Take out finance or save up and just buy outright

[otolith]

Financing a car with borrowing costs more then financing it by saving - so the "can't afford" argument makes no sense to me. The big cost in buying new cars is depreciation, not interest. The wisdom or otherwise of running new cars is independent of how they are paid for.

[Devil2575]

Here's a thought. I buy a car now for cash, lets say £10k. Or I finance the same car over 5 years at 4.1% interest, Total repaid = £11056.

So on the face of it i've paid and extra 10.6% or £1056. However that doesn't take into account inflation etc. So it's not just a case of looking at the difference based on todays values, you've got to consider the fact that the repayments in the 2nd,3rd,4th and 5th years will in real terms be less than they are now. To put it another way. If you had 10k in the bank and decided to invest it how much would you make after 5 years? If you'd end up with more than £11056 then you might want to consider which is the most sensible option.
If you were able to achieve a 2% interest rate on an annual basis then aat the end of 5 years you'd have £11040 in the bank. So the loan has actually only cost you £16.

That's before we even consider the benefits of having cash in the bank to deal with eventualities. Don't forget, cash flow, or a lack of it is what kills a lot of small businesses.

[vinnie83]

Devil2575 said:

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.

I'm afraid I'm not that arrogant, maybe some reverse snobbery on your part?

I have a 911 turbo, SL55 and 320d - if someone has a nicer car than mine then I am usually too busy admiring it and asking for a ride/drive than thinking about the above.

I don't buy cars to feed an ego thank you, I buy what I like to satisfy my desires....

My comments come from a financial advisors perspective of balanced outgoings vs. saving and planning for the future.

So in other words, your suspicion is incorrect.

And being able to maintain a payment doesn't mean it is affordable... It often is, but often puts people in cars they shouldn't have got.

Same story with mortgages - the whole system that was based on your logic above crumbled from the pressure when those with mortgages they thought they could afford on houses they thought they could afford lost a job or had an unexpected expense and ended up defaulting and losing the asset.

But hey, they could all 'afford' the payment, right?

[Dr Jekyll]

Devil2575 said:

Here's a thought. I buy a car now for cash, lets say £10k. Or I finance the same car over 5 years at 4.1% interest, Total repaid = £11056.

So on the face of it i've paid and extra 10.6% or £1056. However that doesn't take into account inflation etc. So it's not just a case of looking at the difference based on todays values, you've got to consider the fact that the repayments in the 2nd,3rd,4th and 5th years will in real terms be less than they are now. To put it another way. If you had 10k in the bank and decided to invest it how much would you make after 5 years? If you'd end up with more than £11056 then you might want to consider which is the most sensible option.
If you were able to achieve a 2% interest rate on an annual basis then aat the end of 5 years you'd have £11040 in the bank. So the loan has actually only cost you £16.

That's before we even consider the benefits of having cash in the bank to deal with eventualities. Don't forget, cash flow, or a lack of it is what kills a lot of small businesses.

The guy who took the loan out is paying £184 a month. Put that in the bank and you've earned over £500 in interest after 5 years.

[vinnie83]

Dr Jekyll said:

Devil2575 said:

Here's a thought. I buy a car now for cash, lets say £10k. Or I finance the same car over 5 years at 4.1% interest, Total repaid = £11056.

So on the face of it i've paid and extra 10.6% or £1056. However that doesn't take into account inflation etc. So it's not just a case of looking at the difference based on todays values, you've got to consider the fact that the repayments in the 2nd,3rd,4th and 5th years will in real terms be less than they are now. To put it another way. If you had 10k in the bank and decided to invest it how much would you make after 5 years? If you'd end up with more than £11056 then you might want to consider which is the most sensible option.
If you were able to achieve a 2% interest rate on an annual basis then aat the end of 5 years you'd have £11040 in the bank. So the loan has actually only cost you £16.

That's before we even consider the benefits of having cash in the bank to deal with eventualities. Don't forget, cash flow, or a lack of it is what kills a lot of small businesses.

The guy who took the loan out is paying £184 a month. Put that in the bank and you've earned over £500 in interest after 5 years.

Someone clearly doesn't understand numbers do they!!

[daemon]

vinnie83 said:

I'm afraid I'm not that arrogant, maybe some reverse snobbery on your part?

I have a 911 turbo, SL55 and 320d - if someone has a nicer car than mine then I am usually too busy admiring it and asking for a ride/drive than thinking about the above.

I don't buy cars to feed an ego thank you, I buy what I like to satisfy my desires....

Have to agree - some of your posts are verging on "how can these peasants who work in my dads factory afford nice cars?"

And nicely dropped in about your fleet of cars

Edited by daemon on Thursday 4th September 18:35

[Devil2575]

vinnie83 said:

Dr Jekyll said:

Devil2575 said:

Here's a thought. I buy a car now for cash, lets say £10k. Or I finance the same car over 5 years at 4.1% interest, Total repaid = £11056.

So on the face of it i've paid and extra 10.6% or £1056. However that doesn't take into account inflation etc. So it's not just a case of looking at the difference based on todays values, you've got to consider the fact that the repayments in the 2nd,3rd,4th and 5th years will in real terms be less than they are now. To put it another way. If you had 10k in the bank and decided to invest it how much would you make after 5 years? If you'd end up with more than £11056 then you might want to consider which is the most sensible option.
If you were able to achieve a 2% interest rate on an annual basis then aat the end of 5 years you'd have £11040 in the bank. So the loan has actually only cost you £16.

That's before we even consider the benefits of having cash in the bank to deal with eventualities. Don't forget, cash flow, or a lack of it is what kills a lot of small businesses.

The guy who took the loan out is paying £184 a month. Put that in the bank and you've earned over £500 in interest after 5 years.

Someone clearly doesn't understand numbers do they!!

Ok, so you stick 184 in the bank every month for 5 years and at the end of it you have earned about £450 interest (on the basis of interest calculated at the end of the year on the balance at that time)

So add that into the equation and over a period of 5 years the finance has actually cost you £466. So it's hardly a crippling loss. It may well also be possible to do more with an initial £10k investment than it is with £184 a month. The best savings rates frequently depend on a minimum initial deposit greater than £184. I suspect that if you went to see a financial advisor and said you had £10k to invest they'd be able to get you a bit more of a return than if you said you had £184 a month, so the question is how much more can £10k right now earn than 184 a month over 5 years but then i'm just guessing as I don't really know about numbers

FWIW, when doing cost benefit analysis calculations for spending on new projects the company I work for uses a number of 6%, not 2.

Edited by Devil2575 on Thursday 4th September 18:49

[vinnie83]

daemon said:

vinnie83 said:

I'm afraid I'm not that arrogant, maybe some reverse snobbery on your part?

I have a 911 turbo, SL55 and 320d - if someone has a nicer car than mine then I am usually too busy admiring it and asking for a ride/drive than thinking about the above.

I don't buy cars to feed an ego thank you, I buy what I like to satisfy my desires....

Have to agree - some of your posts are verging on "how can these peasants who work in my dads factory afford nice cars?"

And nicely dropped in about your fleet of cars

Edited by daemon on Thursday 4th September 18:35

Family business chap, no employees, all family....so no such thing in my posts... And my cars are in my profile.. Not to mention it was kinda paramount to the point I'm making that I'm clearly not envious....

Like I said, reverse snobbery?

I congratulate anyone on their achievements... I've gone through life working hard for what I have, and absolutely respect anyone who does the same... Be their pride and joy a 25 year old Datsun or brand new Ferrari....

I look down equally on these who use material possessions or wealth to belittle others. I genuinely cannot stand show offs.

On a car forum, we are here to talk about cars.... Anyone who asks what I drive in 'real' life is told I have a BMW 3 series... I spent a year at college this year and nobody knew I had the 911 or SL.

Be careful of judging others before you know em ;-)

[daemon]

vinnie83 said:

Family business chap, no employees, all family....so no such thing in my posts... And my cars are in my profile.. Not to mention it was kinda paramount to the point I'm making that I'm clearly not envious....

Like I said, reverse snobbery?

I congratulate anyone on their achievements... I've gone through life working hard for what I have, and absolutely respect anyone who does the same... Be their pride and joy a 25 year old Datsun or brand new Ferrari....

I look down equally on these who use material possessions or wealth to belittle others. I genuinely cannot stand show offs.

On a car forum, we are here to talk about cars.... Anyone who asks what I drive in 'real' life is told I have a BMW 3 series... I spent a year at college this year and nobody knew I had the 911 or SL.

Be careful of judging others before you know em ;-)

Fair enough.

I'll take you at your word then.

[Dr Jekyll]

Devil2575 said:

It may well also be possible to do more with an initial £10k investment than it is with £184 a month. The best savings rates frequently depend on a minimum initial deposit greater than £184. I suspect that if you went to see a financial advisor and said you had £10k to invest they'd be able to get you a bit more of a return than if you said you had £184 a month, but then i'm just guessing as I don't really know about numbers

Fine, so borrow £10K and invest it. Or £20K, or £100K. It's free money apparently.

[Devil2575]

vinnie83 said:

I'm afraid I'm not that arrogant, maybe some reverse snobbery on your part?

I have a 911 turbo, SL55 and 320d - if someone has a nicer car than mine then I am usually too busy admiring it and asking for a ride/drive than thinking about the above.

I don't buy cars to feed an ego thank you, I buy what I like to satisfy my desires....

My comments come from a financial advisors perspective of balanced outgoings vs. saving and planning for the future.

So in other words, your suspicion is incorrect.

And being able to maintain a payment doesn't mean it is affordable... It often is, but often puts people in cars they shouldn't have got.

Same story with mortgages - the whole system that was based on your logic above crumbled from the pressure when those with mortgages they thought they could afford on houses they thought they could afford lost a job or had an unexpected expense and ended up defaulting and losing the asset.

But hey, they could all 'afford' the payment, right?

Mortgages are different. Interest rates on mortgages vary of the life of the loan so they can go from be affordable to not affordable without any change in the financial situation of the borrower.

Finance for cars is almost always at a fixed rate and the repayments are known from the outset.

Whether someone plans for the future is neither here nor there, it's just as possible for someone to buy a car for cash by drawing a lump sum out of a pension scheme that they can't really afford too as it is for them to buy the car using finance.

[Devil2575]

Dr Jekyll said:

Devil2575 said:

It may well also be possible to do more with an initial £10k investment than it is with £184 a month. The best savings rates frequently depend on a minimum initial deposit greater than £184. I suspect that if you went to see a financial advisor and said you had £10k to invest they'd be able to get you a bit more of a return than if you said you had £184 a month, but then i'm just guessing as I don't really know about numbers

Fine, so borrow £10K and invest it. Or £20K, or £100K. It's free money apparently.

No I never said it was free money, just that it isn't as simple as borrowing = bad, paying with cash = good. How many companies invest using finance rather than cash?

[vinnie83]

Devil2575 said:

Mortgages are different. Interest rates on mortgages vary of the life of the loan so they can go from be affordable to not affordable without any change in the financial situation of the borrower.

Finance for cars is almost always at a fixed rate and the repayments are known from the outset.

Whether someone plans for the future is neither here nor there, it's just as possible for someone to buy a car for cash by drawing a lump sum out of a pension scheme that they can't really afford too as it is for them to buy the car using finance.

It wasn't due to rate rises that many lost their homes, so that is rather irrelevant.

I never suggested buying cash is better - like you say, someone could buy a car cash and not have a pot to piss in otherwise.

My point is - finance gives many people the ability to 'get into' a car they really can't afford.

I know someone personally who did this with a 330ci when the E46 was the current shape. He had to sell and buy an old vectra when the car payments, fuel and maintenance almost cost him his house.

[daemon]

vinnie83 said:

My point is - finance gives many people the ability to 'get into' a car they really can't afford.

I know someone personally who did this with a 330ci when the E46 was the current shape. He had to sell and buy an old vectra when the car payments, fuel and maintenance almost cost him his house.

Clearly the guy hadnt done any sort of checking of his outgoings to see if he could really afford it.

Just because your mate was a bit dim and got himself in hot water doesnt mean everyone does.

[vinnie83]

daemon said:

vinnie83 said:

My point is - finance gives many people the ability to 'get into' a car they really can't afford.

I know someone personally who did this with a 330ci when the E46 was the current shape. He had to sell and buy an old vectra when the car payments, fuel and maintenance almost cost him his house.

Clearly the guy hadnt done any sort of checking of his outgoings to see if he could really afford it.

Just because your mate was a bit dim and got himself in hot water doesnt mean everyone does.

I never suggested that to be the case. My point has always been that finance allows people to buy cars they cannot afford. Like the chap in my example.

[daemon]

vinnie83 said:

daemon said:

vinnie83 said:

My point is - finance gives many people the ability to 'get into' a car they really can't afford.

I know someone personally who did this with a 330ci when the E46 was the current shape. He had to sell and buy an old vectra when the car payments, fuel and maintenance almost cost him his house.

Clearly the guy hadnt done any sort of checking of his outgoings to see if he could really afford it.

Just because your mate was a bit dim and got himself in hot water doesnt mean everyone does.

I never suggested that to be the case. My point has always been that finance allows people to buy cars they cannot afford. Like the chap in my example.

You run that risk with any sort of borrowing - credit cards, loans, mortgages, overdrafts, etc, etc.

So where do you draw the line?

[CobolMan]

Took finance on a car out for the first time ever a couple of months ago, despite having the cash to buy outright. 0% over 3 years plus a dealer contribution of £1000 for the deposit made it an easy choice.

[Devil2575]

vinnie83 said:

It wasn't due to rate rises that many lost their homes, so that is rather irrelevant.

I never suggested buying cash is better - like you say, someone could buy a car cash and not have a pot to piss in otherwise.

My point is - finance gives many people the ability to 'get into' a car they really can't afford.

I know someone personally who did this with a 330ci when the E46 was the current shape. He had to sell and buy an old vectra when the car payments, fuel and maintenance almost cost him his house.

Yes but someone can pay cash for a car that they can't afford to run. Sure finance is another way to buy a car and people buy cars that they cannot afford, just as people overstretch themselves in other ways.

I'm not sure how this is relevant to the OP though. Whether it is better to take out finance or save up depends on the individual's situation.

[Devil2575]

vinnie83 said:

daemon said:

vinnie83 said:

My point is - finance gives many people the ability to 'get into' a car they really can't afford.

I know someone personally who did this with a 330ci when the E46 was the current shape. He had to sell and buy an old vectra when the car payments, fuel and maintenance almost cost him his house.

Clearly the guy hadnt done any sort of checking of his outgoings to see if he could really afford it.

Just because your mate was a bit dim and got himself in hot water doesnt mean everyone does.

I never suggested that to be the case. My point has always been that finance allows people to buy cars they cannot afford. Like the chap in my example.

Cash allows people to buy cars they cannot afford to run.

[Countdown]

Devil2575 said:

Cash allows people to buy cars they cannot afford to run.

At least they can afford to buy them outright in the first place which puts them in a better situation than those using credit.

Redundancy, unexpected bills, car explodes in a ball of fire...... in every situation you will be safer (in financial terms) if you'd saved up / bought outright than if you use credit.