What's your experiences on finance?
- Thread starter X-Morgan
- Start date
The youth of today, learn to save boys, learn to save
Amen to that. Cars on finance is a mugs game.
I'm confused. Spec the right car and have it right away? Not likely! If you want to spec the 'right' car you will have to wait for them to source or even build the car in the factory. For most cars where detailed customisation is not a concern a similar car to what you want will be available on the used market. The effect of the options on the value of the used car is almost always less than the cost new, and so again a used car gets you 'your spec' for much less than new.Although with one you're able to spec the right car and have it right away and the other is used and you have to save up the whole amount. Not saying either way is right or wrong, just saying
Additionally, you do not have to save up the full amount. In the case of the OP he has found a deal on a £6,988 car for £125/month. For argument's sake, let's say that the used car is also £6,988 (and so will be a better model and spec and etc.
):£7,000 loan over 6 years = £120.20 per month. Pay for 4 years = £5,769.60. To settle at this point will be 24 months capital plus two months interest as an early repayment charge (total £2,379.29) = £8,148.89 less residual value £2,500 = £5,648.89. £350 cheaper than financing and you can play by your replacement schedule and your rules.
I'm confused. Spec the right car and have it right away? Not likely! If you want to spec the 'right' car you will have to wait for them to source or even build the car in the factory. For most cars where detailed customisation is not a concern a similar car to what you want will be available on the used market. The effect of the options on the value of the used car is almost always less than the cost new, and so again a used car gets you 'your spec' for much less than new.
Additionally, you do not have to save up the full amount. In the case of the OP he has found a deal on a £6,988 car for £125/month. For argument's sake, let's say that the used car is also £6,988 (and so will be a better model and spec and etc.
£7,000 loan over 6 years = £120.20 per month. Pay for 4 years = £5,769.60. To settle at this point will be 24 months capital plus two months interest as an early repayment charge (total £2,379.29) = £8,148.89 less residual value £2,500 = £5,648.89. £350 cheaper than financing and you can play by your replacement schedule and your rules.
Im always impressed when people can regurgitate figures like that, i really am.
I'm confused. Spec the right car and have it right away? Not likely! If you want to spec the 'right' car you will have to wait for them to source or even build the car in the factory. For most cars where detailed customisation is not a concern a similar car to what you want will be available on the used market. The effect of the options on the value of the used car is almost always less than the cost new, and so again a used car gets you 'your spec' for much less than new.
Additionally, you do not have to save up the full amount. In the case of the OP he has found a deal on a £6,988 car for £125/month. For argument's sake, let's say that the used car is also £6,988 (and so will be a better model and spec and etc.
£7,000 loan over 6 years = £120.20 per month. Pay for 4 years = £5,769.60. To settle at this point will be 24 months capital plus two months interest as an early repayment charge (total £2,379.29) = £8,148.89 less residual value £2,500 = £5,648.89. £350 cheaper than financing and you can play by your replacement schedule and your rules.
Yep a loan would be best for most people against a finance deal, but I meant he would have to save up if not getting any kind of finance (loan or PCP/HP).
What I'm trying to say is that the thing with financing is that 'financing' isn't the problem - it's the price of the cars! The cost of owning a car aside from servicing, fuel etc. is the depreciation plus the cost of capital. For a new car value £7,000 this is going to be more than a used car value £5,000. The only advantage to a new car is that it is new and has a good warranty that usually lasts for 3 years.
People often look at the monthly repayments of a new car and think it's a great deal. It's often more expensive than financing it yourself, and almost always significantly more expensive than just buying a used car.
How so?
Say I have 10k in the bank and I want to buy a reasonable car for 8-9k. I own a house and am fairly new into a job. Why would I want to spend 80-90% of my savings on a car when I can get finance for 4% and $190 odd per month over 4/5 years? I'm hardly being ripped off with a 4% loan.
Having some money in the bank for emergencies imo is a wiser choice than buying a car cash and having very little in the bank. If my furnace breaks, a medical emergency, job loss or something happens to my other car and I need to raise 1-2k I don't want to worry about having to sell a car to raise the cash. If I make a bit more cash one year I can simply play the loan off early with little penalty. Always keep your money in the bank is a rule I stick to.
Maybe I'm just not as fortunate as 90% of you people who can throw 10k+ on a car. Either that or all of you still live with your parents and have little expenditure.
EDIT: Also add, I would say with the house prices and requirements to have a 10-20% deposit to buy a house means a lot of people have to put more of their money towards home ownership instead of into a car.
Last edited:
JonRohan what you are suggesting is fine. It's not a great idea to have no cash or other similarly liquid assets available. In your case, if you have 10k in savings and want to buy a 9k car, and you want to be able to raise 1-2k easily, then play it safe and use 7k of your savings and finance 2k. Unless you have amazing savings rates (which I suspect not if you're getting 4% loans [assuming that's APR]) then that will work out cheaper. If you want to increase your stability by financing a larger portion of it, then of course that's fine, but you will pay for the privilege. I, pesonally, would prefer to use more of my savings, and then if I do need to raise some money, use a credit card or a loan at the time.
Quite, and so saving for a house deposit should probably come at the cost of a nice new carJonRohan said:
How so?
Say I have 10k in the bank and I want to buy a reasonable car for 8-9k. I own a house and am fairly new into a job. Why would I want to spend 80-90% of my savings on a car when I can get finance for 4% and $190 odd per month over 4/5 years? I'm hardly being ripped off with a 4% loan.
Having some money in the bank for emergencies imo is a wiser choice than buying a car cash and having very little in the bank. If my furnace breaks, a medical emergency, job loss or something happens to my other car and I need to raise 1-2k I don't want to worry about having to sell a car to raise the cash. If I make a bit more cash one year I can simply play the loan off early with little penalty. Always keep your money in the bank is a rule I stick to.
Maybe I'm just not as fortunate as 90% of you people who can throw 10k+ on a car. Either that or all of you still live with your parents and have little expenditure.
EDIT: Also add, I would say with the house prices and requirements to have a 10-20% deposit to buy a house means a lot of people have to put more of their money towards home ownership instead of into a car.
In that case for me you have the money but can't comfortably afford a £10k so..... you just don't buy one! No one has a gun to your head saying you must buy a £10k car, if I was in that position I'd be avoiding a loan and buying a decent £5k car, no loan to pay off and still have money aside for other things.
Speaking from the experience of having had a car on finance...I wouldn't do it again
Mind explaining why ?
saving for a house deposit should probably come at the cost of a nice new car
For sure. In my case financing made sense. Last year I bought a house, furnished it as I moved from the UK and had no furniture etc. Getting married this year. Financing on the car was best way to spread the dosh I had.
Like you say. It is about balance. If I wasn't getting married I'd have probably put more towards the car or even paid it off by now.
Weddings are flipping expensive, not to mention we're having two. One in Canada and one in the UK.
I currently live at home, paying about 15-20% of my monthly wage on rent.
I've just always been one of those people who saves very well and always lives within my means.
I took your post as hypothetical and totally out of interest if it was a real life situation I'd be looking to spend as little as possible on a reliable cheap car that'll get the OH to work and back. Who cares how it drives, if its quick or looks good. Plenty of students/teenages get £1k-£2k cars and get loads of use out of them before anything breaks.
You clearly would much rather spend money on a house/wedding etc... which is great as that's your thing. Get the Mrs a cheap A-B car, sort everything else out and then come back to getting a nice £10k car when you can properly afford one. Having an extra £200 a month instead of paying a loan you can then decide to save that money or put it towards something that month.
For me, atm I want a new car - so 50%-65% of my monthly wage goes straight into a saving account that I've not touched for nearly a year. I currently also do freelance extra work for a little bit of extra cash and spending money.
After the car I'll probably start saving towards a house and I'll use the same method to get a very decent deposit together.
There's nothing fundamentally wrong with finance, but you need to remember the golden rule...
Finance costs you more.
When you remember that, it enables you to better weigh up the pros and cons. You are essentially offsetting the inconvience of saving for period X against the addition cost involved in having the money now and paying off for period X, or period Y.
The key part is to plan ahead, you need to ensure that your finance is going to meet your needs for the duration of the loan, or alternatively, that your asset is going to be worth enough to clear the finance if necessary if things do change. Buying a standard vectra on finance with very little deposit and a long term is a recipe for disaster, buying a car with low depreciation with a decent sized deposit less so.
Finance costs you more.
When you remember that, it enables you to better weigh up the pros and cons. You are essentially offsetting the inconvience of saving for period X against the addition cost involved in having the money now and paying off for period X, or period Y.
The key part is to plan ahead, you need to ensure that your finance is going to meet your needs for the duration of the loan, or alternatively, that your asset is going to be worth enough to clear the finance if necessary if things do change. Buying a standard vectra on finance with very little deposit and a long term is a recipe for disaster, buying a car with low depreciation with a decent sized deposit less so.
You made it, get in itWeddings are flipping expensive, not to mention we're having two. One in Canada and one in the UK.
just out of interest have you registered it as a business and pay tax on it ?
i know it's crazy off topic but i loathe anyone who makes 'cash on the side' of a main job and pays nothing on it
finance is a good way to spread costs on something that is just something in life you need, transport... on a a to b car I wouldn't want to just spend 10k (but over 5 years you don't notice the outlay)
I'm a saver too. There's only so much you can save once you have to start spending on homes, furniture, weddings and god forbid kids.....
. And for the record, the weddings were her idea. My mrs and I have cheap cars, they were both $10k Canadian, nothing special but good A-B cars. I've bought cheap cars in the past and had problems. I'm not great at buying cars so just stick to middle ground.
Like I say, our senario fits us and we have a good balance.
To say finance is bad or a 'mugs game' blah blah (not that you did) does get on my nerves a little. Finance isn't always bad if used correctly and if it fits what you want to do etc.
You made it, get in it
Yep, twice.
On the plus side, our bed is nicer and bigger than the quoted picture because we financed on the car.