Negative Equity on a Car

AdrianHi

Naughty_Sausage wrote: »

Thanks for your help with all of this

Current car residual value £2000 YES
Exaclty (or to the nearest £10) how much have you spent on repairs on this car while you have had it? £1500:eek:
How long, in months, have you had it? 29 MONTHS
It's 32mpg, but how many miles a year or month do you expect to do in future? 12000
How much has the routine servicing (excluding repairs costs above) cost you? £300 A TIME, EVERY YEAR
How much can you spend on the next car, £2000 trade in + how much more? Perhaps we take £1000 of the savings and leave £1200 emergency funds?? £5-6000 ON THE CAR, LOOKING AT ONE WHICH IS £5000
How much is the tax disk? £245 ON GALAXY
How much is insurance / what insurance group? £300 ODD FOR GALAXY £200 FOR LANCER
How much are the tyres, how long do they last? £100 EACH LASTING 15000

How big a car do you need? GOT 2 LITTLE KIDS (2 AND 4) PLUS OUR OTHER CAR IS A COLT SO ITS ONLY LITTLE - MORE LIKE A TOWN CAR REALLY. TOO SMALL FOR HOLIDAYS / LONG DISTANCES. ONLY 1.1. 3 CYLINDER
There are plenty Lancer estate cars around that will be cheaper in the long run and better cars, is this the size and type of car you need?

How much did you pay for the Galaxy 29 months ago?
Need this to work out monthly depreciation figure and compare against younger car options.
12000 miles a year, 32mpg, 1.04 per litre is 147.75 on fuel. There is probably about £50 a month saving in fuel to be had, more figures later...

Naughty_Sausage

I remember having to play around with the finance on the car. I think the car itself was about £7000.

AdrianHi

OK got some figures from my spreadsheet. My figures are very close to (a few hundred higher) What Car web site Real Cost of a new car over the first 36 months of it's life where a BMW 3 series might come out at say 20K over 36 months for all expenses.

The short answer is, provided you are confident you can make the loan payments for the younger Mitsubishi Lancer definately do that deal, but I'll also compare to another car I thought of.

£7000 for the Galaxy, loosing £5000 over 29 months. Ouch!

Using todays £1.04 fuel price, savings flat rate of 0.016 (about 3% AER) and a loan flat rate of 0.06% (about 13% APR) both available from Sainsbury's bank, real figures for Tax disks and your figures for insurance.

I've come up with the follwoing figures. I've assumed these rates have applied to the Galaxy for the last 29 months for this illustration.

By my estimate the Galaxy has cost you £529.22 a month over 29 months. This is depreciation, interest charges, lost interest on savings for money tied up in the car - everything.
This is not the same as loan repayments which are not "real cost" they are the cashflow challenge funding the £7K Galaxy gave you.

Over the next 12 months depreciation on the Galaxy is a lot less but I work on the reasonable assumtion all other costs will continue including the annual £620 in outside routing service schedule work (which isn't that bad for this type of car).
Over the next 12 months I project the Galaxy to cost you £355.28 a month.

The Mitsubishi Lancer 1.6 which I assume is an 06 plate and out of warranty for the next 24 months I project it's costs to be £313.17 a month.
Compared to keeping the Galaxy assuming you keep the Lancer at least 24 months you save £42.11 a month. You will have to borrow £4700 to fund the car (your £1700 negative equity + £3000 borrowing required for the newer £5000 car). If you can pay that loan over 24 months the loan repayment is £219.33 a month.
I note that the peformance of this Lancer is similar to the Galaxy.

The compared to the last 29 months of the Galaxy the savings come from fuel £44 a month, depreciation £100 a month, plus savings of £8-£20 a piece on a number of the other expenses. The Galaxy is quite heavy on tyres.

What it costs you in interest charges per month for the borrowing to fund these cars is in the £25 to £30 a month range, actually a fairly small element of the total cost of the car.

Every £1000 you borrow instead of taking from your savings costs you about £4 a month - the difference between loan rate and savings rate. Not that much difference.

So the relevant figures.

Galaxy for the next 12 months is £355.28 a month, if the Galaxy depreciation cost was 0 and there were no loan interest charges it would still be £330.04 a month.

Lancer 1.6 spread over the next 24 months is £313.17 a month

Lancer 1.6 spread over the next 36 months is £288.17 a month

Skoda Octavia 1.9TDI 110bhp spread over the next 24 months is £292.60 a month but you need to borrow £1000 more for a car 1 year older than the Lancer

Skoda Octavia 1.9TDI 110bhp spread over the next 36 months is £261.42 as above

If you are lucky with the Lancer and get no repair bills you could save a further £33 a month based on my £400 a year estimate for cost of repairs or cost of extended warranty.


I wasn't sure about the Lancer at first, but it's a lot of reasonably young car for your £5000, if you already like your local Mitsubishi dealer buying it makes a lot of sense to me.
Hope all that wasn't too complicated

Naughty_Sausage

Adrianhi - I have pm'd you btw.

I think we will go ahead with the purchase. We got a quote for the loan from Tesco and found out that if we have a loan big enough to settle the os finance on the galaxy and buy the new car, we will be paying pretty much what we already pay - but over 4 years rather than the 18 months left on the galaxy loan.

Its the age old thing about 'will you keep you job to make the payments' but I feel that everyone is in that boat at the moment and whilst I would not do anything financially wreckless, I feel that people still have to live!

Thanks for your help :beer::T

Naughty_Sausage

8% from Tesco

Shocking when you think that the interest rate is only 0.5% or whatever but the 8% is still good when you compare the market

AdrianHi

No problem, it's an excercise I like to do occasionally.
I'm assumung it's a 3 year old Lancer your looking at from the price and I do feel a loan could do with being cleared sometime before the car gets old and unreliable. May be with the lower running costs that come with this car you'll be able to save a bit more and settle the loan after 36 months. Get some time to build a bigger deposit for next time.
It's not so much finance charges which are small, it's making sure you can keep up with the rate of depreciation.
I note that the Tesco's loan rate is better than that I used in the figures above (13% APR), this swings it further in favour of moving to the Lancer.
Good luck.

AdrianHi

8% APR, not much more than £42 in interest to borrow £1000 for a year, very good in the current market.
This is handy:
http://www.dynamic-webs.co.uk/information/car_loan_calculator.html

before_hollywood

lancer is rare

have you thought about a passat estate?