Do you take out a car loan?

DukeDredd

Just wanted to get an idea about what people do when replacing their cars - do you take out a loan or save over time and pay without one? Or a bit of both maybe?

bonzai bob

i got a loan to cover my car and part of my insurance as well as a few other things, that was last summer, i'm still paying it now, it's a pain in the arse, but i would assume most people would get a loan, it's too much money to save. I'd say some people do save for their dream car or something, but probably only enough to pay off a reasonable sized deposit to cut costs on paying back a loan.

Spocker

I used to have a car under finance but switched to a loan when I changed in January - is wasn't waaaay cheaper (just a little bit) but the big advantage to me was that it's a variable rate personal loan (as opposed to a motor loan, which has a fixed rate) so I can overpay when I have the spare cash and clear it off that little bit earlier....

prospect

I own one car outright. I save up about 6-7 grand over two years and upgrade.
My second car was bought on a credit union loan, which is nearly repaid. But I have no plans to change it for a long long time.

DubTony

A good financial advisor will tell you not to borrow money for things that reduce in value or are useless once used i.e. holidays. People borrow for couches ffs. A €15,000 car with added interest and depreciation could easily cost €25,000 over 5 years. Sell it after 5 and take the €7,000 and start again.

So no, you shouldn't borrow. But then, it's a car you're buying and it'll make you feel good, and when you feel good you'll be happy, and healthier, and everyone will like you when you're happy, and you'll make more friends, and you'll be popular, and you'll be happier and when you're happier more people will be your friends .... WOW !!!! GET A LOAN !!! GET IT FAST !!!

Spocker

DubTony wrote:

A €15,000 car with added interest and depreciation could easily cost €25,000 over 5 years. Sell it after 5 and take the €7,000 and start again.

Can't remember the last time I had €15,000 lying around - oh no I know now, I never did

Sad to say but borrowing is the only way to go for most people....

ando

I'm be supprised most ppl take loans, in my experiance ppl pay outright, ive never taken a loan and I'm not on a fantastic wage, just dont drink that much and dont smoke and your sorted

blastman

I've got two cars at the moment, and apart from a little extra on my credit cards (which will be cleared in a couple of months), I don't owe anything on either of them. Mind you, I didn't pay anything like €15000 for both, let alone either one of them.

Dizzyblabla

The difference is, if you get a loan, you can get it NOW... if you save, you have to wait 2-4 years (depending on wage and how much you want to save up) When saving, you can always dip into them, but if you're paying off a loan, you HAVE to pay it every week or every month, unless you're very good with money, I'd go with the loan!!

prospect

Agreed.

You have to be very careful taking a loan, here is a simplistic example:
If you borrow €20K to buy a car at 9%apr over 5 years, you'll repay €29K in total.

After three years, your car is probably depeciate by at least 50%, so is now worth, €10K. But having only made 36 payments out of 60, you still owe the financial institution over €11.5K. You are now in negative equity, (you owe more than the value of your purchase).

I would suggest part financing the purchase of the car, but purchase outright if possible. Or alternativly, use a credit union loan, and pay as much as possible against it, as often as possible, as a credit union will not penalise you for paying off the loan early.

Cheers

DubTony

Another thing to be careful of when borrowing is leasing. A leased car remains the property of the leasing company until the very last payment is made. You own no equity in the car whatsoever. They will also charge extortionate amounts if you want to "pay it off" early.

If you have an insurance claim, the insurance company is quite within it's rights not to pay you the VAT element of the claim as the car belongs to a VAT registered leasing company. If it's a €10,000 claim (write-off maybe) the insurance company will definitely not pay the VAT. On 10k thats over €1700. Don't be fooled by the fact that the piece of paper from the VRO has your name on it - it's not your car.

unkel

Never bought a car on a loan. I save up about €6000 depreciation over 3 years. If I'm a bit short, I use my overdraft to finance whatever amount is needed

prospect wrote:

You have to be very careful taking a loan, here is a simplistic example:
If you borrow €20K to buy a car at 9%apr over 5 years, you'll repay €29K in total

It's not that bad, you'll repay about €25k not €29k

Dades

Borrowing is saving.

Your car will depreciate whether you bought it with a loan or not.
Just try to keep the term short, and pay off chunks when you have the chance.

prospect

unkel wrote:

It's not that bad, you'll repay about €25k not €29k

Nit-Picker

halkar

DubTony wrote:

....
So no, you shouldn't borrow. But then, it's a car you're buying and it'll make you feel good, and when you feel good you'll be happy, and healthier, and everyone will like you when you're happy, and you'll make more friends, and you'll be popular, and you'll be happier and when you're happier more people will be your friends .... WOW !!!! GET A LOAN !!! GET IT FAST !!!

I agree 1000% There are cheap loans if you shop around, last loan I got was 6% for motor loan

Stephen

Heh, my ma working in AIB has its advantages, such as ultra-low rate loans
I paid for my Virago 125 + insurance back in 2001 with such a loan. Admittedly it was only for about 3000 pounds, but the interest only cost me a couple of hundred and there was no penalty for paying it off early, etc.

Dagon

I saved up for my car and insurance over a year. I don't drink or smoke, and eat out very rarely, so I found ot very easy to save. Then I blew my money on a good quality car (€7000) + insurance + small mods. I thought this was a good idea but..

my brother in law who works in the local credit union reckons what I did was a bad move. He says it would have been better to have gotten a loan from a bank anyway (even to pay for 30 or 50% of the car), as this helps to give you a good credit rating. He also said I could have gotten a small loan from the credit union to pay for part of the car too (along with the other loan) and this will be a positive mark on your book, as it shows you are credit worthy and have a good credit rating. Along with getting a good rep with the banks / credit unions you will also have more cash in your bank account. And the interest/apr isn't that high because the loans weren't that big anyway, just part of the total cost of the motor.

Wish they has told me all this before I bought the car, because my bank account is quite low now!!

But what the heck, I have no debts and my car is running great

peasant

I'm stingy ...I don't get loans.
If I can't pay for something outright (possibly with a large discount for doing so) I can't have it.

No debts, no worries

(no new cars either, though)

byte

My current car was bought on loan, my upgrade will also be bought with a loan. I find it hard to save that much money, but have no problem paying back repayments. Odd, I know. I wish I could save properly (though I do have SSIA account)...

Farls

I've paid for 2 cars with credit union loans and one with a bank loan. I'm currently paying back a CU loan for my current car and i'll get another one for my next car.

I always pay back the loans a lot sooner and I have no problem getting large loans now if I want which is brilliant especially if I want a mortage i'll have a very good credit rating.

Everyone i know uses the CU to buy their cars, its excellent for those of us who want something NOW and CAN pay for it later .

Farlz

mike65

I've never borrowed for a car which proberly explains most of my choices!

I'm a bit Scottish in that respect - "never a borrower or a lender be"

Mike.

Cyrus

i dont get it lads, it makes sense to borrow with interest rates so low, i got 9k loan, itll cost me 550 over 3 yrs,

how is that not a great deal, by buying outright you are wasting equity

you could invest that money and make more out of it

Dades

Absolutely.

And anybody who says borrowing and paying interest is a waste of money, but buys a new car needs to re-think their financial strategy.

lomb

a *good* car is a discretionary purchase. anyone can nearly buy a cheap car. as such its something that should b bought with cash as its too tempting to borrow so the answer with me is no i bought my car.

DubTony

Cyrus wrote:

i dont get it lads, it makes sense to borrow with interest rates so low, i got 9k loan, itll cost me 550 over 3 yrs,

how is that not a great deal, by buying outright you are wasting equity

you could invest that money and make more out of it

I assume the €550 you mention is the total amount of interest you pay. Nice deal considering I borrowed €9000 18 months ago with total interest of €798 over only 2 years.

As for your investment advice. I'm not so sure about that. I don't know of any financial products that will pay you €550 in interest over that period on that amount. So by borrowing and paying interest you're actually losing money, because there is nothing on the market that will pay you more in interest than you've spent.
And that's before you factor in depreciation on the car. The fact is that most people can't afford to buy a car without borrowing (myself included) but to promote the borrowing of money for what is effectively a liability is silly.

A bit like a government borrowing to pay social welfare payments. Surely a government would never do that.

Simple rule. Borrow money for things that will increase in value. Don't borrow for things that lose value.

Cyrus

But if the interest rates are reasonable why dilute your capital by paying out a huge chunk on a depreciationg asset instead of spreading the cost of that asset (Or liability whichever u like ) over a longer period.

If its only costing me 550 over three years to borrow to buy my car imo it makes better sense to borrow the money leaving my savings etc available for a deposit on a house or to buy shares.

Squirrel

You also need to think that you are in Debt for something worth 9K which when you have paid it off could be worth only 3K, personally, I'd prefer to pay outright when it comes for me to buy a car but that isn't for some people

lomb

its a bad idea not because it makes poor sense from the point of view of an 'investment' but because if u borrow u will end up buying a dearer car than u can afford. like i said u can get a roadworthy ship for a couple of grand, why bother borrowing 25 grand if u dont have it?

derek27

op...
it would depend on the value of the car you would like to buy. i would never recommend anyone going into debt unless they are in a stable job and can easily afford the repayments for the agreed term of the loan. also, if you have the money to buy the car outright, then why not. i personally feel that since the NCT requirements were initiated here, you can purchase a perfectly good used car for a very reasonable amount of money. the depreciation on a new car is ridiculously high in the first 2 years of use, and i personally wouldn't buy a new car unless i was disgustingly rich. my boss of a number of years ago purchased a brand new BMW 316i and in the first six months of use it was off the road 3 times... after which you could almost say he discarded it for half what it was worth and vowed never to buy BMW again. thinking about that... if a car is going to have a problem due to flaws during manufacture, they will occur in the first 10K of use. also think about the insurance cost @ comprehensive. so let rich people buy a new car... encounter all the initial problems with it... drive it for 2 or 3 years... then sell it to you in perfectly good condition for say oh half the price! last car i bought was a 97 1.5 honda civic Lsi 5 door for €3800. 62K on the clock. looks immaculate inside and out, and i haven't encountered a single problem with it yet. and to refer to your initial question... i saved for mine!

Macy

Credit Union loan for me. Credit union would be more flexible if you were struggling with repayments, as well interest being on a reducing balance basis rather than a fixed amount. End of the loan = a nice amount in shares for another loan. Also it's a work credit union, so money goes straight away - don't even see it in my bank account so don't miss it.

When you've got a mortgage in this country, car loans pale into insiginificance...

Cyrus

lomb wrote:

its a bad idea not because it makes poor sense from the point of view of an 'investment' but because if u borrow u will end up buying a dearer car than u can afford. like i said u can get a roadworthy ship for a couple of grand, why bother borrowing 25 grand if u dont have it?

Why not live in a hut because u cant afford a house?

People buy nice cars because they love them

lomb

Cyrus wrote:

Why not live in a hut because u cant afford a house?

People buy nice cars because they love them

Because a car is a wasting asset and even a porsche is a piece of sh!t of a buy.
a house, the older it gets the more its worth. the piece of crap townhouses in ranelagh that wouldnt be fit to house a dog are worth 20 porsches. and in 10 years they will probably be worth 30 porsches.

of course cars make u feel good, but if u put a disproportionate amount of your money into cars u will b an unhappy camper in 15 years or come retirement.

DubTony

Cyrus wrote:

Why not live in a hut because u cant afford a house?

People buy nice cars because they love them

In 1981 my folks bought a 4 bedroomed detached house in Templeogue for £45,000. You could have bought 2 of those houses for what the top of the range Mercedes was at that time. Today that house is worth €700,000 (£550,000).
How many new Mercs could you buy for that. And how many 1981 Mercs could you buy for that?

While I agree that most people borrow to buy a car (most are too expensive to pay cash), it still doesn't make it financially sound.
If you have to borrow, the credit union is probably the best option, as they actually give you something for your money. But you do have to have a savings record with them before they'll lend.