Car Loan - How long is too long

muzzy007

Hello All,

Firstly, my circumstsances.

I have no debt (no loans, CCs, overdraft etc.) (apart from student loan)
My outgoings are about £40 pm for my phone
Due to recent circumstances (my gf going back to study) I have moved home with the folks (for the time being!!).

I have my heart set on a car which would require a loan for £9,000 (the car is worth £12,000 2nd hand) I would sell my current car for £3,000 and finance the rest with a loan.

I want to keep the payments very low e.g. £100 pm. This would require the loan period to be about 8-10 years. Now, I know this is probably not the forum to ask the question in as I know a lot of people are trying to get out of debt. But, you only live once, it is something I really want and I don't believe it to be a huge risk.

Bear in mind the car will always be worth more than the loan. I know a lot about the market and this car will lose a maximum of £2,000 in 2 years. If, for some reason, I cannot afford the repayments (unlikely with my current earnings) I can sell the car, pay off the loan and still have a little left over to buy a run around.

I am VERY sensible with money and worry a lot about getting into debt BUT I am tired of never having something I want because I don't want debt. Why not, live a little?

Anyway, will a bank give a loan for a car over that period of time??

Thanks,

Muzzy

Turtle

The maximum my bank will do a loan for any purpose is 7 years. It would be worth looking round for a longer term - as long as you can afford the repayments i wouldnt have thought it would matter it was for a car.

You say the car will always be worth more than the loan, but dont forget you've got interest (and PPI if you take it) to pay back on top of the £9000, and over such a long term the interest will be very high. Aso, what would happen if, god forbid, you wrote the car off? You could easily be left short. A few things still to think about

Turtle

I've done a quick quote for you £9000 at 6.9%, works out at £13100 (approx) without PPI and £14200 (approx) with PPI, so the loan could well be worth more than the car to be honest. I can see why you want to live a bit more (and there's nothing wrong with debt you can repay in my opinion) however, as you've got no cards, overdrafts etc you might not have a credit record and therefore find it difficult to get a 9k loan anyway. If you have borrowed before and repaid it you might be OK. Otherwise, you build your credit record by getting (a bit of) credit and managing it well, then build from there. Saying that, it doesnt seem hard these days to borrow money so you might find you've no difficulties.

I've had a nosy round and found that Northern Rock do loans up to 10 years. They messed my OH about though, agreed a loan (ssemingly at 5.6%) but was 9.9% when papers came through. Needless to say, he went elsewhere and got 5.6%.

Gemmzie

Most car loans are 5 years maximum. So if they know it's for a car, you won't get a longer term

ArchieB_2

Are you sure the car will depreciate slower than the O/S loan amount reduces? Even a Mini will depreciate quicker than £100 per month, particularly as a new version will be launched within 18months.

I buy my cars on personal loans for the reason you state but I make sure my loan is paid off a lot quicker than the depreciation on the car. I don't mean to be funny but if you can only afford £100 per month, you shouldn't buy a £13000 car.

YorkshireBoy

Hi muzzy, I'm guessing here but, since you have a student loan, I'm probably old enough to be your father. So, I'm going to answer as though my own son (aged 21) had posted the very same question. In doing so, I'll be pulling your post to bits - so I'll apologise now for that!

muzzy007 wrote:

I have no debt (no loans, CCs, overdraft etc.) (apart from student loan)

Doesn't that feel good?

My outgoings are about £40 pm for my phone

That's not so bad then. Your car is only going to cost you two-and-a-half times what you spend on your phone each month - except that you'll have gone through 20 or more phones by the time you've paid for your car!

Due to recent circumstances (my gf going back to study) I have moved home with the folks (for the time being!!).

What happens when she decides that study is not for her, and she wants to pack it in and shack up with you again. Can you afford both the car and rent/mortgage/bills/etc?

I have my heart set...

What is your 'head' telling you?

I want to keep the payments very low e.g. £100 pm.

This would indicate that your income is pretty poor (no offence). Someone on an average wage would earn this in a day-and-a-half!

This would require the loan period to be about 8-10 years.

That's nearly half a mortgage term (10 years into my first mortgage, I had an asset which was worth 3.5 times what I paid for it). And for what? I like my cars, but at the end of the day it's a piece of metal - an inanimate object. I bought my first brand new car for £11K three years ago aged 42, and washed it twice a week during the initial 'novelty' period. It gets washed once or twice a month now, depending on how much spending money my 15 year old 'needs'!

...I don't believe it to be a huge risk.

It's a heck of a risk...job security, GF issues as detailed above, any other life event.

Bear in mind the car will always be worth more than the loan. I know a lot about the market and this car will lose a maximum of £2,000 in 2 years.

Without knowing specifically what the vehicle is (I'm guessing it'd have to be a classic?...maybe a Rolls, Lotus Elan 'Big Valve', Austin Healey perhaps?), I'd be very sceptical about that.

Anyway, will a bank give a loan for a car over that period of time??

I would think not...if you're honest and tell them what the intended purpose is.

And finally, just out of interest, what do your friends and family (and your girlfriend) think about your plans?

Mutton_Geoff

Muzzy, think carefully! You are buying a depreciating asset. I admire your optimism about your car's future value but I'm afraid even the best marques (BMW, Audi, Merc) depreciate to around half their value every 3 years. That means that in just 6 years, your "new" car will be worth just £3k, ie your initial "investment". Borrow the £9k over that period and you'll be paying around £150 a month with nothing to show at the end of it. Don't forget to add the other costs of car ownership and decide if it's really worth it.

If the car depreciates more quickly (a couple of dings, scratches, faded paint or technical problem and it will), then you'll owe more than it's worth.

When I had just left college with debts, I (perhaps wrongly) borrowed money to "buy a car" but used it as deposit on a flat. I then got a mortgage for what seemed a huge amount of money (£18k in 1980) and soon had my own place.

From experience, property ownership has been far more rewarding in a dozen ways than those lumps of metal that burn petrol, oil and your savings all at once.

25 years later, I own a house that I could never afford to buy today and the 1978 Capri I longed after back then has probably long rusted away.

muzzy007

Hi All,

Thanks for all the replys.

The car is a VX220. In the last 3-4 yrs it has lost about £3k. As they are no longer making them and there are no immediate plans for a replacement I cannot see it ducking under £6k any time soon.

I take home about £1,500 pm. The 100pm is (a) because I'm tight and (b) because of wishing to move out in the near future. The £100 won't affect my ability to move.

I would only plan on keeping the car for 2yrs max. After that I would sell it on and pay off the loan (looking for a loan with no redemption fee). However, from what I have read on here it looks as though Nothern Rock cannot be trusted! As an aside, if I pay off the loan early do I pay what I owe or do I pay the figure that I would have had to pay had I kept the loan for it's full period e.g. £13,000+. I've only ever had a CC in the past (which shot up tp £800 scarily quickly...and paid off even quicker!)

The car will actually be cheaper to run than my current car (BMW 328 Coupe).

Looks like I'll have to think a bit harder about it. Damn lottery numbers! :mad:

ArchieB_2

Usually you need to clear the remainder of the O/S loan amount plus a 'fee' equal to 2 months interest.

I can see what you are trying to do but I would still say your depreciation projections are optimistic. Like you say you do have your £3k from your BM as a buffer. What you might find is in two years time you sell the car, clear the loan and have a few hundred quid left. Will you need another car when you move?

i take it you are saving about £800 per month as a deposit for your house??