Buying cars using credit/finance...

[tranquilized]

Thinking about it, whether it's car finance, credit cards, interest free, whatever type of finance there is available and these days there's a lot available - it all comes down to discipline. It's an incredibly useful tool in a lot of different ways.

Credit cards for instance - my partner and I both have one of those AMEX/Visa combo cards hooked up to Qantas frequent flyers. Meanwhile we have an offset account for our mortgage. Every single item we buy goes on those credit cards - drinks at the pub are put on a tab and paid for on credit, every supermarket trip, every litre of fuel, every utility bill - all on credit. Meanwhile every dollar we earn goes straight into the offset account saving us hundreds each month in interest, and we're earning loads of flyer points on the side. A direct debit is set up to pay all the cards off in full on the due date. This setup is actually recommended by the banks. It works really well for us, but unless you're diligent in paying off those cards in full each and every month there is potentially a huge trap there waiting to swallow you up.

Can't pay cash means you can't afford it? We pay cash for almost nothing!

[Yellow_Festiva]

Originally Posted by tranquilized

Thinking about it, whether it's car finance, credit cards, interest free, whatever type of finance there is available and these days there's a lot available - it all comes down to discipline. It's an incredibly useful tool in a lot of different ways.

Credit cards for instance - my partner and I both have one of those AMEX/Visa combo cards hooked up to Qantas frequent flyers. Meanwhile we have an offset account for our mortgage. Every single item we buy goes on those credit cards - drinks at the pub are put on a tab and paid for on credit, every supermarket trip, every litre of fuel, every utility bill - all on credit. Meanwhile every dollar we earn goes straight into the offset account saving us hundreds each month in interest, and we're earning loads of flyer points on the side. A direct debit is set up to pay all the cards off in full on the due date. This setup is actually recommended by the banks. It works really well for us, but unless you're diligent in paying off those cards in full each and every month there is potentially a huge trap there waiting to swallow you up.

Can't pay cash means you can't afford it? We pay cash for almost nothing!

Exactly what we do.

Works very well and beats the banks at their own game but you need to be VERY disciplined!

[Honest Gaza]

I can't believe that so many people have a spare $30k to $60k laying around that they don't need to finance.

I've had many cars (used and new) and they have always been financed in one way or another (eg Personal Loan, Novated Lease, Dealer Finance). I think the key here is no different from any other purchase. As long as you can afford the payments and live within your means, then why not ?

[blueoval]

Originally Posted by Yellow_Festiva

Exactly what we do.

Works very well and beats the banks at their own game but you need to be VERY disciplined!

Originally Posted by tranquilized

Thinking about it, whether it's car finance, credit cards, interest free, whatever type of finance there is available and these days there's a lot available - it all comes down to discipline. It's an incredibly useful tool in a lot of different ways.

Credit cards for instance - my partner and I both have one of those AMEX/Visa combo cards hooked up to Qantas frequent flyers. Meanwhile we have an offset account for our mortgage. Every single item we buy goes on those credit cards - drinks at the pub are put on a tab and paid for on credit, every supermarket trip, every litre of fuel, every utility bill - all on credit. Meanwhile every dollar we earn goes straight into the offset account saving us hundreds each month in interest, and we're earning loads of flyer points on the side. A direct debit is set up to pay all the cards off in full on the due date. This setup is actually recommended by the banks. It works really well for us, but unless you're diligent in paying off those cards in full each and every month there is potentially a huge trap there waiting to swallow you up.

Can't pay cash means you can't afford it? We pay cash for almost nothing!

The banks are relying on that very thing though. There are ones like you out there which they will happily accept, but for every disciplined person out there is 20 non disciplined people who only pay the bare minimum and get caught out. Therefore locked into a maze of debt for a very long time. This is where the banks win.

[Polyal]

Originally Posted by blueoval

The banks are relying on that very thing though. There are ones like you out there which they will happily accept, but for every disciplined person out there is 20 non disciplined people who only pay the bare minimum and get caught out. Therefore locked into a maze of debt for a very long time. This is where the banks win.

Absolutely, mind you I do the exact same thing and get annoyed when they dont accept AMEX..LOL

We generally score a "free" flight for the family over Christmas based on normal consumption for simply buying stuff I would normally anyway. I dont go out of my way with points promo's though.

[blueoval]

Originally Posted by Polyal

Absolutely, mind you I do the exact same thing and get annoyed when they dont accept AMEX..LOL

We generally score a "free" flight for the family over Christmas based on normal consumption for simply buying stuff I would normally anyway. I dont go out of my way with points promo's though.

Yep. I also am an Amex user. 2.5 times the points I can use at flight center or whatever. Over the course of a year we can save about $1200 worth of points which is great incentive to use it for almost everything as long as the vendor has the Amex facility and doesnt charge a % to use it.

[tranquilized]

That's why the AMEX/Visa combo cards are the way to go - 2 cards, 1 annual fee. Use the AMEX whenever possible, Visa every other time. It's never worth paying merchant fees for a few extra points.

[Yellow_Festiva]

Originally Posted by blueoval

The banks are relying on that very thing though. There are ones like you out there which they will happily accept, but for every disciplined person out there is 20 non disciplined people who only pay the bare minimum and get caught out. Therefore locked into a maze of debt for a very long time. This is where the banks win.

The banks aren't the customers best friend when they allow computers to do the calculations!

I had a bit of a chuckle when I saw this on the back of one of my CC statements:

[blueoval]

Originally Posted by tranquilized

That's why the AMEX/Visa combo cards are the way to go - 2 cards, 1 annual fee. Use the AMEX whenever possible, Visa every other time. It's never worth paying merchant fees for a few extra points.

I have the AMEX/ Master card combo ;)

[xisled]

Originally Posted by Yellow_Festiva

The banks aren't the customers best friend when they allow computers to do the calculations!

I had a bit of a chuckle when I saw this on the back of one of my CC statements:

image

I remember when these changes were put in place and credit card companies were forced to put this on the statement.

The above just makes the whole system a joke.

[Honest Gaza]

Originally Posted by xisled

I remember when these changes were put in place and credit card companies were forced to put this on the statement.

The above just makes the whole system a joke.

Why ?

Surely there is a level of ownership on the person taking out the loan to use common sense.

As an example, if you take out an Interest Free Loan for 36 Months for $5,000...then common sense tells you that you will need to pay $5,000 divided by 36 per Month. It ain't rocket science and yet so many people are amazed at the balloon at the end because they paid the minimum monthly payment.

(Yes, I am aware of the Monthly Account Fee and this should also be accounted for by the rocket scientist)

[mcflux]

I've placed an order for a vehicle, ~$45k driveaway. Unfortunately I can't novate it due to its specifications, but it's the vehicle that suits my needs, and I intend to keep it for a decade.

Two options I've done the sums for have been:

1. $15k straight out of the mortgage (currently 4.95%, no fees), $30k financed over 7 years (5.9%, $5/month fee, ~900ish initial misc setup fee crap)

2. $45k straight out of the mortgage.

Over 7 years the overall additional cost of the finance is ~$2500, or ~$350/yr compared to simply taking it all out of the mortgage. Let's round that up & call it $1/day. This is based on sticking to payments over the full 7 years.

I haven't committed to either finance option as the vehicle's still a couple of months off, but in my case it looks like the finance option may be the better one. It "gives me an extra $30k" right now by keeping it in my mortgage, for investment or flexibility, or just to get closer to knocking off the mortgage.

My job is very stable & I can currently easily pay in excess of my mortgage (& this 7yr loan's) minimum payments. Also my mortgage has a variable rate, & who knows where interest rates will be in 7 years...

I'm aware the finance setup fee & $5/month could effectively be re-calculated as an interest rate & it probably turns 5.9% into >7%, but for the initial flexibility over the first year or three, it's worth paying more overall, later.

Each to their own really, everybody's situation is different.

I bought my first two cars with cash I'd saved up. I could have paid cash for my last car but took out a loan so I had good credit history prior to my mortgage. This left extra $$$ in my savings so I had the 20% deposit needed to avoid mortgage insurance & secure a better deal through the bank. Yes, the car directly cost me more to pay off due to finance, but overall saved me a hell of a lot through the purchase of the property.

I used to hate debt & treated it as an enemy. Now I just use it as a leverage tool - provided I keep the upper hand.

[LeadFoot81]

Originally Posted by Loud_Noises

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.

I used to be of the opinion that paying cash for a fairly cheap 10ish year old car was the way to go (over buying new with a big loan and copping interest)

Then I discovered the joys of owning a late model car.

However, instead of buying brand new (2010 model) through a dealership and accepting their 'best rate' on finance, I tracked down a 12 month old example (which cost a third less than a brand newie) and got a finance broker to chase down the legit best rate. The loan was on a 5 year term, however I wrapped it up in 24 months. With all said and done, I still didn't pay as much as the (haggled) price on a brand new example (let alone interest on top of that); and in 2013 I had the same 3 year old car as someone who bought new in 2010, but paid much less.

I ended up trading that car on a brand newie that I had to have (still got a great interest rate through my broker) but if I 'd kept the original long term (5-7-10 years), it would've been a ripper deal overall.

I chose finance because I wanted to keep the funds free. I see the interest (and associated fees) I paid on my purchase as basically paying for the privilege of extra liquidity.

As thrifty as I am, I wouldn't change the purchase of the new car (Fiesta ST) for anything. Sometimes, if you really want something you have to accept the terms and charges and factor them into the purchase (I did get a great price on trade in, and a good price on the ST).

I can afford the repayments, I'm keeping this baby long term, and I won't meet my maker thinking 'what if'.

[Yellow_Festiva]

Originally Posted by Honest Gaza

Why ?

Surely there is a level of ownership on the person taking out the loan to use common sense.

As an example, if you take out an Interest Free Loan for 36 Months for $5,000...then common sense tells you that you will need to pay $5,000 divided by 36 per Month. It ain't rocket science and yet so many people are amazed at the balloon at the end because they paid the minimum monthly payment.

(Yes, I am aware of the Monthly Account Fee and this should also be accounted for by the rocket scientist)

Yes and no.

If Commbank suggest a minimum monthly payment that takes 130 years then they are in the wrong to give a figure that is IMPOSSIBLE to achieve.

They need to factor into the calculation that the balance must be paid off within 20 years (or even 15 years) and then work backwards from there.

I think they drag it out like that because they are getting their 20% interest and the smaller the minimum figure is the more interest they get.

[Big_Daz]

Originally Posted by LeadFoot81

I chose finance because I wanted to keep the funds free. I see the interest (and associated fees) I paid on my purchase as basically paying for the privilege of extra liquidity.

As thrifty as I am, I wouldn't change the purchase of the new car (Fiesta ST) for anything. Sometimes, if you really want something you have to accept the terms and charges and factor them into the purchase (I did get a great price on trade in, and a good price on the ST).

I can afford the repayments, I'm keeping this baby long term, and I won't meet my maker thinking 'what if'.

Couldn't Agree more... Im usually one to hold back a bit to be thrifty but ive come the realization that I work bloody hard for what I have, for the money I have so why the hell shouldn't I get that last Aussie V8 I have always wanted... Why shouldn't I build my dream house.. My wife and I both have very good jobs, we can afford it..

You only live once!!!!

[LeadFoot81]

Originally Posted by Yellow_Festiva

Yes and no.

If Commbank suggest a minimum monthly payment that takes 130 years then they are in the wrong to give a figure that is IMPOSSIBLE to achieve.

They need to factor into the calculation that the balance must be paid off within 20 years (or even 15 years) and then work backwards from there.

I think they drag it out like that because they are getting their 20% interest and the smaller the minimum figure is the more interest they get.

On the other hand it's a pretty big eye opener as to how disgustingly small the minimum payment is calculated by the bank, and to how important it is for the end user to be aware of where their money is going. Unintentionally brutal advertising of (127 years) to pay a debt off.

[mike_nofx]

Depending on how much you are financing and how quickly you can pay it back, you can take advantage of interest free balance transfers.

Such as, Take out credit to buy a car, say $20k (This wont work if you're looking to spend BIG money) then immediately have the amount transferred to the credit card of a bank which is offering interest free balance transfers for 18 months. Pay the car off over 18 months with no interest, if its going to take longer, apply for another interest free balance transfer before that original 18 months interest free period is up.