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

  • NotSureIfSerious on 29/01/2021 - 15:37
    +9

    FWIW I’m a uni student who bought a Honda jazz second hand for $7000 in cash last year. It costs me $20 a fortnight in fuel and serviced twice a year for roughly $400.

    I tossed up the idea of spending more and so glad I didn’t, I put the extra money I didn’t spend towards a house.

    • Indomietable on 29/01/2021 - 19:43
      +4

      Well done!

    • enthusiast on 31/01/2021 - 13:57
      +1

      My neighbour is a senior and he needed a reliable smaller car after selling his old Toyota Hiace van. Ended up getting him a 5 year old Kia Rio hatch with 70k kms for $7k + rego cost. Still 2 years factory warranty left. It's like new, and he LOVES it. First time he's ever driven a 'new' car in his life. Good passive and active safety features, too.

  • Ryk on 29/01/2021 - 15:39
    -1

    pay cash. If you dont have cash you cant afford it.

  • BIGPETE0005 on 29/01/2021 - 15:42

    Hunt for a bargain mate, in your position at home with the parents still in uni. Be humble and hunt for the nicest condition, lowest k, newest car you can find for 5-6k.
    And your probably looking at an i30. Cheap to run, cheap maintenance, nothing to fix or worry about.
    Keep your leftovers in the bank. And over insure it.
    You can still bang girls in the back of your hatch.

  • tomleonhart on 29/01/2021 - 17:15

    No. /thread

  • Ononono on 29/01/2021 - 18:13
    +3

    Buying a $28k car while still in uni and living at home is crazy, even a $10k car is too much. I got through uni fine with PT and you can take uber or rent with carnextdoor if you really need a car sometimes.

  • ass3ts on 30/01/2021 - 02:15

    Too many people heavily rely on finance to fund their desired lifestyles, too much carpe diem.

  • mousie on 30/01/2021 - 11:26

    Don't buy something you can't afford. Borrowing other people's money for a depreciating asset is costly.

    Exceptions. Buy now zero interest offers on capital. Equipment you can write off as work or educational expenses well before end of financial year on run out equipment.

    The sweet spot is to drive boring ex lease cars after 3years for around 13k and changing every 3 years.

    Bought a 2017 Nissan Altima for 12k with 4 years wty remaining and full service history 25,000kms

    Did the same thing with a Kia optima. Prior to that had 2 years of motoring losing $1500 plus insurance and rego and claimed heaps back for work related expenses on tax.

    Capital cities are look at me and a car is a status symbol. You know what looks better? Owning a house.

    • reactor-au on 31/01/2021 - 08:25

      Where do you find these ex lease vehicles? Link?

      • mousie on 31/01/2021 - 09:02

        Dealers or pickles auctions. Grays is also running them too.
        I bought my last one at Camden Valley auto nsw.
        Just can't be fussy about colour and may need to get a new set of tyres etc depending on condition report.

  • thermos on 30/01/2021 - 11:30

    Have you considered saving a bit more and buying a standard Cerato say 2018 instead? On the outside they don't look too different to me apart from the alloys and grille.

  • Zondor on 30/01/2021 - 13:38
    -1

    Taking a loan on a depreciating asset is a terrible idea in general I think. Unless you need it to work or have no money and need a 5k loan to get something reliable for your job, don't do it.

  • STRAPIFY Watch Strap on 31/01/2021 - 09:01

    The only times buying a car on finance is worth considering is either:
    1. better use of funds to invest/ cashflow
    2. the interest rate is low and you deduct the interest expense/fees and that equates to something similar to parking money in an offset account (assuming you have a home loan).

    At your age banks will lend you money at 6% or higher which is far too high.

    Buy a well depreciated car. You might even break even or make money on it if you get it at a good price. Use it for a couple years while you save, then you can buy a better car that you prefer.

  • down-under on 31/01/2021 - 10:42
    +1

    I’m sure there are a lot more fun things to spend money on. I’m driving a $10k second hand car and threw $xxxk at a business recently, for fun.

  • Zoop on 24/05/2021 - 17:40

    To piggy back on this thread,
    If I’ve got 70k owing (1.99% interest currently) on a 800k property, and a heathy redraw, how fiscally irresponsible would it be to redraw $70k to buy a nice new car?

    • rompastompa on 24/05/2021 - 17:45

      how fiscally irresponsible

      Just remember that it's $70k + an extra $70k worth of interest and, when you get back to $70k owing, your mortgage could have already been paid off much earlier.

      @ 1.99% it'll be the cheapest loan if you need the new car, so don't think about the extra interest/debt-free timeline if it'll make you/family happy. It'll always be fiscally irresponsible on a depreciating asset..

      • Zoop on 24/05/2021 - 18:09

        Thanks for the reply.
        It’s not a really necessary purchase but I’ve pretty much driven my v6 into the ground (owned it for 10 years). I’m thinking it’s either I continue spending $4k per year on petrol or spend the same amount (or a bit more) on depreciation on a car that stirs the depths of my heart. (Tesla model 3 SR+)

        But yea, it’s a lot of money and I’m looking for some great points of view with my question.

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