Buying cars using credit/finance...

[Trump]

Apologies for the Hulk-esque thread and poll, but after a lively discussion with some clients of mine, I thought I'd present the topic to the forum.

Which would you choose and why.

[Qwerty321]

Don't do it! You'll end up paying much more than the cars worth. I've seen so many people get caught in this trap

The only credit you should ever get is a mortgage.

[Yellow_Festiva]

Originally Posted by Qwerty321

Don't do it! You'll end up paying much more than the cars worth. I've seen so many people get caught in this trap

The only credit you should ever get is a mortgage.

While I agree with this let's assume you have a mortgage.

You put in extra payments and then decide you want a car.

You pull out your redraw and buy the car outright. Isn't this a form of credit?

I've done this with all my cars. While I do see myself as mortgage free sooner than my loan says I think it isn't bad to borrow money from yourself as long as you were the one to put it into the loan in the first place.

[Trump]

I'm in the if you can't pay for it outright, don't buy it at all camp. I've never borrowed money to pay for a car nor leased one.

[Franco Cozzo]

Originally Posted by Loud_Noises

I'm in the if you can't pay for it outright, don't buy it at all camp. I've never borrowed money to pay for a car nor leased one.

Same here, all my toys are 100% owned by me.

[nstg8a]

We just financed a 2012 Subaru, finance certainly has it's downfalls but if you do your research and don't be a complete nong it's not that bad.

We got a reasonable interest rate, and will have it paid off over three years. Iirc total cost of finance was 27k.
Of course it won't be worth half that by the time it's paid for, but at the end of the day we wanted a safe reliable economical car.
Having just built our first house our savings certainly couldnt spread to a new car lol.

Finance isn't ideal, but sometimes a necessary evil.

[Silver Ghia]

Always paid full amount for my cars, new and second hand. Never leased or borrowed money. My rule is if I can't pay the full price, I don't buy it.

[Qwerty321]

Originally Posted by Silver Ghia

Always paid full amount for my cars, new and second hand. Never leased or borrowed money. My rule is if I can't pay the full price, I don't buy it.

Exactly. If you can't afford to pay full price, you can't afford the car. Don't even let financing it come into mind, just forget it even exists.

There are odd cases where finance is okay (leasing for your company cars etc.), but in general avoid it. Even if you think you're getting a good bargain, it's just a case of getting a black eye instead of a broken jaw. It's a "good bargain" relatively speaking, but you're still loosing.

[theBlake]

Originally Posted by Qwerty321

Exactly. If you can't afford to pay full price, you can't afford the car. Don't even let financing it come into mind, just forget it even exists.

Not necessarily. I finance my beer and petrol money every week. All my income goes against my home loan, therefore everything I spend is 'borrowing', Thus I never save up for anything.

When I wanted to get a new car, I just wrote out an application for a $30k home loan for a 10 year term, fixed rate for 3 years (then 3, then 3, then variable). I chose 10 years because I figured I would keep the car for 10 years.

I could have saved up that $30k over a few years but then my home loan debt would be more.

Its a nonsense argument that many people make like "dont borrow against the house for a car, because you are paying it off over 30 years". You will pay it off over the term that you decide to pay it.

Such finance juggling takes some discipline, but so does all personal finance management. Those that cant control their spending, generally don't end up in a situation where they can cash out equity in such a manner.

However, to answer the original question, I don't believe in borrowing money for cars. Thats creating "bad debt". IMO my strategy is not borrowing, its spending my savings, it just looks different on the balance sheet.

[Qwerty321]

Originally Posted by theBlake

Not necessarily. I finance my beer and petrol money every week. All my income goes against my home loan, therefore everything I spend is 'borrowing', Thus I never save up for anything.

When I wanted to get a new car, I just wrote out an application for a $30k home loan for a 10 year term, fixed rate for 3 years (then 3, then 3, then variable). I chose 10 years because I figured I would keep the car for 10 years.

I could have saved up that $30k over a few years but then my home loan debt would be more.

Its a nonsense argument that many people make like "dont borrow against the house for a car, because you are paying it off over 30 years". You will pay it off over the term that you decide to pay it.

Such finance juggling takes some discipline, but so does all personal finance management. Those that cant control their spending, generally don't end up in a situation where they can cash out equity in such a manner.

However, to answer the original question, I don't believe in borrowing money for cars. Thats creating "bad debt". IMO my strategy is not borrowing, its spending my savings, it just looks different on the balance sheet.

My reply was more focused on those buying from second hand car yards. I realise now that in Aus the mainstream may be able to afford new cars, but here in kiwi land almost all cars are bought second hand, and only the properly rich buy first hand. When people say they "financed" their car over here, it usually means they bought some second hand car at exorbitant interest rates from car yards, which we can all agree is a massive mistake. So that's why my reply was just a straight up "Don't do it!". Guess what I said doesn't really apply to most of your situations

[Trump]

I contend that corporate leasing is worse than personal finance. It encourages a mindless throwaway mentality when it comes to items that most considered a luxury not all that long ago that had to be earned.

[Romulus]

Financed. Chattel mortgage and I claim back 100% of the GST in the BAS quarter. All my vehicles are purchased through my business and are claimed for taxation purposes.

I'd never buy a car with my own money, let alone pay cash. Now that's mad. You may as well set fire to a pile of $100 notes.

[asagaai]

Originally Posted by F6 Concorde

Financed. Chattel mortgage and I claim back 100% of the GST in the BAS quarter. All my vehicles are purchased through my business and are claimed for taxation purposes.

I'd never buy a car with my own money, let alone pay cash. Now that's mad. You may as well set fire to a pile of $100 notes.

Well- I paid cash for my FGX, but claim 88% of all costs through my business, depreciation, all running costs, and 88% of GST in BAS.

Done this on my last few cars -pay cash- and I consider it very logical and better than financing through the business. The cost/benefit is no finance interest versus loss of investment profit on purchase price by not having that sum to invest, which is not much given investment returns these days.....

I think there is no one truth fits all- depends on your own circumstances as what purchase model fits best.

[Romulus]

Originally Posted by asagaai

Well- I paid cash for my FGX, but claim 88% of all costs through my business, depreciation, all running costs, and 88% of GST in BAS.

Done this on my last few cars -pay cash- and I consider it very logical and better than financing through the business. The cost/benefit is no finance interest versus loss of investment profit on purchase price by not having that sum to invest, which is not much given investment returns these days.....

I think there is no one truth fits all- depends on your own circumstances as what purchase model fits best.

It'd make a better case for outright purchase if the government increased the instant asset write-off value from $20k to maybe $50-75k, then I wouldn't bother financing.

It's difficult to get suppliers to split invoices, no dealer wants to do it :(

[Qwerty321]

I didn't realise we were talking about business people. Once you have a company/business then everything stops being black and white as tax write off and fancy accounting jargon with loopholes etc. comes into play. However, for the average wage/salary bloke, finance is almost never the right answer.

To Yellow Festiva. Your right, that would technically be financing but you wouldn't be getting ripped off at all. You'd just be extending your mortgage, as if the car was part of the house purchase. But to answer that I'd say live within your means and get something you can afford without finance. But if you really wanted to extend the mortgage and get a car, it best be a new car, cause then atleast you can argue the savings in maintenance costs (it's new, it won't break. And there's warranty) would offset the interest. But financing a used car is almost always a mistake.
EDIT : I just realised your talking about taking out money that you put into the mortgage as extra payments. That's perfectly fine. You're just taking back the extra money you put in. I'd hardly call that financing.

[Trump]

Originally Posted by F6 Concorde

Financed. Chattel mortgage and I claim back 100% of the GST in the BAS quarter. All my vehicles are purchased through my business and are claimed for taxation purposes.

I'd never buy a car with my own money, let alone pay cash. Now that's mad. You may as well set fire to a pile of $100 notes.

This is my biggest gripe about leasing. The government incentivises debt by giving tax deductions; its insanity, a tax break because debt was chosen over outright purchase.

[ebxr8240]

It's ok if it's either tax deductible and or you keep it 3 or 4 years after its paid off..
I save have saved two tax returns from negative gearing to purchase cars...
I don't work all those hours anymore ..

[Brazen]

Used to pay cash now I finance, interest rates are barely above inflation now so for my circumstances wouldn't waste my time saving up when I could be putting that money into other things. Everyone is different.

5% loan on a $30,000 car is 30 bucks a week interest (for the first year, interest decreases as you pay down the principal), lot of people spend more than that on cigarettes, or Foxtel, alcohol, coffee, parking or the crazies in the capital cities on toll roads.

[MattSAU2XR8]

Probably also important to consider whether you can justify the total running cost rather than just the finance cost. I've had old cars cost nearly as much as new cars and finance per km over a few years. If for example you were starting out early in your career and had a reasonable take home and got an i30 for about 20k on finance and drive 300 kms a week and it was aroud $150 per week to run, then the finance as per above might be $20 per week. But if this meant no headaches and you could concentrate on your work it might be worth it. Different if you used a loan to buy a $50k car at that point...

[Ben73]

Originally Posted by Brazen

Used to pay cash now I finance, interest rates are barely above inflation now so for my circumstances wouldn't waste my time saving up when I could be putting that money into other things. Everyone is different.

5% loan on a $30,000 car is 30 bucks a week interest (for the first year, interest decreases as you pay down the principal), lot of people spend more than that on cigarettes, or Foxtel, alcohol, coffee, parking or the crazies in the capital cities on toll roads.

Exactly what I think.
I know of some people who have got stupid things like 18% interest rates on car loan in the last few years, that's not a great decision. But with all the the low rates especially on new cars, it not that bad to finance.

You see these ads for 1-3% finance on new cars, I am currently getting almost 3% interest rate on my savings account.
Id rather have 30k earning interest in my savings while paying 1-2% interest on a 30k car loan, as long as there are no balloon payments at the end.

[FairmontGS]

If it's tax-deductible OK, if not keep walking and get some exercise until you have saved the readies.

[danzvtil]

Ive always part financed, paid a large deposit then finance the balance to keep the loan below the rough value of the car. I use this safety net as I get bored quick and am always selling. The only exception was my rio 2 years ago, I paid 21K from my home loan, that cash is gone. If I had of financed, that money would still be in my offset reducing interest daily.

[vztrt]

This thread is funny. Its like a fuel economy thread (petrol vs Diesel).

If your that money savy you wouldn't be buying a new car at all, the deprecation will hurt you more then interest. You wouldn't buy anything performance....and the you wouldn't waste money on modding the car.

A house mortgage will ream you more in interest then taking out a 5 year term on a car.

[Qwerty321]

Originally Posted by vztrt

This thread is funny. Its like a fuel economy thread (petrol vs Diesel).

If your that money savy you wouldn't be buying a new car at all, the deprecation will hurt you more then interest. You wouldn't buy anything performance....and the you wouldn't waste money on modding the car.

A house mortgage will ream you more in interest then taking out a 5 year term on a car.

You've got a point there. People like me would probably never buy a first car, just cause a part of me will always say "wait a couple years and get it way cheaper". That said, if I was pulling in a 6 digit salary and had money to literally throw away, I'm heading straight to that Ford Dealership and getting me a new GTP

[JC]

When I bought the GTE, they were selling for around the $50k mark plus.....I got it for 20% less than that, but didn't have the cash, so took a loan to pay for it. At the end of the loan term, principle plus interest would've still been less than the value of the car at the time - as it turns out, the car has now been paid out so the interest I paid was only for 18 months, which was less than one ford service. (not quite, but nearly).

vztrt's point is spot on too, and funny!

[DK30RB]

Those of you who take cash and pay for your car out of your mortgage are mad... You will pay interest on that money for the life of the loan. Not many people are disciplined enough to put extra payments into their loan to pay out the amount used on the car early. Effectively you are borrowing money at your mortgage interest rate over 25 - 30 years. (depending on how long you have to go). Crazy..

Put or leave all your cash into paying off your mortgage.

I have my own business, and have a chattel mortgage on my car. By the time i claim depreciation, interest, fees, running costs out of the business PRE TAX, there isn't too much of an advantage to paying for it outright when you can put the cash to better use.

[Yellow_Festiva]

Originally Posted by DK30RB

Those of you who take cash and pay for your car out of your mortgage are mad... You will pay interest on that money for the life of the loan. Not many people are disciplined enough to put extra payments into their loan to pay out the amount used on the car early. Effectively you are borrowing money at your mortgage interest rate over 25 - 30 years. (depending on how long you have to go). Crazy..

Put or leave all your cash into paying off your mortgage.

I have my own business, and have a chattel mortgage on my car. By the time i claim depreciation, interest, fees, running costs out of the business PRE TAX, there isn't too much of an advantage to paying for it outright when you can put the cash to better use.

Yes, but that is for the people who actually follow the terms of the loan. In that case they probably have minimal redraw anyway and will need to refinance to access equity.

I wonder what the percentage is for people who pay a mortgage as per the terms of the loan?

10%?? If that? If it was more than 10% I would be shocked actually!

I don't know anyone (including myself) that has kept a home loan longer than 3-4 years actually.

If you are using your own redraw than it obviously means that you have made an effort to chip away at the loan at a much faster rate than the terms that were agreed to.

If you use redraw you are using your own savings, bypassing a new credit application, bypassing higher insurance, bypassing fees and charges, bypassing your inability to negotiate a lower 'cash' price and allowing you to pay your car off at your own terms.

Serious question. Anyone here ever had a 25yr / 30yr / 20yr mortgage and actually pay the minimum and take the whole term?????

[Polyal]

Also owning an older car outright that has higher running costs is effectively the same thing, may as well have a new car.

I used to be of the opinion that yes, if you cant afford it then dont buy it; but its not that simple.

I too wouldnt throw it on the home loan unless you 100% dedicate funds to paying it off ASAP.

I know have a company car and it takes a % if my income, I am looking at returning it and leasing my own because id rather drive something I want and pay for it than be forced to take a POS Hilux.

I also used to think leasing was cheating, because some people would crow on about how they have so much cash when really they dont. But if it works from a Tax perspective then IMO play the game, thats why its there.

[Stefan]

This is not one size fits all.

If you are in a high cashflow / volatile business you'd have to have rocks in your head to drop cash on a depreciating asset. Keep cash for emergency, lease car.

I'd imagine very few, if any, successfull business owners would buy cars outright (with exception to classic hobby cars)

[STEALTHY]

What jobs are you people doing that you can have over a million saved in cash before you turn 20 to buy your first house?

I dont know anyone, or of anyone, who has bought their house outright.

I understand the thread is about cars, but people have said 'if you cant pay cash you cant afford it' etc