Buying with borrowed money...
Discussion
In short, how many have bought used cars for the value of the car upfront with a loan. Whether that be credit card, bank loan, personal loan.
I've only ever bought my car's with cash upfront, now being a home owner this means saving for the upgrade has slowed down. I'm considering buying something for 7.5k-10k with a personal loan (comes back at ~ 3%, up to 7 years, can be paid back early with minimal/no penalties) .
My logic is, car at this price point should have depreciated to the point where its future sale will likely pay off the balance of the loan or near enough.
For what it's worth, I don't have any consumer debt and I'm not looking for financial advice per se. More of a outside perspective of what could go wrong, things to consider etc.
I'm aware this is PH but I'd really rather avoid the financial willy waving. Just someone asking others if they have done this and if it was a mistake.
Ta
I've only ever bought my car's with cash upfront, now being a home owner this means saving for the upgrade has slowed down. I'm considering buying something for 7.5k-10k with a personal loan (comes back at ~ 3%, up to 7 years, can be paid back early with minimal/no penalties) .
My logic is, car at this price point should have depreciated to the point where its future sale will likely pay off the balance of the loan or near enough.
For what it's worth, I don't have any consumer debt and I'm not looking for financial advice per se. More of a outside perspective of what could go wrong, things to consider etc.
I'm aware this is PH but I'd really rather avoid the financial willy waving. Just someone asking others if they have done this and if it was a mistake.
Ta
Think about how you would plot the value of the car over time against the outstanding balance of the loan - the more non-borrowed cash (call it 'equity') which you can contribute will bring the loan balance further below the actual value of the car, and the gap between the two curves on the graph is your headroom / positive equity.
As long as you are disciplined enough to keep that headroom, unsecured borrowing for a car is relatively risk free, IMHO, as you can always sell that car in order to repay the loan if necessary
As long as you are disciplined enough to keep that headroom, unsecured borrowing for a car is relatively risk free, IMHO, as you can always sell that car in order to repay the loan if necessary
I will also likely go down the small loan route for my next car and budget is similar ballpark figure to yours..£7k upwards. Hopefully in that price range the car is new enough to last a while and with a decent service history to ensure reliability for a few years.
I hold onto to my car's for a while as I find it a chore changing/time spent searching for a new one etc. Therefore paying a few hundred interest on say a £5-£7k loan is offset (in my mind at least) by the value of the vehicle in terms of its practical use for a good few years.
Where I draw the line is, I would never over-leverage on borrowing e.g: stay within your means and should be fine (that will be different to everyone depending on their financial commitments and risk tolerance to debt etc). I am also considering leasing too for the flexibility it will offer but the idea of not having a car to show for all those payments puts me off..never say never though.
Fyi - I used a small loan for my first car, then used that car as p/x + cash for my second/current car.
Leaving towards small loan+ cash for next car as this approach works well for me. All used cars too, never new etc.
I hold onto to my car's for a while as I find it a chore changing/time spent searching for a new one etc. Therefore paying a few hundred interest on say a £5-£7k loan is offset (in my mind at least) by the value of the vehicle in terms of its practical use for a good few years.
Where I draw the line is, I would never over-leverage on borrowing e.g: stay within your means and should be fine (that will be different to everyone depending on their financial commitments and risk tolerance to debt etc). I am also considering leasing too for the flexibility it will offer but the idea of not having a car to show for all those payments puts me off..never say never though.
Fyi - I used a small loan for my first car, then used that car as p/x + cash for my second/current car.
Leaving towards small loan+ cash for next car as this approach works well for me. All used cars too, never new etc.
Edited by VR99 on Monday 30th December 00:24
With careful research and a bit of luck, one can accrue a fair bit of equity 'over a few cars'. I know the OP explicitly wanted to avoid 'willy waving', but I've managed to work up to £14k equity (i.e. owing nothing) having started with only a £8k personal loan.
I'd love a brand new car on lease/PCP, but having nothing to show for several years' worth of payments (let alone the deposit) puts me off greatly.
I'd love a brand new car on lease/PCP, but having nothing to show for several years' worth of payments (let alone the deposit) puts me off greatly.
Just about every car I've ever owned except 2 out of over 20 cars off the top of my head have been paid for with unsecured personal loans or cash. Because I don't buy brand new cars I don't benefit from the PCP deals others use and it generally works out better for me, always managed to get the lowest APR rates through comparison site searching so I'm comfortable with it.
The two cars I did finance, one was my first car and was new but pre registered with 50ish miles on it and I got free insurance with it for taking out finance which at 18/19 was significant.
The other car was a few years later from a car supermarket and I needed a new car quickly after a bad crash and didn't really think it through properly with hindsight.
The two cars I did finance, one was my first car and was new but pre registered with 50ish miles on it and I got free insurance with it for taking out finance which at 18/19 was significant.
The other car was a few years later from a car supermarket and I needed a new car quickly after a bad crash and didn't really think it through properly with hindsight.
One of the great benefits of a personal loan as opposed finance secured to the car is it makes changing the car so much easier if you so decide. Or you can sell it at any time and pay back the loan. Far more flexible than pcp.
Interest rates are often lower for a bank loan than used car finance ‘HP’ too.
Interest rates are often lower for a bank loan than used car finance ‘HP’ too.
tinnitusjosh said:
Think about how you would plot the value of the car over time against the outstanding balance of the loan - the more non-borrowed cash (call it 'equity') which you can contribute will bring the loan balance further below the actual value of the car, and the gap between the two curves on the graph is your headroom / positive equity.
As long as you are disciplined enough to keep that headroom, unsecured borrowing for a car is relatively risk free, IMHO, as you can always sell that car in order to repay the loan if necessary
This was exactly my thinking, with the right market research you can map the depreciation against the monthlies and hopefully stay 'positive'. As long as you are disciplined enough to keep that headroom, unsecured borrowing for a car is relatively risk free, IMHO, as you can always sell that car in order to repay the loan if necessary
Thank you all.
Borrowing is cheap at the moment. Yes - you still pay more (interest payments) that if you paid cash up front, but there's a lot of "utility" in having some cash in the bank for a rainy day should that happen. "Cash is king", as they say in business.
It all comes down to personal circumstances, but if you had a few thousand (or hundred) saved and were looking to borrow the rest, I'd personally keep the majority of the savings for "rain day" funds. i.e. if something goes wrong with the car and it needs repaired. If you put it all in to the car (to reduce the loan by a few £k) then where will you get the cash from if new need £££s if something should go wrong?
Of course, you have to then not just blow the savings money on a holiday or something ... but if you're sure you can stop yourself from doing that then I'd borrow away
It all comes down to personal circumstances, but if you had a few thousand (or hundred) saved and were looking to borrow the rest, I'd personally keep the majority of the savings for "rain day" funds. i.e. if something goes wrong with the car and it needs repaired. If you put it all in to the car (to reduce the loan by a few £k) then where will you get the cash from if new need £££s if something should go wrong?
Of course, you have to then not just blow the savings money on a holiday or something ... but if you're sure you can stop yourself from doing that then I'd borrow away
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