Your opinion on buying a car. Finance/Cash, New/Old, Expensive/Cheap

[Lyyynnnchy]

Hi All,

I'm interested in everyones opinion on what they do regarding purchasing a car. In my opinion J_Moore summed it up perfetly when he said

The best financial rule you can follow is to not take out loans for depreciating assets. It is lunacy.

I just don't understand why people would buy a "new" car, especially with finance. As soon as you drive it out the door it loses a heap of value and from then on is a depreciating asset. Even purchasing an expensive car, I just dont get it.

sabre_ac had a point when he said

Choose you poison I say.

Some people piss away $300 a week on alcohol, others on their car. Both ultimately are money pits that bring satisfaction.

Everyone has an "excessive expenditure" item that others would shake their head at.

Travel, Cars, Alcohol, Expensive clothes are all money pits. Even big underused houses could be considered a money pit and a waste.

BUT, I consider all the things he listed as having "value". When I go travelling I meet people from around the world who I then become friends with for life. This opens up a whole new world of opportunities, giving me places to stay if I choose to go overseas again and also contacts for if I wanted to further my work career overseas.

Alcohol - I spend quite a bit on eating and drinking out, but a lot of the time this is networking, either through friends meeting new friends or though work colleagues. Again this is building up relationships with people that may benefeit me in future.

Expensive clothes - Most of the time, expensive clothes do actually last longer. For so long I would spend $100 on leather shoes only for them to wear out in 6 to 12 months. I have now had the same $400 pair of leather work shoes that look the same as when I brought them for 3 years, though I spend 5mins pollishing them a couple of times a month, they also look a lot nicer than the cheaper shoes. I used to buy $300 suits, they'd start to look crap after wearing them a few times. I now spend around $600+ on a suit and they last 5 times as long. I also recently came across this sentence
Buy expensive clothes. Superficial? Yes, but so are the people judging you. And it tells these people you appreciate nice things and are responsible enough not to lose/ruin them
Rings true IMO

For all the "poison" I can think of, car's seem to come out, by far the biggest money pit, especially with finance (unless you're buying an "antique" car and can fix it yourself).

I think a good rule is, always pay for a car in cash and never spend over 10% of your wage on a car once you earn over $50,000. I've never paid over $4,500 for a car and even then after writting it off 12 months later I got $8,000 back due to buying it for a good price.

For those that live inner city, sign up to a car share. I pay $9 a month membership for GoGet. When I want to use the car I pay $4.50 an hr or a set fee for a day / weekend with specials for long weekends. The car is also free when using it between midnight and 6am. This includes fuel, rego, insurance, cleaning etc etc. There are over 100 GoGet cars located through Melbourne including 8 within a 10 min walk of my house in Soth Yarra. The cars range from Camrys to Minis to Audies/Alfa Romeos and Vans and 4wds. I've also never had a problem finding one that is free to use.

Anyway rant over, poorly constructed argument as I'm in a rush, but I'm sure you get the jist; cars are a waste of money and anyone that thinks otherwise is stupid

I'm sure others can add many more reasons

 

[checkraiseulite]

Voted <$15,000 and cash, and tbh if you live in metro melbourne (and especially sydney) you don't even need one at all.

That being said, if you base your decision to buy nice clothes on what other people think, you're also getting judged on your car.

Case in point, me and a work colleague were at a function the other day and got a lift home together with a more senior colleague who would be on quite decent money.

We get dropped off and the first thing she said was "i can't believe X has such a s**t car".

 

[Lyyynnnchy]

Voted <$15,000 and cash, and tbh if you live in metro melbourne (and especially sydney) you don't even need one at all.

That being said, if you base your decision to buy nice clothes on what other people think, you're also getting judged on your car.

Case in point, me and a work colleague were at a function the other day and got a lift home together with a more senior colleague who would be on quite decent money.

We get dropped off and the first thing she said was "i can't believe X has such a s**t car".

Good point, however you are seen a lot more in the clothes you wear than the car you drive

 

[Scotland]

Depends on your circumstances.

If money was no object and I had plenty of free time, I'd probably own several expensive cars (new and vintage), a boat etc. because it's something that I would gain enjoyment from. Others could earn squillions and would spend all their money on 300 year old paintings or WWI era stamps. Each to their own.

I think your car should largely reflect where you are in life and how important it is. As a poor student you want something that is cheap to buy and cheap to run. Reliability is important, but most self-funding students don't have $10k+ lying around to buy a decent second hand car and don't work enough to pay back a car loan. If you're an apprentice your car is more important. You don't need a brand new Hilux at 18 but if you drive from job to job carrying lots of gear you need something reliable.

When you get older your car becomes more important. If you have a family, you need to think about how many people and how much stuff you'll need to carry around and you need something reliable. If you're a professional and rely on your vehicle to get to/from work and to drive other professionals around, it's not really professional to get around in a VP Commodore. You don't need to drive a brand new BMW, but a late model car with air-con that is kept clean is a bit of a must. If you're like me and earn a decent living and don't rely on your vehicle for work then it gives you options. I could afford a new car, but have one that's worth about $10k as I'd rather put money into a mortgage, go on hoildays, do renovations etc. at this point. In the last calendar year I think I clocked up about 6,000km.

In terms of payment, car loans are throwing away money. High interest on a depreciating asset. Pass. A car is definitely something one should be able to save for, IMO. If you're going to get a car loan, I reckon do so on a good quality car you intend to have for a long period. No point paying back the first year of a car loan where the bulk of the interest is paid then selling the car for 20% less than you paid for it, that's just stupid. If you're earning a high salary, you should be looking at leasing a car to minimise your tax*.

*I'm not fully across all the recent FBT changes.

 

[DragzLS1]

I wouldn't finance a car as it is a massive rip but I would recommend a novated lease. Not worth while if you are salary packaging a mortgage though.

 

[Falchoon]

It depends where you are in life too, if some day you want to save for a house deposit go cheap on a car. If you're in your forever house, the kiddies are set up, what's wrong with a new car.

I do a bit of travel, probably 30,000k's per year. To save on travel expenses I traded my turbo 4wd in for a diesel. Let's just say the diesel doesn't put a smile on my face. I'm a car guy, I spend 500 hours annually in my car, what's that smile worth?

I just don't understand why people would buy a "new" car, especially with finance. As soon as you drive it out the door it loses a heap of value and from then on is a depreciating asset. Even purchasing an expensive car, I just dont get it.

Firstly it's not an asset, don't think of it as one, it's an expense. It costs $x per month inclusive of depreciation, does that fit within your budget, yes or no.

 

[Brad Goodman]

I'm a car guy, I spend 500 hours annually in my car, what's that smile worth?

That's what it comes down to ultimately. If a car is nothing more than a mode of transport, don't go all out on it.

 

[caroma]

I bought my 2008 demo model 4x4 with finance. Needed a car with enough room for 2 kids and which can get me to plenty of camping spots with less chance of having any problems. Im also 1500km away from the closest capital city, Perth, which to fly to would cost my family on average over $2k return.
My finance is about $1k a month. I earn a decent wage and live in company housing so one could say i can easily afford it. I also plan on having it for at minimum 10 years.

Once its paid off next year, that monthly payment will then be going towards my first mortgage.

It really does just depend on your circumstances. I've owned many cheap 2nd hand cars before and can say nothing compares to sitting in something thats virtually brand new.

 

[NitroFan]

this is probably a pretty dumb question but can you actually hand over cash at the dealership when buying a car (about 13k)?

 

[caroma]

I have before. might depend on the dealership i guess. best to ask before you do. For my current car i paid the deposit with cash ~$10k

 

[sabre_ac]

My first car out of Uni was brand new and almost entirely on loan. The funny part is the insane interest rates on a depreciating asset isn't even the part that I regret the most. I regret spending such a large chunk of my salary on something I didn't even get that much enjoyment out of.

If I could do it all over again I would either get an older sports car or a second hand version of the car I had, I'd probably still load up on a loan if it was the sports car, though at least I wouldn't go new.

Everyone has an ego and everyone cares to some degree what others think, I would never recommend spending the bare minimum on a car that looks ridiculous. I'd also argue that most people's earning capacity increases dramatically through their 30's,40's and 50's. Therefore being overly frugal in your 20's is something you may come to regret (This is a whole different discussion), each to their own though.

 

[dmc333]

I'd never finance one, but what you drive probably depends on where you live and what you need it for.

I paid 5k cash for a Corolla about 12 years ago. Still driving it. It probably gives the impression I'm destitute, but I've done way better things with the money I've not dumped into cars.

Apart from usual services and obvious things that wear out like radiators and tires it has cost me bugger all on a yearly basis. It's also at the stage where it's not worth insuring over 3rd party so my insurance is like $110.

 

[lemon chicken]

My first car was a used car worth about $3k. After putting up with it for about 6-12 months of breaking down regularly and spending more $$$ on repairs to it, I gave up and got a loan for a new car, a 2 door, 1.5 litre hatch around $12-13k. As a guy, I got bagged endlessly for having a chicks car but at that stage I couldn't give a hoot, I put the key in and it started everytime and cost next to nothing to run. 5 years later I'd saved enough to trade it in for a $20k new car and this time paid cash. I'm now on my 3rd car purchased new and I wouldn't ever buy a 2nd hand car again but I've never spent much more than $20k on a car. Think there is great value in new cars under $15k for the peace of mind of knowing it will start when you need it to.

 

[lemon chicken]

this is probably a pretty dumb question but can you actually hand over cash at the dealership when buying a car (about 13k)?

I don't know why anybody would want to carry around that amount of cash on them but every car dealership I've bought from don't accept large amounts like that, maybe a grand or so for a deposit but big amounts they ask for a bank cheque.

 

[caroma]

I don't know why anybody would want to carry around that amount of cash on them but every car dealership I've bought from don't accept large amounts like that, maybe a grand or so for a deposit but big amounts they ask for a bank cheque.

See my comment above. i paid $10K in cash to my particular dealer. Went straight from the bank to the dealership.

 

[the harry]

http://www.scottpape.com/barefoot-investor-get-free-cars-for-life/

Obviously that article is for those looking at cars that aren't the cheapest, but it still give you an idea of the cost of the interest and the premium paid for new cars of that price range. It's hard to see cars that are new for $15k dropping as much though.

 

[Ilias]

https://origincashforcars.com.au/sell-your-car-for-cash/

Cars often lose its value people end up selling for cheap and have to put extra money to buy a another car. It is best to buy on finance at least your not paying a big amount at once.

 

[chargers 09]

Hi All,

I'm interested in everyones opinion on what they do regarding purchasing a car. In my opinion J_Moore summed it up perfetly when he said



I just don't understand why people would buy a "new" car, especially with finance. As soon as you drive it out the door it loses a heap of value and from then on is a depreciating asset. Even purchasing an expensive car, I just dont get it.

sabre_ac had a point when he said



BUT, I consider all the things he listed as having "value". When I go travelling I meet people from around the world who I then become friends with for life. This opens up a whole new world of opportunities, giving me places to stay if I choose to go overseas again and also contacts for if I wanted to further my work career overseas.

Alcohol - I spend quite a bit on eating and drinking out, but a lot of the time this is networking, either through friends meeting new friends or though work colleagues. Again this is building up relationships with people that may benefeit me in future.

Expensive clothes - Most of the time, expensive clothes do actually last longer. For so long I would spend $100 on leather shoes only for them to wear out in 6 to 12 months. I have now had the same $400 pair of leather work shoes that look the same as when I brought them for 3 years, though I spend 5mins pollishing them a couple of times a month, they also look a lot nicer than the cheaper shoes. I used to buy $300 suits, they'd start to look crap after wearing them a few times. I now spend around $600+ on a suit and they last 5 times as long. I also recently came across this sentence
Buy expensive clothes. Superficial? Yes, but so are the people judging you. And it tells these people you appreciate nice things and are responsible enough not to lose/ruin them
Rings true IMO

For all the "poison" I can think of, car's seem to come out, by far the biggest money pit, especially with finance (unless you're buying an "antique" car and can fix it yourself).

I think a good rule is, always pay for a car in cash and never spend over 10% of your wage on a car once you earn over $50,000. I've never paid over $4,500 for a car and even then after writting it off 12 months later I got $8,000 back due to buying it for a good price.

For those that live inner city, sign up to a car share. I pay $9 a month membership for GoGet. When I want to use the car I pay $4.50 an hr or a set fee for a day / weekend with specials for long weekends. The car is also free when using it between midnight and 6am. This includes fuel, rego, insurance, cleaning etc etc. There are over 100 GoGet cars located through Melbourne including 8 within a 10 min walk of my house in Soth Yarra. The cars range from Camrys to Minis to Audies/Alfa Romeos and Vans and 4wds. I've also never had a problem finding one that is free to use.

Anyway rant over, poorly constructed argument as I'm in a rush, but I'm sure you get the jist; cars are a waste of money and anyone that thinks otherwise is stupid

I'm sure others can add many more reasons

Most people financing expensive cars are doing so through their business and writing a lot of it off come tax time.


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[Norwood1878]

I've always bought low kay, one owner used cars (could've bought new but it made no economic sense) but now for business i'm going to buy a new dual cab ute because of the tax advantages.

There's a YT vid that summarises the optimum buying time. It's not always going to correct for every make/model but a good rule of thumb in any case.

 

[Papa G]

Most people financing expensive cars are doing so through their business and writing a lot of it off come tax time.

This.

 

[chargers 09]

This.

Yes most people have in their head "oh that guy driving the expensive Audi or Hilix is living beyond his means" very difficult for people to do now with NCCP surround consumer loans.

Books like the barefoot invested are great for people with no financial platform
And limited understanding of finance overall. He is particularly strong about "not financing cars" but he is talking about your standard consumer loans. Not your Chattel mortgages, HP's and Novated leases which aren't regulated by NCCP and are more or
less treated the same as a company financing an excavator.

A normal person earning a $1000/week in admin can't just go and finance a $100K Merc. Doesn't work like that which people assume.

Most of these people who drive around in these expensive cars that ARE on wages either have a car allowance or are writing tax off (I.e. Young tradie buying a Hilux) or as I said above are running in through their company and writing off the tax, depreciation and interest.

Operating leases as well allow the highest income bracket to claim up to 48% of the payments back if they earning above ($180K I believe).




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[chargers 09]

Furthermore these lenders and banks are hesitant to loan someone $60K (as an example) if they don't have property or have financed other cars before.

Probably a good result of the regulation of our consumer lending system in this country.

Point being the people who drive around in the fancy car CAN afford them.

Again lenders/banks won't give your average 21 year old $60K to secure against a car even if on paper they can afford it as 95% of cases they will still not consider it responsible lending.


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[Papa G]

It' not necessarily the best way to do things, but if you'e owned your own home in places like Sydney for 10 plus years, you've seen your home value double and thus you have huge amounts of equity. Whacking 70k on your home loan for a Merc c200 which may only add a $100 to your monthly home loan repayments doesn' seem like a big deal.

 

[chargers 09]

It' not necessarily the best way to do things, but if you'e owned your own home in places like Sydney for 10 plus years, you've seen your home value double and thus you have huge amounts of equity. Whacking 70k on your home loan for a Merc c200 which may only add a $100 to your monthly home loan repayments doesn' seem like a big deal.

Problem with financing a car through a mortgage is that it can take you 20 years to pay off the loan rather than 3-7 like traditional loans.
Unless you're disciplined and pay the extra $500/m or whatever it might be week in and out until the car is paid off.

 

[Scotland]

Problem with financing a car through a mortgage is that it can take you 20 years to pay off the loan rather than 3-7 like traditional loans.
Unless you're disciplined and pay the extra $500/m or whatever it might be week in and out until the car is paid off.

Car loan finance will be a substantially higher interest rate, though.

If you are borrowing $70k @ 12% on a 5 year term then you are paying back about $23.5k in interest over that time. If you take $70k out of equity with an interest rate of 5%, the to pay it back in 5 years will cost you about $14k less in interest. In fact if you paid back half as much each month as required by the 5 year car loan you'd have the $70k paid off in under 10 years having paid less interest.

You are right if you don't have the financial discipline to do this it can be risky, but really car loans and any other high interest finance should be avoided at all costs.