Buying a Car: How Much Is Too Much To Spend?

John.Smith

This sounds like a weird question, and in a way it is. But bear with me till I explain. (This is a question for the car lovers, the people who'll appreciate a nice motor, not just the people who think we're all insane for spending money on a car, and it's just there to get you from A to B!)

I'm gonna buy a new car in the next few weeks. Probably not new new, but about a '08, so new for me. I sort of have a set budget in my head, but now and then I come across a really good deal and I think "I'd buy that". For example, one car I'm looking at now is lovely, would really suit me, but it's 20% over budget.

I'm planning on paying for half the car now, and taking a loan out for the other half, paying it off over two years. I'm wondering though what you think is too much to spend on a car. Now I know it'll be different for everybody, but in general, for the car lovers out there - is there a rule of thumb you use, e.g. a quarter your take home salary, spread out over three years? Whaddya think?

MagicMarker

Too much is what you can't afford.

positron

If you have to take a loan to pay for the car, it's too expensive for you - that's just me though.

Nonoperational

Exactly. Buy something that leaves you with managable loan repayments and have savings of a years loan repayments incase you get laid off etc. There could be always unforeseen costs/problems so don't stretch yourself too thin.

I think a loan isn't always a bad thing. It can be sensible at times.

Atomic Pineapple

Most important question - Whats the car? Only knowing that will allow me to answer

Anan1

positron wrote: »

If you have to take a loan to pay for the car, it's too expensive for you - that's just me though.

Same here.

exaisle

Something that costs 20% more than budget isnt "a really good deal".

Something that cost 20% less than budget is.

Always err on the side of caution. It's people who have bought stuff for 20% over budget that has us in the mess that we're in! ;-)

Guy:Incognito

Anan1 wrote: »

Same here.

meh. TBH theres no difference between saving for 5 years then buying a new car and buying it now with a loan and payign for it over 5 years.`If your happy to pay some interest to have the car now rather than in 5 years, I really dont see the problem.

Anan1

Stekelly wrote: »

meh. TBH theres no difference between saving for 5 years then buying a new car and buying it now with a loan and payign for it over 5 years.`If your happy to pay some interest to have the car now rather than in 5 years, I really dont see the problem.

I've had this out before with people, it tends to polarise opinions. My reasoning is that I see a car as somewhere between a consumable and a heavily depreciating asset. As such, i'd put borrowing for a car in the same category as borrowing for a holiday. Like I said, though, that's just me.

John.Smith

I hear what you're saying, but some people view a car as more than just a consumable i.e. some people are really into their cars and are willing to spend a little bit extra on them, much like other people chose to spend a little bit extra on fancy clothes, the latest iPad and so on...

SV

Anan1 wrote: »

As such, i'd put borrowing for a car in the same category as borrowing for a holiday.

that's a great way of putting it and kinda changed my opinion slightly on it.

way I look at it though, with the car it's always something thats there..so I don't mind paying it off, whereas the holiday is nothing but a memory.

ShadowHearth

right this bullshiz about 20%....


I personally dont mind to take 2-4k eu loan for a car if it over my budget. ( 20%)

i wouldnt take out a loan for 10k eu++ to buy a car. Specially if i need to drop my savings in to it.


Short answer from me: Its too much, if you have to spend all of your savings and take a loan for it.

Its not "too much", if you buy a car, and you have some savings left.

Damn even if a have enought money to buy particular car, i will take a loan, so i would stay with some money incase something bad happens.

Anan1

John.Smith wrote: »

I hear what you're saying, but some people view a car as more than just a consumable i.e. some people are really into their cars and are willing to spend a little bit extra on them, much like other people chose to spend a little bit extra on fancy clothes, the latest iPad and so on...

I know what you mean. I suppose i'm lucky in that the cars I like cost a lot to run, but not necessarily that much to buy.

bmw535d

you only live once so spend as much as you possibly can with reason. or you could get a cheaper car and spend money on that over the years when you have it to spend?

vectra

Anan1 wrote: »

My reasoning is that I see a car as somewhere between a consumable and a heavily depreciating asset.

You mean like smoking and drinking?

I would prefer to throw 100 per week on a nice car rather than sit on a high stool in the local and Pi$$ it against the wall later

*Kol*

Anan1 wrote: »

My reasoning is that I see a car as somewhere between a consumable and a heavily depreciating asset. As such, i'd put borrowing for a car in the same category as borrowing for a holiday. Like I said, though, that's just me.

Cars are just consumables that lose their value as has been rightly said, however there is an intangible value that really can't be quantified when you are talking about cars that belong to "car lovers". It negates the amount of money spent or the fact that a loan has been taken out to support thier interest.

Borrowing for a car doesn't mean that's it's too expensive for you. It just means that you don't have available the necessary cash at the point in time you wish to buy the car. That's waht credit is for and if used sensibly there would be no problem (in an ideal world). I have had loads of motor loans and sometimes I take one out even if I do have the cash to allow me to use the money elsewhere.

I would say to the OP to take out a loan that you can afford to pay back over 3 years. Money is cheap at the moment. That will determine your budget figure for you.

positron

Sure, I agree the argument that credit a useful tool for someone who want to be clever with their finances, but from general Joe Soap's of dilemma of "I have only X saved up, would I borrow another Y and spend it all on this car", my personal belief is that the person is trying to spend beyond their means - and in the simplest of terms - not taking a loan to spend on something that rapidly depreciates - is a good rule of thump... again, it's just my view - horses for courses and all that too..

vectra

positron wrote: »

, my personal belief is that the person is trying to spend beyond their means - and in the simplest of terms - not taking a loan to spend on something that rapidly depreciates -.

You mean like the hoards of people in this country that suddenly got too big for their boots during the boom and borrowed up to their necks to have a bigger house than their friends.. To suddenly find they are now in negative equity.:rolleyes:

Easier to pay back for a car over a couple of years than lose you the banks house.

bazz26

vectra wrote: »

You mean like the hoards of people in this country that suddenly got too big for their boots during the boom and borrowed up to their necks to have a bigger house than their friends.. To suddenly find they are now in negative equity.:rolleyes:

Easier to pay back for a car over a couple of years than lose you the banks house.

The difference between property and a car though is that the value of a car only goes one way until it becomes worthless, whereas the value of property has the ability to go up as well as down.

Tea 1000

I don't like car loans personally, prefer to own outright what I have, but in the past when I did have a car loan my rule of thumb was that what ever percentage of the car's value I was borrowing for, make sure that at any point in time during that loan that if I loose my job or means to pay back the loan to always be in a position where the amount I owed was significantly less than the current market value of the car, so that I could just sell it, clear the loan, and have a grand or two to buy a run-around until I get back on my feet. For me, that would mean on a 15k car to have about 10k saved. That way in a years time, even if things were crap, I'd owe maybe 4k left, but the car should still be worth 12k, or at worst 8 or 9k in an emergency sale.
Basically never leave yourself in a position where your back is to the wall over an item you don't absolutely have to have.
There's a lot of nice cars for 10k!

lfp

I love these types of money questions. Here are some figures I came up with from a quick google.... And yes, I am a nerd!!!!

Economic Edge website
Percent of Annual Income To Spend on a Car
As a general rule, do not spend more than one-third of your annual income on a car. In fact, I suggest spending a lot less than one-third.
You can find a good-looking, reliable, used vehicle for $6,000-$7,000. Unless you spend lots of time in your car, it’s better to buy “the-most-reliable-combined with-least-expensive” vehicle you can find. You need something that gets you from Point A to Point B reliably, safely, and consistently.
If you decide to purchase an expensive car (as a special treat to yourself), pay for it with cash. Don’t finance it.

Generla info from forums.......
Some say between 25% to 50% of Gross annual salary is the amount you should spend on buying a car. Living at home, no commitments allows 50%. Bills/mort etc. would push to 25%

Other forums went dowm the % of debt payments per month. A very common figure was 36% of income should go on loans. So, if your rent/mort comes to 25%, and assuming you have no other loans (credit card etc.) then you you have 11% for a car loan. If your debts without a car loan comes to 36+% of your income - no car loan at all....

Other sites argued on a % of income on "car costs" that includes insurance, tax, servicing, fuel and car loan. Some sites went with 10% of annual income, others up to 25%..... When you factor ii all costs listed, 10% wouldn't leave you with much for car loan repayments.... An example

---

1.8l petrol car as an example (Mondeo, Vectra, Primera type car)
ins and tax - 1k.
servicing and mantenance - 1k (tyres, the odd breakdown cost etc.)
fuel - 200 per month = 2.4k a year
All of my costs above could be disagreed with, but they are average enough. Total cost without car loan is 4.4k. So someone on 44k a year has no room for a car loan on the 10% rule.........

There you go!:cool:

ToxicPaddy

Tea 1000 wrote: »

..what ever percentage of the car's value I was borrowing for, make sure that at any point in time during that loan that if I loose my job or means to pay back the loan to always be in a position where the amount I owed was significantly less than the current market value of the car, so that I could just sell it, clear the loan, and have a grand or two to buy a run-around until I get back on my feet. For me, that would mean on a 15k car to have about 10k saved. That way in a years time, even if things were crap, I'd owe maybe 4k left, but the car should still be worth 12k, or at worst 8 or 9k in an emergency sale.
Basically never leave yourself in a position where your back is to the wall over an item you don't absolutely have to have.
There's a lot of nice cars for 10k!

Good advice there mate..

I personally never get a loan for a car that leaves me having to pay more than 10% of my monthly income in repayments each month.. But then again I have a mortgage, bills etc, maybe the OP doesnt..

Even then I never buy new cars and usually drive them until they cant drive anymore..

OP remember, that the cheapest part of getting a car is buying it..

Maintaining, taxing, insuring and running it usually add up to probably more than the replayment of the loan on a annual basis..

Do the sums, get quotes for insurance, tax, fuel usage etc.. and see if you can afford it..

If you think you'll be keeping the car for a short period of time, 1-2 years, then make sure you can comfortably cover the loan in that period.. sooner if possible..

Tox

positron

vectra wrote: »

.. borrowed up to their necks to have a bigger house than their friends.. To suddenly find they are now in negative equity.:rolleyes:

Easier to pay back for a car over a couple of years than lose you the banks house.

Like already posted here, property and car are not comparable. There is no doubt that the cars will depreciate where as property (although it looks unlikely) may stay where it is or appreciate in medium term, and will certainly hold it's value and/or appreciate in long term (with inflation).

I suppose how much you spend on cars has to be directly proportional to how functionally important the car is to you. If your source of income is based on having a reliable car, you should spend more on that, than say cloths or eating out etc. It all depends really..!

vectra

bazz26 wrote: »

The difference between property and a car though is that the value of a car only goes one way until it becomes worthless, whereas the value of property has the ability to go up as well as down.

People that went mad and borrowed 110% will never see their money back
Property is a dead donkey.
A car has a lot less value to lose.
I say borrow for the car and enjoy.

bijapos

Tea 1000 wrote: »

I don't like car loans personally, prefer to own outright what I have, but in the past when I did have a car loan my rule of thumb was that what ever percentage of the car's value I was borrowing for, make sure that at any point in time during that loan that if I loose my job or means to pay back the loan to always be in a position where the amount I owed was significantly less than the current market value of the car, so that I could just sell it, clear the loan, and have a grand or two to buy a run-around until I get back on my feet. For me, that would mean on a 15k car to have about 10k saved. That way in a years time, even if things were crap, I'd owe maybe 4k left, but the car should still be worth 12k, or at worst 8 or 9k in an emergency sale.
Basically never leave yourself in a position where your back is to the wall over an item you don't absolutely have to have.
There's a lot of nice cars for 10k!

+1
Best advice you'll get. Unless you are in a guaranteed state job this would be the only way to go. Personally have owned over a dozen cars in my life and have never borrowed a cent but thats a personal choice. If you do want to borrow money the above is the best criteria.

*Kol*

vectra wrote: »

People that went mad and borrowed 110% will never see their money back
Property is a dead donkey.
A car has a lot less value to lose.
I say borrow for the car and enjoy.

But they still have a roof over their heads (as long as they keep paying!!). Remember you will only get your money back from a house if you sell it (and you still have to buy another house with that money). Plus they will have the house for ever. Pity the same can't be said for cars!!

But I agree. Borrow and enjoy the car.

2kool4skool

See if you (or any or your mates) knows someone working in a bank or car finance business. If so, contact them and tell them the type of car you were thinking of buying and mention a figure if asked of about 30 - 40 % less than what you would expect to pay on the open market. At the present time a lot of the banks and finance houses have numerous cars on foot of which payments are not being made but they are not repossessing them unless they have a buyer as the dealers don't want 2nd hand cars that they can't sell at the moment. They are pretty desperate to cut their losses. New car sales are already above last year's figures though so that should slowly lift second hand car prices.

bazz26

vectra wrote: »

People that went mad and borrowed 110% will never see their money back
Property is a dead donkey.
A car has a lot less value to lose.
I say borrow for the car and enjoy.

Yes, the intital amount borrowed on property will be higher over that of a car but over time property will still have a value whereas a car will not.

A car is like a tv or computer, it is a consumable and steadily depreciates until it has zero value or is disposed. Property on the otherhand doesn't and will always have a value, that value will increase or decrease depending on market demand and economic condititions.

The fact is though that during the boom times alot of people got carried away on both fronts and borrowed on the strength of what they could afford to pay back at the time. They didn't give any thought or consideration to the idea of not having the same financial security the following day.

Anan1

vectra wrote: »

You mean like smoking and drinking?

I would prefer to throw 100 per week on a nice car rather than sit on a high stool in the local and Pi$$ it against the wall later

Health benefits aside, I don't see a lot of difference between the two.

Atomic Pineapple

Anan1 wrote: »

Health benefits aside, I don't see a lot of difference between the two.

Your money turns into piss or smoke one way and into a nice shiny machine capable of propelling you at speed around the country

Anan1

draffodx wrote: »

Your money turns into piss or smoke one way and into a nice shiny machine capable of propelling you at speed around the country

Either way, you're paying for pleasure. Cars, alcohol, cigarettes, hookers - all have their following, in spite of none being financially sound investments.

JimmyCrackCorn

Anan1 wrote: »

Either way, you're paying for pleasure. Cars, alcohol, cigarettes, hookers - all have their following, in spite of none being financially sound investments.

Car is a liability not an investment.

Shane732

JimmyCrackCorn wrote: »

Car is a liability not an investment.

Most accountants would disagree with you.

A car is an asset - a wasting asset.....

JimmyCrackCorn

Shane732 wrote: »

Most accountants would disagree with you.

A car is an asset - a wasting asset.....

A nice way of saying it costs you money and it worth nothing or almost nothing at the end.

Shane732

One thing I always look at is how much it's going to cost of the space of 2 - 3 years.....

For example in theory you could spend €100k on a car and get €85k when you sell it on. You could spend €40k on a car and only get €20k when you sell it on. Which has cost you more?

There's numerous variables to take into account such as servicing etc... but I don't think it's right to go in with a mindset of this car is €20k therefore I'm spending €20k. In most cases people trade in after 3-4 years, it's very unlikely that you won't get anything back out of it. It's amount finding something that you'll enjoy and something with decent residuals.

Also how much is your enjoyment worth? Sure, I could be driving around in a 1.2 Skoda but is that going to give me any level of excitement every time I sit into it?

Spend what you think is right on a car not what other people tell you is right. If you have the capacity to meet loan repayments with ease over a number of years then why not spend it on a something you'll enjoy? You can't bring the cash with you....

Shane732

JimmyCrackCorn wrote: »

A nice way of saying it costs you money and it worth nothing or almost nothing at the end.

Nothing or almost nothing? That's extremely negative. The last car I sold cost me about €1,800 in depreciation, which was less than 10% of the value of the car. That was over an 18 month period.

omega man

JimmyCrackCorn wrote: »

Car is a liability not an investment.

So then does the same apply to the human body? If you look after yourself you can have good fun over many years even though the older the body the less its 'worth'! Some things in life just cant be measured that scientifically. Ok dont be reckless, particularly if your actions (debt etc) can impact on your family's quality of life etc but dont deny yourself a little pleasure now and then, car loan or no car loan.

JimmyCrackCorn

omega man wrote: »

So then does the same apply to the human body? If you look after yourself you can have good fun over many years even though the older the body the less its 'worth'! Some things in life just cant be measured that scientifically. Ok dont be reckless, particularly if your actions (debt etc) can impact on your family's quality of life etc but dont deny yourself a little pleasure now and then, car loan or no car loan.

Yep older it gets the more stuff i break.

Shane732 wrote: »

Nothing or almost nothing? That's extremely negative. The last car I sold cost me about €1,800 in depreciation, which was less than 10% of the value of the car. That was over an 18 month period.

Still an expense not an asset. That being said im taking on a 4k loan for a car in the next few months. I dont see it as an asset. Its a liability.

Stuff either makes you money or costs you money.