Car finance- what is considered sensible?

flibbage0

flibbage0

flibbage0

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I see that a lot of people finance their car in some manner, some put themselves in tremendous debt whilst others less so.

I know money is a bit crass to talk about but what would you consider to be the limits of sensible?, spending 20% of your annual income? Maybe 40%?

In terms of car down payment what % of the car's value would you consider to be the absolute minimum down payment you would make?

Personally I wouldn't spend more than 20-25% of my income on a car annually, and in terms of down payment I would put down at least 40%
 
The deposit amount would depend on how I was financing it e.g. PCP or HP as well as the rates involved e.g. 0% as well as comfortable monthly payment.
 
Currently about 15% of my income for car. I'd be comfortable with up to 30% as I live a pretty much frugal life otherwise :)
 
Too difficult to put an arbitrary % of income on what you should spend on a car really, going to vary massively by personal circumstance and other outgoings.

In terms of down payment etc I like to ensure that at the very least I would be able to get rid of the car quickly (so a couple of grand below purchase price maximum debt against car if buying used) and clear any outstanding loan / finance with interest accrued etc. If things really went belly up in life the last thing you'd want is to be saddled with a debt for something you didn't even have.
 
flibbage0 said:
Personally I wouldn't spend more than 20-25% of my income on a car annually, and in terms of down payment I would put down at least 40%
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Are you adding all the running costs as well ? fuel , tyres, services , insurance, cleaning stuff, etc

My last car RX8 which i owned for about 5 years and clocked up around 35,000miles
Car Cost 3.5k
Fuel cost 12k+
about 2k spend on parts and tyres
2.5K for insurance for 5 years

So total coat was around 20k over 5 years
 
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chaparral said:
Are you adding all the running costs as well ? fuel , tyres, services , insurance, cleaning stuff, etc

My last car RX8 which i owned for about 5 years and clocked up around 35,000miles
Car Cost 3.5k
Fuel cost 12k+
about 2k spend on parts and tyres
2.5K for insurance for 5 years

So total coat was around 20k over 5 years
Click to expand...

Excluding fuel but including tyres and parts
 
rodenal said:
Too difficult to put an arbitrary % of income on what you should spend on a car really, going to vary massively by personal circumstance and other outgoings.
Click to expand...

I agree, it's also biased by the downpayment in the sense that you could pay 50% of your income one year to buy a car outright and then a much smaller amount in subsequent years to keep it running.

To answer the question I'd say a limit of 200% of annual income and no mimimum downpayment as it all depends on how good a deal you are getting.
If pressed to be slightly less flippant I'd say that the most we've ever paid to buy a car (including trade-in but excluding ongoing costs like maintenance etc) was about 15% of gross annual household income.
 
The only time i've financed a car i just worked out i was paying just under 15% of my income on it, i put down a small deposit as it made sense at the time.

There is no 'right' answer though just shades of grey. As long as you are actually living within your means i wouldn't necessarily see an issue spending a fair bit more % wise if a car is high up on your list of priorities.

For me personally i prefer to own cars outright at the moment and have put all my money in to my house over the last 5 years but that may well change at some point and financing may well be on the cards again.
 
If you have spare money you are willing to lose on depreciation then buying a more expensive car can be a reasonable choice. If not set yourself a realistic budget that does not stress your finances at all. A car is not a way of making money or even breaking even in most people's cases.

For the down payment I just trade in my previous car as I use car loans generally and not pcp type agreements. We paid the balance of my wife's car off with an interest free credit card transfer over 18 months. Just be careful not to take risks or overstretch yourself as who knows what the future brings.
 
I took my car out in finance over 5 years.

Mine is roughly 11% my monthly income, before tax.

I put down no deposit at the time and the car was 1 year old so I got it for a considerable amount less than it would have cost new (about 30% cheaper), I think that's pretty important.

The reason I think it's important is that I currently owe less than the car is worth after a year and a half of ownership and 25 thousand miles. Had I bought the car new, it would have lost a lot of value and getting out of my commitment early could be expensive.

I think the amount you spend is all down to circumstance, I like cars and my mortgage is relatively cheap. I also have little to no social life so my other expenses are pretty low.

That being said, I no longer do high mileage and have no need for a relatively new/reliable car so I'm looking to change soon .

Hope this helps in anyway.
 
All of my vehicles are bought outright.

I bought my Thruxton in cash, knew what I wanted, was there to buy. It was a special edition sitting there on the showroom floor. Didn't even test ride one, knew I wanted a Thruxton, asked the salesman about it, plonked the 20 grand (AUD) on the counter. Was a pretty sweet feeling, but apparently it's not all that uncommon for motorbikes, I was expecting him to be kind of shocked but he just asked if I wanted a test ride and stuff :(

Got some accessories thrown on for free though!
 
flibbage0 said:
I see that a lot of people finance their car in some manner, some put themselves in tremendous debt whilst others less so.

I know money is a bit crass to talk about but what would you consider to be the limits of sensible?, spending 20% of your annual income? Maybe 40%?

In terms of car down payment what % of the car's value would you consider to be the absolute minimum down payment you would make?

Personally I wouldn't spend more than 20-25% of my income on a car annually, and in terms of down payment I would put down at least 40%
Click to expand...

Every car I have bought I have paid 100% for it with 0% on finance/loans.

Basically I use my savings to buy stuff. I don't even have a credit card. However I have now applied for a loan to use for investment purposes and a credit card as it makes sense to take advantage of their 32 month 0% initial offers, etc and loan rates are the lowest they ever will be 3% or less.

However it takes willpower to be able to save and not spend and use money sensibly. Like not blowing £5K on credit card and not putting anything aside for it when the deal ends. I know people who live at home yet are straddled in debt due to credit cards, loans, etc. Spending money they never had. I was lax with money when younger, with credit cards, etc, now I spend only what I have in the bank.

Sure it means I don't have a brand new car in my drive every 2-3 years however it also means I'm 100% financially stable.
 
We have just financed our Sportage via borrowing out of our savings. Even if rates do start to rise in the next few months we stand to lose less than taking out a bank loan at 5 - 6%. PCP not of interest as planning on keeping the car at least for duration of Kia's 7 year warranty, if not a little longer. It was a bit of an "ouch" moment taking a cheque for that amount out the Building Society, but what doesn't get put back before I retire in 18 months or so will get replaced from my pension lump sum.

To be fair it's the first car we've been in a position to do that, previously it's either been car finance or a bank loan albeit usually settled early.
 
I currently pay 8.5% of my monthly take home pay on my car loan and I paid 45% of the purchase price cash. The value of the car was 51.95% of my annual salary.

Personally I wouldn't want to spend too much more on a car monthly as I do very little mileage and would prefer to be putting spare cash into savings rather than paying depreciation. The current car was a deal I couldn't really refuse though and I thought I'd have some fun for once...
 
I bought a £10k car in 2006 outright and haven't bought anything since, so I'd say I'm very much at the lower end of expenditure. Although, I'd love a mustang and a certain thread here isn't helping that itch :D
 
Both of my cars have been bought outright immediately at the point of purchase and same for my wife's. Had my current E46 for 9 years and my previous was a Clio owned for about 3 years. I'm must admit I have looked into financing my next car to take advantage of dealer offers and contributions but given I'll probably keep it a minimum of 5 years at least it still works out as more expensive. As for what I would be happy to spend I estimated it at around 10-15% of my take home salary where as my wife felt that 7-10% was more reasonable. Biggest reason for me tentatively considering finance at this stage is difficulty finding anything which I like spec wise on the second hand market and also the market itself for used cars seems overpriced compared to 5 years ago.
 
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