Thoughts on Buying a Car on Finance?

jsrz18 on 28/01/2021 - 15:29
Last edited 28/01/2021 - 19:12 by 1 other user

Would like to hear the thoughts of people more financially astute, on taking out a loan to partially fund the purchase of a car (a second hand car that's around 3 years old).

Lets say the cost of the car is $28,000. You have $15,000 to pay in cash and you take out a bank loan for the remaining $13,000 which you will pay over 2-3 years.

Obviously it doesn't seem preferable to have to pay interest on the car, whilst it is also depreciating in value at the same time. I'm guessing most would consider this a bad decision. However, if the car is going to be kept and driven for 12 -15 years, does this somehow justify it? Its not like the car will be kept for 3 years, then another loan taken out ever 3 years for a new car etc..

Do most people take out a loan for their car purchase or do they pay it all with the cash they already have?

EDIT: Thanks for all the responses. I have an older car in mind that I'll likely go for that won't get me into debt and will save the rest for other things.

Financial

Comments

  • [Deactivated] on 28/01/2021 - 15:37
    -8

    It depends on your job but novated leases are amazing.

    • jsrz18 on 28/01/2021 - 15:37

      definitely not in the position to be able to do that unfortunately

    • MS Paint on 28/01/2021 - 15:49
      +9

      novated leases are amazing

      They were amazing. Julia Gillard made them just OK.

    • Euphemistic on 28/01/2021 - 17:10
      +1

      but novated leases are amazing.

      I think what you meant is novated lease really works for mullsie. It may or may not be the most appropriate way for someone who is not mullsie.

      • [Deactivated] on 28/01/2021 - 17:30

        like I said - It depends on your job

        • Euphemistic on 28/01/2021 - 17:45

          Be that as it may, I hardly think they’ll be ‘amazing’ for anyone. They might be slightly better than alternatives.

          • [Deactivated] on 28/01/2021 - 19:25

            @Euphemistic: I'm an optimistic, not a euphemist. I think a good parking spot is amazing.

        • deme on 29/01/2021 - 11:25

          You mean income?
          I don't think they are worth it at high income unless your self worth is based off showing off new cars every 4 years?

          And at low income that's just stupid.

          • [Deactivated] on 29/01/2021 - 12:22
            -1

            @deme: In the right circumstances - the running costs of a 4 year old car are higher vs leasing and selling every 3 or 4 years.

            • deme on 29/01/2021 - 14:08

              @[Deactivated]: Want to show your numbers for how someone taking out a
              novated leases given 2021 rules is cheaper?

              • [Deactivated] on 29/01/2021 - 14:24

                @deme: Has something changed since last year?

    • Pelicannn on 28/01/2021 - 22:37
      +2

      Just check your comparison rate though after fees.

      I orginally novated a car for a few years when fees were a little less, but when I bought my new car and got a quote, I noticed the interest rate hadn't really changed, even though the reserve bank rate had dropped significantly over the 3 years. I also noticed the fees they were charging, such as a $495 set up fee, $330 admin fee, and then a $31 fee every fortnight in their so called insurance and management fees.

      The actual quoted interest rate, i kid you not, was 6.45% which i laughed at, the comparison rate… almost 16% when you added all the fees in. With that in mind, it was pretty clear all the tax savings would be gone. BMW offered me 4% and i told the leasing company to stick it. She kept being like "oh the interest rate is a little higher but you'll save on tax" I asked if she wanted to see the spreadsheet for the 16% comparison rate and she didn't really have any come back.

      • SgtBatten on 29/01/2021 - 11:05
        +1

        Jesus, my lease only has a $6 fee per fortnight and that fee also covers my other salary sacrifice stuff like super, laptop etc.

        Also you can source your own novated finance (not a normal loan) which will be cheaper from a bank than the leasing company.

    • maverickjohn on 29/01/2021 - 18:10
      +1

      I disagree,i rated Maxxia novated leasing vs finance at 5.99% the deal I negotiated at 5.99% was far better and I can salary package the car to claim pre tax benefits

      • Pelicannn on 29/01/2021 - 20:43

        Yeah but what are their fees per month? Set up etc?

        • maverickjohn on 29/01/2021 - 20:44

          None at all

          • Pelicannn on 29/01/2021 - 21:06

            @maverickjohn: Ok well, maxxia are a leasing company, not a finance company. They do not provide the funds to purchase the car. The funds come from elsewhere. Meaning the only way they make money is providing the lease service and claiming fees on that.

            https://www.maxxia.com.au/faq

            “ In exchange for managing your salary packaging account, we charge an administration fee that is dependent on the benefit and agreed upon with your employer. All fees are paid out of your pre-tax dollars and don’t contribute to your cap limit or attract FBT.”

            So to say they don’t charge fees isn’t entirely correct.

            • maverickjohn on 29/01/2021 - 21:12

              @Pelicannn: But I didn't novated lease?

              • Pelicannn on 29/01/2021 - 21:18
                +1

                @maverickjohn: Oh right… hahaha for some reason I thought you got a novated lease with maxxia! I just can’t read properly. Apologies!

  • chcse on 28/01/2021 - 15:39
    +17

    My angle on taking finance is, if you have the cash, can you invest that cash to generate a return higher than the finance interest rate (including all the fees)? If so, then it is better to finance and keep the cash to invest, otherwise, it is better to use the cash (assuming you don't need it for other things, definitely wouldn't leave your bank account empty or low enough that you can't cover something that may come up urgently). If you don't have the cash, you have no choice but to finance it anyway if you're dead set on the car, but keeping it for longer and having the loan being shorter is good and helps justify it.

    • ginormousgiraffe on 29/01/2021 - 10:40
      +1

      That's a good outlook but you need to also consider that money saved by not paying ~4-6% interest is tax free, however investments will cause CGT which impacts the real return of the investment.

    • BargnHuntr on 29/01/2021 - 12:35

      I agree, if you have cash and dont have better use of it and earning low interest rate then use it.
      Lets say financing a car at 6% but putting the extra cash in home loan for 2.7%, so its better to use that cash. Unless you are getting finance for at least 2.5% then you put in home loan. This is just an example.

      One of my friends suggested to use interest free credit card on purchases to buy car and then transfer the balance later. But its not that simple plus you pay some 2% Credit card fee to dealer and then credit card fees to banks etc etc which doesn't make sense to me.

  • lubos on 28/01/2021 - 15:47
    +28

    If you still rent, I'd say driving $28k car is stupid when $30k brings you to 5% deposit on $650,000 property.

    If you already own, then in my view - go for it. You have your housing sorted out, go and get your dream car. Not to mention, $13k is really peanuts.

    • jsrz18 on 28/01/2021 - 15:57

      Housing definitely not sorted out. Still living at home whilst I complete tertiary education. Won't be looking at houses for quite a few years

      • Seraphin7 on 28/01/2021 - 16:50
        +54

        If, as this comment and your other posts suggest, you're early 20s, living at home, doing "casual" jobs, and still studying … spending $28k on a car is madness.

        I could understand this more if you'd recently graduated and had secured your post-university career start, with some cash starting to flow in. But basically sinking your savings into a car is certainly not the best financial choice you could make.

        • jsrz18 on 28/01/2021 - 16:53
          +6

          graduating next yr but yeah after considering the suggestions probably not the best idea so i'll go for an older commodore instead for cheaper instead of the cerato

          • sabracad on 30/01/2021 - 01:44
            +1

            @jsrz18: Not sure if that's the best idea at the moment - most older Commodore prices have gone through the roof. So you're paying a premium for an older car which may have more problems than something newer. If it holds its value you might come out ahead though.

          • lunartemis on 30/01/2021 - 08:12
            +2

            @jsrz18: You also need to calculate the running costs and the resale value (Not really an issue for 10+ year old car).
            If you drive more than average per year (20k+), getting a smaller car may be better (insurance is more expensive at your age, Commodore uses 11l/100km)

          • Woodyg22 on 31/01/2021 - 11:00

            @jsrz18: I'd recommend a Hyundai i30 PD model (2017/18). Should be better value and within your cash budget! Either that or an older Cerato.

            You'll want to be saving all your money once you start working to go towards a house

  • abb on 28/01/2021 - 15:49
    +42

    I'd buy a car <$15k personally.

    • knasty on 28/01/2021 - 15:52
      +5

      ^^This. Plenty of good second hand options within warranty under $15k and no finance to worry about.

      • modsec802 on 28/01/2021 - 16:05
        +12

        you sure about that? Covid-19 car tax is real

        • mskeggs on 28/01/2021 - 16:11
          +1

          It is insane! But there are still good cars under $15k.

        • knasty on 28/01/2021 - 16:39

          Yep if you buy a car with 5 or 7 year warranty there are still plenty of options, albeit yes slimmer than 12 months ago.

  • spackbace on 28/01/2021 - 15:50
    +2

    Just curious, what sort of 3yo $28k car?

    • jsrz18 on 28/01/2021 - 15:56
      +1

      just a 2019 cerato gt (not exactly 3yo but yeah)

      • Nugs on 28/01/2021 - 16:04
        +8

        yeah, nah
        .

      • spackbace on 28/01/2021 - 16:39
        +15

        Personally, I wouldn't say that's a car worth going into debt for.

        I mirror the other suggestions of buying a car with cash, a car which will still offer the same purpose of getting you around

        • jsrz18 on 28/01/2021 - 16:51
          +8

          after considering everyone's responses it probably wouldn't seem like a good idea, so I'm leaning towards just picking up a ve commodore instead of going into debt

          • spackbace on 28/01/2021 - 16:55
            +5

            @jsrz18: Or a Corolla sedan, or Camry

            VE is pretty plain-jane, and depends on how experienced you are as a driver to handle a big rwd V6

            • Kangal on 28/01/2021 - 18:58

              @spackbace: Why Corolla sedan, over a Corolla hatch?

              • spackbace on 28/01/2021 - 19:00
                +5

                @Kangal: Longer wheelbase so more room. Closer to a Commodore than the hatch

                • Kangal on 28/01/2021 - 19:03
                  +1

                  @spackbace: Personally, I've always gravitated away from Corolla sedan. Could've been its funny looking proportions. It's been either* a Corolla Hatch, or a Camry.

                  *not that I only recommend Toyotas

            • jsrz18 on 28/01/2021 - 19:02
              +4

              @spackbace: Not really a fan of Toyotas in those years that would be within my budget. The new ones are a very different story. Will keep an open mind nonetheless

          • This Guy on 28/01/2021 - 19:28
            +1

            @jsrz18: VE's chew fuel. Cerato is fine, just buy an '18 PE. Exactly the same car, but cheaper. '17's and earlier are huge inside for a hatch.

            i30 isn't much different.

            You won't go wrong with a Corolla either, but you also won't get four years of manufacturer warranty and capped price servicing. Plus they cost ~2k extra for brand tax for the same features (I am stirring Spackbace).

            Seriously, just buy what you like that is in budget. Most new, non euro cars cost around the same to run and service.

          • Tonyh87 on 29/01/2021 - 09:08
            +2

            @jsrz18: Be weary of ve commodores because of timing chain issues. I had a 2006 ve calais, and the timing chain went at about 150000 km. Got it replaced at holden for a couple of grand, then it went again 3 yrs later at 200000 km. Decided to trade it in instead of spending that sort of money on an older car again. The VY commodore I had before that however did about 400000km with no major engine issues. They seemed to build them better back then.

            • pav on 29/01/2021 - 11:51
              +3

              @Tonyh87: I took my VY commodore to 400,000km too without major issues - great car and ended up selling to a young bloke as his first car. My mrs drives a 2010 VE and we had to do the timing chain at 180,000km. The mechanic said if it was his car he'd be doing oil changes every 7,500km to prevent it happening again. I like the VE but I find the electronic throttle laggy compared to the VY, and the 6spd auto gearbox seems to get lost compared to the 4sp in my VY.

            • Catcherr on 30/01/2021 - 00:23
              +1

              @Tonyh87: Definitely avoid any Series 1 VE Commodores. They put a (shoddy) engine designed for a FWD car into a RWD which makes them difficult and expensive to get fixed. Steer very clear of any VE built in 2010 or earlier.

              The series 2 VE's (MY2011+) are a totally different story however. The SIDI engine is solid and the cars themselves, albeit dated for the time, are perfectly good daily drivers. Minus the fuel guzzling.

              Particularly look out for the international Berlina if you go the VE route. It's essentially a Calais without some chrome trim and different leather seats for a fraction of the price.

      • fillit on 29/01/2021 - 21:43

        I recall these being around $33K drive away in 2019 when I went to the dealership, 2nd hand prices seems to held well

  • WizMuncher on 28/01/2021 - 16:00
    +2

    Say you need the vehicle urgently for business; or you've got this fantastic idea to tow a caravan around Australia. Or do you just want it?

    Because if you want it - depending on whether you go for a secured or unsecured loan, that $15k could be left on the table if you are unable to repay. Oh by the way, you'll still owe the $13k plus interest.

    Let's say you get a loan for 10% (arbitrarily chosen because it's easy to calculate). The urgency you are paying for over three years is $4k. That might be worth it to you - is the added risk worth it? It's yours to decide.

  • mskeggs on 28/01/2021 - 16:06
    +6

    Car prices are very high right now, and likely to be lower in 6-12 months.
    You might be able to buy the same car with no loan for $15k in a years time.

    I need a car, and was planning to buy a nicer one to keep for 5-10 years, but they are all several thousand dollars more than the going rate a year ago due to the pandemic.

    So I’m planning to buy an inexpensive car for a couple of years till prices calm down.

  • moolz on 28/01/2021 - 16:08
    +9

    honestly save that 13k and go on a holiday or something when things open. that's way too much money to spend on a car whilst you're at uni - you won't enjoy it and most likely, regret the purchase.

    do the normal thing and purchase a shitbox/go on a holiday, and then get a loan on your 1st year graduate salary to buy something that you'll still regret - but less so.

  • Foxtail on 28/01/2021 - 16:18

    I buy a Mercedes when its about 4/5 years old, sell it before 100kms are up, save 30/40 grand. Current one is like new, 2014 Mercedes C Class W204 coupe' had 58kms (now 70kms) one owner, log books, like new no probs. paid 2+ years ago $22,500.

  • Oz8argain on 28/01/2021 - 16:26
    +5

    don't buy. unless you really really need to drive, then get a beater. you're in uni so I wouldn't spend this much on a car with the money you don't have. I never buy car with finance and I saved for 4 long yrs for my first car. If you're looking at a cerato then I'm guessing you're not into cars, so i suggest getting a cheap old toyota. After you finish uni and start working for some time, you can consider a nicer car.

  • bobbified on 28/01/2021 - 16:27
    +14

    Spare yourself the abuse - this is OzB where everyone just cares about spending the smallest amount to reliably get them from A to B. It's not the place to be asking if you should buy a depreciating asset on finance. You'll be called stupid, irresponsible, bad with money and everything else under the sun. (And we all know that you'll probably still go away and finance that purchase anyway! LOL)

  • brad1-8tsi on 28/01/2021 - 16:34
    +2

    Except for a novated lease in 2008 when they were worth having if you did 25k km/yr I've never borrowed money for a depreciating asset that is not tax deductible (for me).

    I prefer to buy a car I can afford with the cash on hand. This means I drove around in a base Suzuki Swift for 6 years instead of a Swift GTI. Did it matter? Not really.

    $13k borrowed at 6.4% (my CUs current rate) over 3 years is $398/month which will cost $1322 in interest. By then your $28k car is worth $16k (??).

    Just live within your means.

    Don't forget the cost of servicing, maintenance and comprehensive insurance

  • oscargamer on 28/01/2021 - 16:55
    +1

    You don't need that debt on a depreciating asset, particularly when you should be taking the opportunity to save money while living at mummy and daddy's.

  • Drakesy on 28/01/2021 - 17:03
    +7

    Friends don't let friends take out car loans.
    1. You're paying interest on a depreciating asset.
    2. If you write off the vehicle you may be left significantly out of pocket paying off the rest of the loan.
    3. People who do this generally don't think long term and don't quantify the losses, Afterpay, credit cards, car financers etc. prey on these people. Its the psychological feeling of getting a good, while distributing the pain over a longer time period.

    If you're in a decent job wait another 6 months and save it. I wanted to do the same thing when i started work, very glad i didn't given that the extra money i would've put in would have been lost in depreciation some 2 years later.

  • Trying2SaveABuck on 28/01/2021 - 17:30
    +11

    As a very general rule in life BESIDE property

    Dont buy anything you can afford - finance, Credit cards, After pay etc all this bullshit is designed to cost the consumer most money in the end

  • jsrz18 on 28/01/2021 - 17:46

    Also follow up question - I have a friend that is more switched on with things like this telling me that in a few years I won't be able to buy a normal petrol car because they will be banned and all cars will be electric only. And that petrol stations are likely closing by 2030. Is there any truth to this as it would influence what I actually buy

    • redvaldez on 28/01/2021 - 18:01
      +8

      Lots of countries are banning the sale of new petrol and diesel cars from 2030 and onwards, however Australia has not announced any such ban at any point in the future. No country in the world that I am aware of has announced a ban on the use of petrol or diesel vehicles at any time in the future.

      Whilst we'll definitely see an influx of electric cars in the coming years (as Australia is a fairly small market in the world so we'll get what the other markets dictate), I think seeing the typical servo completely disappear from Australia will be a loooong time off as we have some unique issues to cover (namely long distances and a penchant for camping/fishing/4WDing).

      • jsrz18 on 28/01/2021 - 18:05

        oh ok thanks, I thought it was used cars as well so all good. Just needed to know that petrol stations will be around for a long while so that the car is actually drivable haha.

      • lunartemis on 30/01/2021 - 08:24
        +2

        I think Australia is too big and too spread out to ditch petrol cars until they install/convert to a lot more charging stations.

  • StonedWizard on 28/01/2021 - 19:31
    +1

    Rates are so low at the moment, finance can be beneficial. You just need to be smart with your money and remember there could be a ballon at the end. Depending on structure.

    • reactor-au on 29/01/2021 - 09:44

      I was at Mazda yesterday, the sales guy said most people are getting 4-6%. That's not much better than 2 years ago.

      • fillit on 29/01/2021 - 21:46

        Geez that’s high if you have an abn drop me a message, rates are about half that but strict credit criteria

  • May4th on 28/01/2021 - 19:39
    +1

    I'd say, if you don't have the money to buy it outright, then don't touch finance. If you do, It's really about opportunity cost. Can you beat the 4-12% at whatever rate you get on the car loan if you kept it in your savings? At present it's probably not hard to beat if you invest wisely (keeping in mind capital gain and tax). If you can get any deductions that might swing the equation more

  • GourmetFoodie on 28/01/2021 - 20:25
    +2

    I always pay cash. Only buy what I can afford.

  • p1 ama on 28/01/2021 - 20:49
    +11

    (I'm a financial professional, but don't take this as personal financial advice).

    One of the worst pieces of advice to give people, generally speaking, is that debt is bad. In fact, it's the opposite, debt is fantastic. It gives people who can manage their money well a way of paying usually only a little more to have access to things when they need it. Especially as interest rates are so low right now, you would be crazy to not take advantage of it. All of my friends who've done well financially are those who have been able to take advantage of leverage to boost their equity.

    At the end of the day, you need to calculate how much interest you're paying and decide whether that's worth paying to get whatever it is you want earlier than you otherwise would have been able to.

    For reference, car loans are around 4% now (https://www.loans.com.au/car-loans/buying-personal-car/), you can get lower if you shop around.

    Just as an example, let's suppose that you want to buy a $35,000 car and you have $5,000. You take out a car loan over 3 years (no balloon for ease of calculation). If this is the case, you will be paying $552.09 monthly for 60 months (so $38,125 all up with interest).

    In other words, you pay a total of $38,125 for your $35,000 car. Is it worth paying $3,125 to have your car 5 years earlier? You tell me, but I'd much rather pay $3,125 more to have my car today.

    • Quantumcat on 28/01/2021 - 20:59
      +2

      It gives people who can manage their money well a way of paying usually only a little more to have access to things when they need it.

      OP doesn't really need it though. He would be getting into debt just for a "want"

      • p1 ama on 28/01/2021 - 21:10
        +1

        Doesn't change the calculation at the end of the day. "Getting into debt" is such a loaded term. I don't understand the obsession of wanting to not be in debt.

        Don't tell people this, but sometimes the repayments on a car loan will actually be less than leasing, and unlike leasing, you actually get to keep your car at the end of it all.

        • Quantumcat on 28/01/2021 - 21:27
          +2

          Well it does kind of matter, because if it is something you need, your choice is between getting it now and paying a little extra, or doing without it while you save up. Depending how badly you need it you might be unhappy or uncomfortable for a long time. Eg say a fridge, having to live on canned food would get old really fast. And that little bit extra you'd have to pay to have it now is worth it to save that long period of unhappiness (this is what I understood from your original comment which I agree with).

          But if it is something that you don't need, the choice is between paying extra to have it now or not having it at all, and not having a period of grave unhappiness. The car is an example of this. If he had nothing saved and he needed a loan to even get any car, it would count, because maybe then he would have to commute three hours a day on public transport instead of an hour by car. But he has savings. So he can get a huge range of cars from a $500 bomb to quite a decent second hand car a few years old for $15k and not need to go into any debt. He doesn't need a $28k car or otherwise suffer for a long period of time while saving up. If he chooses not to get the loan he isn't going to spend another few years saving up the extra $13k and being without a car all that time. He'll just buy a cheaper car.

          • p1 ama on 28/01/2021 - 21:58
            +1

            @Quantumcat:

            Well it does kind of matter, because if it is something you need, your choice is between getting it now and paying a little extra, or doing without it while you save up.

            It might change the decision, it doesn't change the calculation.

            He doesn't need a $28k car or otherwise suffer for a long period of time while saving up. If he chooses not to get the loan he isn't going to spend another few years saving up the extra $13k and being without a car all that time. He'll just buy a cheaper car.

            As I said in my original post, only OP can answer this question. FWIW, I don't really see things as "needs" and "wants". Aside from food and shelter, everything is a want, right? It's just wants to different degrees.

            Some people might be happy eating canned food and driving a $28,000 car. Others might prefer to eat fresh food and drive a $13,000 car. Personal choice really.

            • DragonautDruid on 29/01/2021 - 10:52
              +6

              @p1 ama: This whole comment sounds like something a Liberal MP would say on tv.

              Anyway, having a car is very much a need if you live outside of any major city center in this country.

              However, a uni student definitely does not need the debt involved with a 28k car, especially when they have 15k cash to spend on one. Like, they can spend like 5k on a camry that'll last another 10 years if they're after budget + longevity.

              To be completely honest I think it's pretty (profanity) up to endorse debt, especially to a uni student who is already gaining a hecs debt.

              I understand you're saying debt can be necessary for "wants" but still. But it shouldn't be for "needs". It's just capitalist bullshit.

              • p1 ama on 29/01/2021 - 11:27
                +6

                @DragonautDruid:

                To be completely honest I think it's pretty (profanity) up to endorse debt, especially to a uni student who is already gaining a hecs debt.

                I don't know OP's situation. I didn't read the later comments. I did the calculations and stand by my original point, which is that only OP can decide whether the interest is worth it to purchase the car early. I didn't endorse debt for OP, I endorsed debt more broadly

                I'm not going to make moral judgements for other people and neither should you. Only OP will know how much a $28k car is worth to him.

                If you want my personal opinion on it, then I'd suggest getting an old banger and that's what I did in uni. However, the question isn't what car to get, and I don't pretend to know why OP wants to buy what they do.

                I understand you're saying debt can be necessary for "wants" but still. But it shouldn't be for "needs". It's just capitalist bullshit.

                I'm not here to critique the system, I'm simply offering OP advice.

    • cloudy on 28/01/2021 - 22:11
      -1

      All of my friends who've done well financially are those who have been able to take advantage of leverage to boost their equity.

      Yes leverage can increase equity. But buying a car does not increase equity does it?

      If you debt to increase value yes debt can be good. If you use debt to upgrade life style it’s hard to argue its good use of debt.

      But, given you are in finance, and in finance you rely on people using finance for your income, it should be of no surprise. Never ask a barber if you need a haircut as they say.

      • p1 ama on 29/01/2021 - 00:40
        +1

        Yes leverage can increase equity. But buying a car does not increase equity does it?

        This statement makes no sense. Leverage does not increase equity, leverage allows you to purchase more expensive assets with your equity. Owning a more expensive car is having a more expensive asset. Leveraging simply means paying $5,000 to get a $30,000 car (etc. etc.).

        If you debt to increase value yes debt can be good.

        To some people, driving a nice car increases their utility (i.e. what you call "value").

        If you use debt to upgrade life style it’s hard to argue its good use of debt.

        There is no "good" and "bad" use of debt. The problem with characterising debt as good and bad is that it makes being in debt a moral issue when it really isn't.

        Most people are not born with an endowment. It takes time to earn money and debt allows you to purchase things that you need/want today and match the payments to how you actually earn money (which is gradually).

        As I outlined in my earlier post, with interest rates being so low, borrowing money to buy a car may actually work out better than other options like leases (in fact, I'm pretty sure it will as I've done the calculations). Where's the condescending remarks for those who loan their cars?

        But, given you are in finance, and in finance you rely on people using finance for your income, it should be of no surprise. Never ask a barber if you need a haircut as they say.

        Sigh, nice assumption there bud. I work at a university. How exactly does other people borrowing money help me? Please let me know so I can take my cut ;)

        • maverickjohn on 29/01/2021 - 18:23

          As I stated above I also did calculations and completely agree with your statements. I did calculations and bought a BMW just this week and worked it out against leasing. I was nearly $10000 ahead considering all the perks of leasing such as petrol, servicing, rego and insurance. And furthermore no balloon at the end.
          Also they claim leasing has tax perks etc but you can place your car loan on salary packaging and claim back any losses from interest as pre tax gains.

        • cloudy on 31/01/2021 - 09:33

          This statement makes no sense. Leverage does not increase equity
          All of my friends who've done well financially are those who have been able to take advantage of leverage to boost their equity.

          You said your friend used leverage to "boost" equity I took it boost to mean increase. I didn't realize there is much of a muchiness in how you have used the two. Re-read what you wrote, i still dont see it.

          To some people, driving a nice car increases their utility

          This is correct, but OP has not asked us if driving a new car makes him happier (the meaning of utility if my eco 101 days serves me correctly). Would you not agree?

          There is no "good" and "bad" use of debt. The problem with characterising debt as good and bad is that it makes being in debt a moral issue when it really isn't.

          Most people are not born with an endowment. It takes time to earn money and debt allows you to purchase things that you need/want today and match the payments to how you actually earn money (which is gradually).

          Don't agree. Financial institutions have a moral obligation not to lend money to those who cant afford it, so should borrowers not to borrow money they can't afford. If there is no such thing as bad use of debt it'll be no different to say its ok to borrow a million bucks and blow it on hookers and cocaine, as long as you can pay for it in the future (yet have no certainty on what the future earning power is).

          The best defense against bad use of debt is to borrow money modestly and for the purposes of increasing our earning power.

          In this situation its pretty clear OP has a choice. He can borrow an additional 13k for a nicer car or settle for a 15k car. He is asking for financial opinion (not an opinion of utility). Now most people would say a 15k car vs a 28k car has similar function for a mostly similar lifespan (maybe a few years less for the 15k car but not substantially less.) Either car he chooses does not look to increase his earning power so the overwhelming choice is the 15k car.

          Sigh, nice assumption there bud. I work at a university. How exactly does other people borrowing money help me? Please let me know so I can take my cut ;)

          Nice little disclaimer follow by a another. You didn't say you work a uni to start with, but there's no doubt hair salon schools only benefit if there are aspiring barbers, and there are only aspiring barbers if there is more demand for hairdressing.

          Fama and French are wealthy individuals because of the success of wealth management industry, not just because of their Nobel price.

    • BigBirdy on 29/01/2021 - 08:39
      -1

      No mention of those friends who used leverage to wipe-out their lifetime of accumulated assets? Given time, you’ll have such friends

      • p1 ama on 29/01/2021 - 13:29

        In my original post, I said:

        It gives people who can manage their money well a way of paying usually only a little more to have access to things when they need it.

        If you cannot manage your money well, then don't borrow money.

    • Excelsior on 29/01/2021 - 10:44
      +1

      I second this. Don't see anything wrong with debt as long as you manage your finances well and know what you're doing - obviously also depends on individual circumstances and judgement. For context I funded my first car in my 2nd year of working post uni (new Civic @ $25k) with half cash and half finance, the interest spread across 3 years was negligible in the grand scheme of things. Still managed to save up enough for a house deposit and then some.

  • MagicMushroom on 28/01/2021 - 20:57
    +1

    However, if the car is going to be kept and driven for 12 -15 years, does this somehow justify it?

    What if the car becomes undrivable within 1 year? You're left with a loan and possibly need to buy another car with a loan.

    • jsrz18 on 28/01/2021 - 21:00

      obviously no one is exempt from something like that but would've thought that buying a relatively new car under warranty, and a non-European one would help avoid that.

  • Willco88 on 29/01/2021 - 00:45
    -2

    Yeah if you want to pay 10K in interest on top

  • BigBirdy on 29/01/2021 - 08:34
    +6

    A bit of advice for a young person on a budget buying a car … get an online insurance quote (from a few insurers) for the model you’re thinking of buying. It might save you from a nasty shock

  • [Deactivated] on 29/01/2021 - 10:31
    +4

    I did something similar to OP but differently because:
    1) I was using an old second hand and cheap car over a decade and the maintenance went too high. I am ignorant about cars so buying second hand would be risky.
    2) I bought a brand new car instead of a 3yr old car
    3) I did half down payment and rest on loan which I paid off in 2 years and my annual cost of interest (extra over car price) was merely 450$ which I could totally afford
    4) The brand new car feeling is amazing even after 3 years now. Old car did not have many many things and stuff was breaking down.
    5) New car maintenance is low and no pink slip for first 5 years and I plan to use it for a decade more, so im not thinking about selling, its a great deal for me.
    6) Only my occasional farts on the seat.

    I do not regret buying a brand new car.

  • deme on 29/01/2021 - 11:22
    +1

    EDIT: Thanks for all the responses. I have an older car in mind that I'll likely go for that won't get me into debt and will save the rest for other things.

    Really wise words.

    Even a second hand 2018 model would be far better than getting brand new.
    Worth paying for an independent inspection eg. By NRMA. And checking insurance costs online before buying.

    Not all debt is bad, eg. Buying your first home to live in on a loan is probably going to be a wise idea.
    But the value of the car will decline as soon as you drive it. I reckon you'll look back on this and be so happy you are not still paying off a car loan .

  • khomeini on 29/01/2021 - 15:01
    +2

    Bought a car for $62k 3 years ago (Mar 18), sold it for $38.5k this week (and only did about 26k after all of that). Got it on finance, so ended up paying ~70k.
    $30k loss in 3 years, but have the feeling of being in a new car…. IMO, not worth it.

    I wish I'd gone for the car I wanted originally but alas… up to you whether you find the car interesting enough or are prepared for the loss of finance (FYI, had to chance to pay it outright but opted for finance for who knows what we were thinking)

    • greatlamp on 30/01/2021 - 10:05

      You spent 62k and didn't even get what you wanted?

      I assume some mid level euro car?

      I guess live and learn, don't take others advice always. If you got the car you wanted (maybe spent the extra 30k upfront) perhaps you would have no desire to sell it?

      • khomeini on 30/01/2021 - 13:22
        +1

        I got a mb cla200. It was my fault as I had a budget but wife gave ultimatum to buy something new so went for something cheap. My choice is a used GTR… (yes completely different segments) working on it. Not too fussed, you live and learn.

  • LFO on 29/01/2021 - 15:03

    With a car loan, besides interest there are other charges like account maintenance, application fee, commission, transactions and whatever the lender fabricates (legally) to bleed you a little bit more.

    Paying in full is more cost effective if able to afford, of course.

    • p1 ama on 29/01/2021 - 16:35

      That's why you need to look at comparison rate, not interest rate. Comparison rate includes all the fees…etc.

  • 91rs on 29/01/2021 - 15:34

    Out of school I had some old crappy cars for a bit, the amount of time and money to keep them going was the trigger to look at a new car.
    The amount of shifts at work I was late for due to car problems was also a factor, didn't want to become unreliable and then get less shifts or lose my job.
    Didn't have much to put down on a new car and didn't stretch my finances that far with something sub $15k at the time with warranty.
    Trouble free motoring for 5 years (end of warranty) and then sold it on, the few grand in interest was worth the upgrade.
    All of that said I'm not sure id sign up for 28k more debt while in uni for a car you dont really need (especially if its just a Kia) if you can get something sub $15k and own it no debt and have reliable motoring.
    I'd also never recommend anyone buy a Camry, those cars and their drivers are the most dangerous, oblivious, spatially unaware people on the road. Don't become one of them.

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