Financing a car depends on many factors. Your current assets(your house, cash, stocks, unit trusts etc), you liabilities( existing loans, girlfriend/s!(haha... joking!)), your monthly income VS your monthly expenditure; so in essence, your liquidity and available funds. And also to a large extent how much would you be willing to pay a month to service the loan for the car should you choose to take out a loan.For me I think it boils down to being able to pay for it without over committing myself such that servicing the monthly repayments would leave me with very little cash for other essential expenses, such as Johny walker's or Chivas fund and all... If you are over-commited, you might not be able to pay it should any short term unforeseen expenses that may crop up, which would lead to default and a rollover of interest(think sub prime crisis).
A good idea learnt from many financial speakers is to have a crisis fund to take care of any unexpected things that happen in life to hedge the impact of such event occurrence .
Of course, the most important thing would be the choice of car itself would'nt it? Is it suitable for what you'd be using it for? Do you need a car of that size? Is the PRICE right?
Well, when you have decided what car to get, you have to decide if you want to pay in full or get a loan. Few points to consider, compare the interest rates of the loan versus comparable investment vehicles of similiar type. Such as would it be better to pay more upfront versus taking the loan and letting your money sit in the bank at a 0.05%? interest rate? or more if you put it into a FD or Unit Trust or some other investment.
Then it'd come down to what kind of financing you'd like, a hire purchase of a flexi-term loan kinda arrangement.
Would your capital gains offset your interest payments?
How would that affect your monthly cash position?
Are you comfortable with that level of liquidity?
From my point of view, as a new entrant to the workforce, I would be seeking to reduce my monthly repayment to a minimum and to be liquid as I am just starting out with work and would not have substantial savings to fall back upon should something unexpected occur.
So my parting words would be to...
live within your means = D
3 comments:
Something to add on to this, sometimes paying in full might not be the most value for money method of financing.
There are usually tie-ups between car dealers and banks to offer customers cash rebates, at times resulting at a lower price than if you paid in full!
However, this takes a bit of homework and if you're living in a city with traffic congestion all the time, get a bicycle.
Financing a car sux, financing more than a car eg acessories, petrol, maintenance, DRIVER (:p) sux even more
Conclusion: Don't buy a car, befriend someone who has a car
Woot!
Great points there. To add on, our expectation of the car is important. Things like:
- when are we going to use it until?
- what are the other options?
- does cheaper really cost less in the long run?
Happy shopping for the car. The experience in itself should be a joy :)
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