Loans / Finance / Money

[oHUTCHYo]

If one were to borrow £13-£15K over 3, 4 or 5 years - whats the best method right now, just a bank loan? This is for my fantasy Evo 9 FQ340

For £14,950 over 5 years, Alliance Leicester seems to be the best at 7.1% equating to £295.17 per month.

 

[Gibbo]

Yes that is the best method.
Unless you can strike a finance deal between 1-6%, very unlikely on used car, Nissan offered me 5.9% APR on a used R35, which was very good.

Just make sure the repayments are well within your budget and budget for tyres, petrol, servicing, brakes as the EVO has quite an appetite for them.

 

[oHUTCHYo]

...Just make sure the repayments are well within your budget and budget for tyres, petrol, servicing, brakes as the EVO has quite an appetite for them.

haha, my sentiments exactly. I'd normally budget £400+ per month, but thought it would be wise to reduce loan payments and allow some room for such costs.

I'm already planning on paying the insurance as a one-off fee so I know thats paid for 12 months.

 

[[TW]Fox]

The important thing is to keep the debt/equity ratio healthy. This way you avoid negative equity and if something bad happens you can remove yourself from the agremeement by simply selling the car and paying it off.

100% financing a car is a bad idea IMHO, if you cant scrabble together a couple of grand or more for a deposit than a £15,000 Mitsubishi Evo is probably not a sensible idea anyway.

Try and put 40-50% down as a deposit?

 

[naefeart]

The best method is to get your dotty old Aunt to lend you the money interest free

Seriously though, I'd put £400 aside for several months and then borrow less. 3-5 years is a long time and you'll find your priorities change during that period.

 

[Kingy]

The important thing is to keep the debt/equity ratio healthy. This way you avoid negative equity and if something bad happens you can remove yourself from the agremeement by simply selling the car and paying it off.

100% financing a car is a bad idea IMHO, if you cant scrabble together a couple of grand or more for a deposit than a £15,000 Mitsubishi Evo is probably not a sensible idea anyway.

Completely agree on the avoiding negative equity thing, but as long as the monthly repayments mean you never fall into negative equity (which obviously requires the depreciation curve to have flattened somewhat) and you've got a couple of grand set aside for unexpected issues with the car or other external circumstances, why tie up so much capital in a car?

 

[[TW]Fox]

why tie up so much capital in a car?

Because you will pay more interest on borrowing it?

 

[Kingy]

Because you will pay more interest on borrowing it?

Well yes, but given that you're already paying interest on any borrowings anyway, as long as you never dip into negative equity, I don't see how that affects the affordability?

 

[[TW]Fox]

Well yes, but given that you're already paying interest on any borrowings anyway, as long as you never dip into negative equity, I don't see how that affects the affordability?

It doesn't, but the more you borrow the more money you pay in interest

 

[no_1_dave]

Dont go by advertised loan rates.
They are the best rate the company can offer and after a credit score you'll find the rate offered is much higher. Only approx 2% of the population can get the rates offered in adverts. The best way to budget is a loan from your own bank as most banks will guarantee you a rate that wont go up after the credit score.

 

[[TW]Fox]

Only approx 2% of the population can get the rates offered in adverts.

This is completely false - by law the advertised rate must be offered to at least 51% of people who are offered a loan. This is a reasonably new change, before this it had to be offered to 2/3rds of succesful applicants so what you've said is completely wrong.

I dont really understand why people say things like this? I mean where did you get 2% from?

 

[Felix]

Definately put more capital in.

Put in 7k capital and take a loan of 7k. Car value drops for example by 7k and you sell said car. You pay off the loan and thats the end of story.

Take a loan of 14k, car drops 7k in value, you pay off 7k of loan and still left with several more k for the rest of the loan. So even after you sell the car you are still paying it off. You then need a replacement car, your still paying out on the old one, you need a loan on a new one and slowly your debt increases...

 

[daveydave]

Dont go by advertised loan rates.
They are the best rate the company can offer and after a credit score you'll find the rate offered is much higher. Only approx 2% of the population can get the rates offered in adverts.

Really?! Do you actually believe this?...this "stat" of 2% looks look something from the POOMA institute. POOMA being "pulled out of my ****"

Or in this instance...your ****

 

[Kingy]

It doesn't, but the more you borrow the more money you pay in interest

Of course, but if you're already entertaining the idea of taking a loan anyway, then you understand that borrowing is generally more expensive than buying with cash.

To my mind, affordability is based on being able to buy the car with manageable monthly payments without ever going into negative equity in case something bad happens, ideally with a grand or two set aside 'just in case'. Simple contingency planning.

If you don't have 40-50% equity to put down, it stands to reason that the financing costs are going to be higher, but to imply that is only affordable if you have that capital is inaccurate imo.

The only reason I can see for putting down a deposit is if you're buying a sufficiently new car that will depreciate faster than the monthly payments will cover initially. As per my interpretation of affordability above, I would agree that buying for example, a 2008 335i M Sport for ~£20k is likely to depreciate faster than say, a £300 a month loan repayment will cover. In which case it would be sensible to put a chunk of cash down as a deposit or set it aside as a slush fund if required.

A ~£10k 2005/6 330i Sport is unlikely to depreciate faster than the £300 a month loan repayment, so it is affordable, and the deposit is not neccesary.

'Deposits' with cars make me uncomfortable. I associate them as a dealer trick to fudge the numbers to make a new high depreciation risk car look more affordable. If you arent able to re-save the amount you've just laid down in time to buy a new car in a few years time, then you can't repeat the process and buy the same 'standard' of car again.

Definately put more capital in.

Put in 7k capital and take a loan of 7k. Car value drops for example by 7k and you sell said car. You pay off the loan and thats the end of story.

Take a loan of 14k, car drops 7k in value, you pay off 7k of loan and still left with several more k for the rest of the loan. So even after you sell the car you are still paying it off. You then need a replacement car, your still paying out on the old one, you need a loan on a new one and slowly your debt increases...

If your car depreciates by half, you've either had sufficiently long that the loan repayment really should have covered at least the depreciation, or you've bought a car that is too new, and in Mark's words blown your brains out on depreciation. To my mind, the error in the latter scenario is buying a new car, rather than not having managed to save £7k before buying it.

 

[Kingy]

Really?! Do you actually believe this?...this "stat" of 2% looks look something from the POOMA institute. POOMA being "pulled out of my ****"

Or in this instance...your ****

Bankers. They're evil yo!

 

[Participant]

Of course, but if you're already entertaining the idea of taking a loan anyway, then you understand that borrowing is generally more expensive than buying with cash.

So it's fine, as long as you understand that it's more expensive? With borrowing rates so much higher than savings rates in general, it of course makes sense to put down as much capital as possible. It's just cheaper, end of story.

You seem to be one of those who's main question is, 'can I afford the monthly payments?' rather than what you should be asking, which is 'what is the cheapest way to do this over the life of the deal?'.

 

[[TW]Fox]

Of course, but if you're already entertaining the idea of taking a loan anyway, then you understand that borrowing is generally more expensive than buying with cash.

So why it make more expensive?

To my mind, affordability is based on being able to buy the car with manageable monthly payments without ever going into negative equity in case something bad happens, ideally with a grand or two set aside 'just in case'. Simple contingency planning.

If you don't have 40-50% equity to put down, it stands to reason that the financing costs are going to be higher, but to imply that is only affordable if you have that capital is inaccurate imo.

You are missing my point. I've made two seperate points. Firstly that when borrowing money I beleive it to be best practice to use as much capital as can.

I then went on to say that if he can't get together a few grand for a deposit then an Evo probably isn't a good idea. This isn't the same thing as me saying a car isnt affordable unless you finance only 50% of it, this is me saying an Evo is a really expensive car to run and if your finances are tight enough that you have no choice but to take out a 100% loan then it's probably going to end in tears.

 

[Kingy]

So it's fine, as long as you understand that it's more expensive?

It's just cheaper, end of story.

Correct. Cheaper, and by virtue, more affordable. To my mind, this is completely different to "if you can't put down a deposit, you can't afford it."

You seem to be one of those who's main question is, 'can I afford the monthly payments?' rather than what you should be asking, which is 'what is the cheapest way to do this over the life of the deal?'.

The cheapest way over the life of the deal is to wait until you've saved 100% and buy it outright. Or buy something 50% cheaper with the 50% you've already saved. This is entirely my point. In borrowing in the first place, you have already accepted that you are not doing the deal in the cheapest way possible.

Using the OP's numbers a £14950 loan repaid at £295.17 a month will see £17710.20 repaid. Cost of borrowing is £2760.20 or an average of £46 per month. Obviously, both figures are halved if you put down 50%. As long as a £15k Evo 9 doesn't depreciate by more than 3 grand a year, negative equity is not realised, and to my mind this is affordable. Those suggesting that a car is affordable if it is 50% financed, but not affordable if it is 100% financed are having their Go/No Go decision influenced by the cost the extra borrowing. In this instance the cost of a £7500 loan (as £7475 is charged at 8.6%) over 60 months is £148.08 a month / £8884.80 total repaid / £1384.80 cost of borrowing / £23.08 average monthly interest.

The cost of borrowing £14950 instead of £7500 is £2760.20-£1384.80=£1375.40 or £46.00-£23.08=£22.92.

I personally wouldn't let 23 quid a month dictate that I couldn't afford my 'dream Evo 9 FQ340'.

 

[[TW]Fox]

I personally wouldn't let 23 quid a month dictate that I couldn't afford my 'dream Evo 9 FQ340'.

You are completely missing the point.

The point with this particular example is not 'Put down an extra few grand because then it costs you £23 a month less'.

The point is 'To be honest, if you can't scrabbe together a few grand to stick as a deposit then I doubt your financial situation is such that an Evo 9 is a clever idea'.

As long as a £15k Evo 9 doesn't depreciate by more than 3 grand a year, negative equity is not realised, and to my mind this is affordable.

Given that few people buy a car they can immediatly sell for what they paid for it, he is in negative equity from Day 1.

 

[Kingy]

So why it make more expensive?

Because the capital might not have been saved, or might be better used elsewhere?

The point is 'To be honest, if you can't scrabble together a few grand to stick as a deposit then I doubt your financial situation is such that an Evo 9 is a clever idea'.

Why? If the monthly income is such that the finance and running costs can be met, where's the issue?

Given that few people buy a car they can immediatly sell for what they paid for it, he is in negative equity from Day 1.

Financing the purchase via a personal loan rather than dealer finance opens up the private market. If you buy privately and can't sell it the day you bought it for the same price you paid (give or take a couple of hundred quid) you've overpaid.

I take your point about 'few people', but it can be done, although I will concede that anyone trying to get into interesting metal without capital behind them is going to need be industrious to make it happen.