Take out finance or save up and just buy outright

[tomjol]

pavka007 said:

OK, you win.
I have a credit, but no "good" credit history.
Bottom line, I could make 1000 quid repayment per month with not a problem but according to the score system used from banks I couldn't qualify for even 5k loan.... This is not right in my book. The system is designed to get you in debt not to help you when you need a wee help

Yes, because loan providers are looking to make profit (from long repayment terms), not providing a public service?

[Shaoxter]

xRIEx said:

It's a balance of risk to the card (or loan) company, and how much money you might make them. If you pay off your balance every month then you make them no money whatsoever; miss one payment and you're charged £20 fee and e.g. £30 interest.

Well... they make money by charging the retailers for your transactions. Especially Amex!

[chris watton]

tomjol said:

pavka007 said:

OK, you win.
I have a credit, but no "good" credit history.
Bottom line, I could make 1000 quid repayment per month with not a problem but according to the score system used from banks I couldn't qualify for even 5k loan.... This is not right in my book. The system is designed to get you in debt not to help you when you need a wee help

Yes, because loan providers are looking to make profit (from long repayment terms), not providing a public service?

I don't think anyone was disputing that, I think we were just giving examples of why, sometimes, it's good to take a loan (if you can afford it) to keep your credit rating healthy - and giving reasons why having a CC doesn't necessarily help in qualifying for a loan.

[vinnie83]

daemon said:

vinnie83 said:

Some people genuinely believe that a used car is bound to cost them thousands when it keeps breaking. Some want to impress the neighbours. Some want the convenience of walking into a showroom and pointing at something and saying "I want that one". Some are just suckers for salesmen.

You're missing the main truth - some people like the idea of a monthly payment on a new car that wraps up depreciation, maintenance and moreoften servicing now into one set amount.

Its a convenience thing. They'll look for the best deal for their monthly budget.

Most other things these days are paid for monthly - mortgage, mobile phone, electic, heating, sky, broadband - and we get paid monthly so why not allocate a set amount to pay for a car?

Works for a lot of people.

Fair point, I had missed that - it certainly is a reason I'm sure.

But you can't compare it to things like utilities as you pay as you use as opposed to paying finance on something which includes interest.

There's nothing wrong with it, but some people end up in cars they really cannot afford as the monthly payments are 'affordable'.

My fathers factory is in a rather unpleasant part of Leicester called Belgrave. Very poor area with largely uneducated immigrant first generation population, and unfortunately followed by below average earning second generation. The number of new BMW, Merc and Audi you see parked outside these homes are shocking.

To some, the image of a new flash car is paramount, despite their homes being in poor condition.

The way I see it is:

Could you afford to save up and buy the car in the future, then you can afford to take it on finance. If however, the finance is allowing you into a car you would otherwise NOT have been able to afford, then you shouldn't take it.

[Devil2575]

vinnie83 said:

but some people end up in cars they really cannot afford as the monthly payments are 'affordable'.

I disagree with this comment. If they can afford the repayments they can afford the car. It's that simple.

I suspect your opinion, like many others on here, is based on the fact that you see other people who you consider to be of lower status to yourself driving more expensive cars that you. It may be convenient for your ego to think that they can't really afford it but that doesn't change the fact that they can.

Using finance to buy a car is very common and regardless of whether you pay 5 or 50% APR or pay for it over 5 or 50 years, as long as you keep up the repayments, at the end of the term you own the car, therefore you can afford it.

[Devil2575]

vinnie83 said:

Could you afford to save up and buy the car in the future, then you can afford to take it on finance. If however, the finance is allowing you into a car you would otherwise NOT have been able to afford, then you shouldn't take it.

Given that the repayments for the finance would be greater than the monthly ammount you'd have to save over the same period to buy the car outright, I don't get this statement.

[vinnie83]

chris watton said:

What about taking finance to upgrade a car?

I am seriously thinking of betting a loan to have an engine upgrade on a 12 year old car - almost bought new last year, but there's nothing out there that I could afford to buy that I want (F-Type..). I could save up for the upgrade, but having the occasional loan helps your credit rating, I think, and having no mortgage or loans means we look like we're off the radar!

Utter load of rubbish touted by people at the bank selling loans! (I'm a mortgage broker).

Get your credit file online on experian.co.uk and you'll know without doubt

Don't get me wrong, never having had ANY credit EVER might cause problems, but I'm sure you have a mobile phone etc...

F-Type is a lovely car too, but not one I would want to buy just yet! Jags drop like stones, pick up a bargain in a year and you will probably have to borrow less!

IMHO of course...

[xRIEx]

Devil2575 said:

vinnie83 said:

Could you afford to save up and buy the car in the future, then you can afford to take it on finance. If however, the finance is allowing you into a car you would otherwise NOT have been able to afford, then you shouldn't take it.

Given that the repayments for the finance would be greater than the monthly ammount you'd have to save over the same period to buy the car outright, I don't get this statement.

Affordability is more than just cost/month - if you're tied into a deal for 5 years and your job goes tits up, it's going to cause problems; if that affordable "low, low monthly payment" has diverted funds from savings (or thinking long term, pension), mortgage, etc. then those problems are going to be much bigger. If a family are putting all their money into cars, expensive furniture, a house slightly beyond their means, private education for the kids etc. etc. then if the worst happens they've got much further to fall.

[daemon]

vinnie83 said:

But you can't compare it to things like utilities as you pay as you use as opposed to paying finance on something which includes interest.

But its the way things are these days - people are used to paying things monthly, so why make a massive purchase every three or four years, then nothing, nothing, nothing then another massive purchase.

Granted theres interest in there, but it neednt be a big amount (if any at all). Often finance deals on new cars are subsidised by the manufacturer so you'll get a "finance contribution", "complimentary spec upgrade", "low rate finance" or "interest free". All of these things offset the interest you might otherwise pay.

vinnie83 said:

There's nothing wrong with it, but some people end up in cars they really cannot afford as the monthly payments are 'affordable'.

Then as has been said already - they cant afford it. Some people dont do their homework, but likewise i see people who buy brand new cars, allegedly for cash, which will be worth peanuts in a few years time and they cant really afford that sort of loss - and could have avoided a lot of it.

vinnie83 said:

My fathers factory is in a rather unpleasant part of Leicester called Belgrave. Very poor area with largely uneducated immigrant first generation population, and unfortunately followed by below average earning second generation. The number of new BMW, Merc and Audi you see parked outside these homes are shocking.

Dont know how / why they're doing it, so cant comment. That surprises me. Its nothing i'm seeing here.

vinnie83 said:

To some, the image of a new flash car is paramount, despite their homes being in poor condition.

Yup. There are some shallow people in all walks of life who think bright shiny new things impress people. Not just with new cars either.

Thats life. I believe those people are in the minority, and usually they learn over time that theres more to life.

vinnie83 said:

The way I see it is:

Could you afford to save up and buy the car in the future, then you can afford to take it on finance. If however, the finance is allowing you into a car you would otherwise NOT have been able to afford, then you shouldn't take it.

Hmmm.. Not sure on that one. If someone can afford a payment on say a Golf R at say, £280 a month, and they might otherwise only be able to afford a repayment on a Golf 1.2TSI then wheres the harm? Sometimes finance deals allow you to drive cars that you wouldnt otherwise be able to - by nature of the deal.

You may want to live by that "rule" but i dont think its a yardstick for the general population.

[chris watton]

xRIEx said:

Devil2575 said:

vinnie83 said:

Could you afford to save up and buy the car in the future, then you can afford to take it on finance. If however, the finance is allowing you into a car you would otherwise NOT have been able to afford, then you shouldn't take it.

Given that the repayments for the finance would be greater than the monthly ammount you'd have to save over the same period to buy the car outright, I don't get this statement.

Affordability is more than just cost/month - if you're tied into a deal for 5 years and your job goes tits up, it's going to cause problems; if that affordable "low, low monthly payment" has diverted funds from savings (or thinking long term, pension), mortgage, etc. then those problems are going to be much bigger. If a family are putting all their money into cars, expensive furniture, a house slightly beyond their means, private education for the kids etc. etc. then if the worst happens they've got much further to fall.

So true. We were always taught to base our finances on the worst case scenario - when you have to rely on best case, it doesn't take much to tip the balance....

[SteveSteveson]

xRIEx said:

chris watton said:

xRIEx said:

pavka007 said:

In the first instance they refused because I don't have credit rating at all. ... since than I was credit free, even when I use CC I pay it in full before the statement is even due.

That doesn't make sense - when you have a credit card you have credit - it's a flexible, open-ended loan.

I too have always had a Visa card that I use often, but always pay off the balance monthly, and I can confirm what pavka wrote - if you have no credit and on the whole live within your means, there are times, when you apply for a loan, you are treated the same as the worst serial defaulter, because there is no previous credit to track.

At least, that's my past experience, so having the odd loan now and again isn't so bad....

Yes you do have credit and a credit history; what you don't have necessarily is profitability.

That's all rubbish. If you use and pay off a credit card in full each month you will have a good credit history. From doing that you would have a good credit history. There is, however, many other things that go in to credit scoring than just making your monthly credit card payment each month, including how much credit you already have, which includes the full amount you could spend on your credit cards, your credit exposure. Credit card companies may like people who don't pay the balance in full, but they have no problem with people who pay in full every month.

What it normally is with people who "Live within there means" and don't use credit cards much is that they either have loads of credit cards with huge limits, so huge exposure, or very low credit (Due to only having what they need for monthly spending, so hundred or low thousands) for many years and then apply for massive loans, which makes banks worry about affordability.

[daemon]

Devil2575 said:

vinnie83 said:

Could you afford to save up and buy the car in the future, then you can afford to take it on finance. If however, the finance is allowing you into a car you would otherwise NOT have been able to afford, then you shouldn't take it.

Given that the repayments for the finance would be greater than the monthly ammount you'd have to save over the same period to buy the car outright, I don't get this statement.

And what would you drive in the meantime?

If it took ten years to save £30K to buy say a Golf R, what do you drive in the meantime? Some scrapper? Another car thats depreciating? Another car thats down the years and costing you in maintenance?

[daemon]

xRIEx said:

Affordability is more than just cost/month - if you're tied into a deal for 5 years and your job goes tits up, it's going to cause problems; if that affordable "low, low monthly payment" has diverted funds from savings (or thinking long term, pension), mortgage, etc. then those problems are going to be much bigger. If a family are putting all their money into cars, expensive furniture, a house slightly beyond their means, private education for the kids etc. etc. then if the worst happens they've got much further to fall.

And if they do that with CASH, whats the difference?

If you've pull ALL your savings into a new car and you lose your job, chances are its going to go to the wall in a couple of months.

If you're paying £200 a month, you're very likely to be able to continue until such times as you get another job several months down the line.

You're making BIG assumptions there that people with a car on finance have no savings at all.

Plus at any time you have to believe if you are made redundant you can get another job at a similar level or even drop a level. If you dont have that confidence in your own abilities, then save save save while it lasts.

You dont go from being a £100K a year high flier to only being able to get a job in Tescos.

And even IF you do, its only stuff - whats the issue. Let it go.

[daemon]

chris watton said:

So true. We were always taught to base our finances on the worst case scenario - when you have to rely on best case, it doesn't take much to tip the balance....

Exactly.

So whats the issue?

I think theres a lot of people who go for the "oh well they clearly cant afford it and are financed to the hilt", when really you dont know what peoples incomes / finances are like - maybe they're just doing well for themselves?

[xRIEx]

daemon said:

You're making BIG assumptions there that people with a car on finance have no savings at all.

I'm not making assumptions about a real-life case or cases, I'm outlining a hypothetical situation to explain why affordability is not the same as x-y > 0.

[Devil2575]

xRIEx said:

Devil2575 said:

vinnie83 said:

Could you afford to save up and buy the car in the future, then you can afford to take it on finance. If however, the finance is allowing you into a car you would otherwise NOT have been able to afford, then you shouldn't take it.

Given that the repayments for the finance would be greater than the monthly ammount you'd have to save over the same period to buy the car outright, I don't get this statement.

Affordability is more than just cost/month - if you're tied into a deal for 5 years and your job goes tits up, it's going to cause problems; if that affordable "low, low monthly payment" has diverted funds from savings (or thinking long term, pension), mortgage, etc. then those problems are going to be much bigger. If a family are putting all their money into cars, expensive furniture, a house slightly beyond their means, private education for the kids etc. etc. then if the worst happens they've got much further to fall.

Everyones situation can change but i'm not sure how this relates to the "buying on finance allows people to get cars they can't really afford" arguement.

The fact is that the finance options mean that they can afford them. Whether they are being prudent in other areas of their life isn't really the issue. I could go out and blow half my savings on a car that I pay cash for an everyone on here would say, well done, you've bought a car that you can afford, then next month lose my job and find that my new smaller savings pot isn't enough to tide me over till I find my next job. However had I taken out finance, my savings would easily have made the repayments, along with everything else for the duration of me not working.

[chris watton]

Devil2575 said:

Everyones situation can change but i'm not sure how this relates to the "buying on finance allows people to get cars they can't really afford" arguement.

The fact is that the finance options mean that they can afford them. Whether they are being prudent in other areas of their life isn't really the issue. I could go out and blow half my savings on a car that I pay cash for an everyone on here would say, well done, you've bought a car that you can afford, then next month lose my job and find that my new smaller savings pot isn't enough to tide me over till I find my next job. However had I taken out finance, my savings would easily have made the repayments, along with everything else for the duration of me not working.

Wouldn't it be more accurate to write that in some cases, "The fact is that the finance options mean that they can afford to rent/lease them"?

[tomjol]

chris watton said:

tomjol said:

pavka007 said:

OK, you win.
I have a credit, but no "good" credit history.
Bottom line, I could make 1000 quid repayment per month with not a problem but according to the score system used from banks I couldn't qualify for even 5k loan.... This is not right in my book. The system is designed to get you in debt not to help you when you need a wee help

Yes, because loan providers are looking to make profit (from long repayment terms), not providing a public service?

I don't think anyone was disputing that, I think we were just giving examples of why, sometimes, it's good to take a loan (if you can afford it) to keep your credit rating healthy - and giving reasons why having a CC doesn't necessarily help in qualifying for a loan.

Understood - I was responding specifically to the idea that the system isn't "designed" to help you out when you need it

[Devil2575]

daemon said:

chris watton said:

So true. We were always taught to base our finances on the worst case scenario - when you have to rely on best case, it doesn't take much to tip the balance....

Exactly.

So whats the issue?

I think theres a lot of people who go for the "oh well they clearly cant afford it and are financed to the hilt", when really you dont know what peoples incomes / finances are like - maybe they're just doing well for themselves?

Exactly. You see someone who you want to look down on for whatever reason but they're driving a nicer car than you. So you convince themselves that somehow they can't realy afford it.

I work with a lady who has just gone and bought a bradn new RR Sport. She's in IT and not that high up the ladder either. How the hell can she afford that? She must have taken out finance over 10 years because there's no way she can afford it! Except I don't know how she's funding it do I.
A few years back I asked a bloke how the hell he could afford to buy a brand new Boxster. A nice bloke but working in a manual job. I couldn't believe that he could afford a far more expensive car than me. Turned out his wife had died and he treated himself with the insurance payout.

We can make all the assumptions we like about other people to make oursleves feel better but don't kid yourself that these have any basis in fact.

[Devil2575]

chris watton said:

Devil2575 said:

Everyones situation can change but i'm not sure how this relates to the "buying on finance allows people to get cars they can't really afford" arguement.

The fact is that the finance options mean that they can afford them. Whether they are being prudent in other areas of their life isn't really the issue. I could go out and blow half my savings on a car that I pay cash for an everyone on here would say, well done, you've bought a car that you can afford, then next month lose my job and find that my new smaller savings pot isn't enough to tide me over till I find my next job. However had I taken out finance, my savings would easily have made the repayments, along with everything else for the duration of me not working.

Wouldn't it be more accurate to write that in some cases, "The fact is that the finance options mean that they can afford to rent/lease them"?

A lease scheme allows you to rent them, finance allows you to buy them over a period of time.

At the end of the finance term the car is yours, so not like renting at all.