fuel.

10 loan @ 7.9% = £242 per month
total repaid over 4 years = £11,634

Or put that amount of money in to savings for 4 years ...

Saving account giving 3.5% return
4 years of £242 per month with £0 initial lump sum
Return after 4 years = £12,450~

That car has just put you back by £4k just because you want it now instead of saving up for it.

Another way to look at it, that £4k difference will take you 10 months of your total car budget to claw back, almost 1 year of your free money.

Just get a small £2k loan repaid back over 1 year, pick up a perfectly fine Mondeo/Focus etc, put the rest in to savings, know in 4 years time you'll be £3-4k better off.

 

[leaskovski]

Thanks for your opinion, but in a word.... no. If I was going to consider that, then I wouldnt bother changing the car and continue to run my POS corsa.

 

[Kingy]

Thats a good question. I think its probably because I am being a bit of a snob to older cars, and generally want something with 50k on the clock which is relatively fresh inside and not looking a bit old and tatty.

Apart from a z4 that would then start to fall into the range, what else is there?

It depends what you're after from a car really...

You've made reference to low mileage and newer cars, do you really want that, or are these just qualities that you associate with a car that's in good nick, and that is what you're really after?

With respect, that is not going to be a difficult objective to achieve when coming from an old Corsa, and you certainly don't need to spend £10k to get there.

When figures like £10k are mentioned on a car enthusiast sub-forum, you'll get suggestions like an S2000, TT V6, Z4 3.0, 330Ci, ST3, etc, and they're spot on reccommendations for a car enthusiast with ~£10k to spend. You don't sound like a car enthusiast, you sound like someone that's sick of a old Corsa. Therefore, why spend £10k?

£6-£8k will get you a nice recent Focus/Golf/A3 if the age/mileage/latest shape is important to you, but you'll find that you usually need to borrow £5k or more to get the lower interest rates.

I'm far from being against buying cars with a sensible loan, so long as you're never in negative equity, ie you could sell it tomorrow for the amount you owe on it. If you're a car enthusiast, want something special and can afford to service the loan, then test the likes of the cars mentioned, buy your favourite and enjoy it as being considerably more special than a Focus/Golf/A3 etc.

People generally contribute to spec me threads with what they would buy for the money, rather than considering what the OP's requirements are. Obviously I don't know you, but reading between the lines, and noting your preference for keeping out of debt, I wonder whether you really need a loan at all? You mentioned getting rid of a 2001 Corsa, and taking £2-3k out of savings, which would give you a budget of £3-4k.

I think that for you, relaxing the age criteria to up to 7 years and spending £3-4k on a 1.8/2.0 top of the range Focus/Golf/Leon/Civic (Maybe even a ST170/VRS/Cupra/GTI/CTR if you do fancy something sporty) as a cash buy makes a compelling case.

Don't be afraid to stray over 60k mileage either, at best you'll find yourself paying more money, and you might even find that an 80k car has had discs/pads/cambelt/etc changed where as you might have to foot the bill for that on a lower mileage example...

You say you're being snobby about age and mileage, but you may well find that the problems you're facing have more to do with driving a Corsa, than driving a car registered in 2001 that's covered a lot of miles...

You will find dogs at all ages/mileages, but as long as you buy on condition and spec rather than age and mileage, I'm not sure what a £10k Golf will get you, that a £4k one won't?

 

[Begbie]

What about an LCR as a car option?

 

[monkey_boy]

Kingy makes a few good points there. For me, the main thing in what he says is about spec and condition. I think its more difficult to justify the difference in price between cars of the same era: ie, a 2005 Mk 5 Golf with 60k in SE spec and in good condition at £8k is a better deal than a 2007 Mk 5 Golf with 20k in S spec for the same money.

Because this is a car enthusiasts forum and a proportion are very stuck in their 'bang for buck' ways, you will get people saying, "cut your budget, buy a 2003 ST220 and spend the rest on running costs" or whatever is in fashion that week.

The fact of it is that you have already proven that you can/will stick with a car for a substantial amount of time. You've already got a mortgage and aren't burying yourself in debt and din't need the money for a deposit for your house. You want to spend a good chunk of money on a car and as far as I can see you're looking for advice on how best to do that, not how to do it differently.

My two cents are:

Are you planning on paying your insurance with your loan? If so consider that you'll be paying insurance for one year over 4 years or whatever term you have your loan over.

Also, whatever car you get, it will still depreciate and in this climate you might find that it depreciates quicker that you are paying off the loan. I know that you've gone a long way to covering yourself by having a decent deposit, but you might still find it worthwhile to look into GAP insurance that in the event of a total loss the GAP insurer will top up your insurers payout (market value) to whatever you paid for it (invoice value). £600 a year on servicing is a good budget and on a newish car, you hopefully won't need all of it.