Are car loans bad news for a 19 year old?

Grimezy

Hi guys, I know you're probably sick of these threads and I'm well and truly braced for the "why do you need to spend blah on a car, you can get a good runner for £1500" but hear me out...

I'm 19, I left college at 17 to go into a full time business apprenticeship. I worked in the Facilities department of a University for 18 months and came out with 3 NVQ's in Business Admin and Customer Service. I found a job elsewhere doing Sales Administration at a small Surveying company. My starting salary was £16,000 but in 6-7 months it has been raised to £16,750 (not a huge raise I know but I'm very grateful).

I live at home with my parents and pay rent etc. After paying my board, phone and car insurance I have about £750 of 'disposable' income. I manage to put £400-£500 into my savings (although I just had to restart after purchasing a rather expensive PC...)

So here's the story, I've been driving a 12 year old Fiat Punto around for the past year and a half. It's grey with black bumpers, it's ugly, and it's starting to become a little less reliable, believe it or not it's been pretty good up to now with only a few niggles but I can feel a storm coming.

My workplace is 5 miles away down country lanes so isn't a huge journey although my girlfriend of 3 years lives 90 miles away (a rather tasty trip up the M5 + M6 - Gold star to whoever can work out where I live and where she lives). I'm desperately looking for a new car. I love cars, always have, always will. They're more than just a runaround to me, I've had a pants first car, I want something a little sweeter that will be comfortable on the motorway and also nippy around the country lanes.

My only problem is I can't find anything for less than £4500 that seems suitable. I don't want something with over 60,000 miles preferably and I want it to be sort of 2004 and after. So far I've spotted a Seat Leon that I'm in love with and also a couple of golfs. This will require me taking out a £5000 loan though...

Is this really a bad idea? I know I should save and that it won't take a massive amount of time if I can put away £500 a month but I do want to get rid of my Punto asap and I'm looking at it from the view that instead of paying into my savings each month, why not be paying for a loan and have the cars 10-11 months earlier to enjoy the benefits?

I am stable in my job and I never leave myself short of money. If anything paying to a loan would be better for me because it'd be a strict procedure where as my savings I can take out whenever I want to. My only other issue is I'm potentially thinking of going back to College/Uni in a year or two as I don't want to be stuck in a general admin job for too long (no offence to anybody that does it, I just don't think it suits me). This isn't definite and I may just leave where I am in a year or two into a better job straight off but it's still on the table at the moment.

So yea any help would be much appreciated. I've used tesco's loan calculator and it's £5300 with interest if I pay back in 18 or 24 months I think. If you can advise on if you've had past experiences similar or how long I should be looking at taking a loan out for, etc I'd be very grateful.

Thanks
Sam~

nathand_2

Grimezy wrote: »

Hi guys, I know you're probably sick of these threads and I'm well and truly braced for the "why do you need to spend blah on a car, you can get a good runner for £1500" but hear me out...

I'm 19, I left college at 17 to go into a full time business apprenticeship. I worked in the Facilities department of a University for 18 months and came out with 3 NVQ's in Business Admin and Customer Service. I found a job elsewhere doing Sales Administration at a small Surveying company. My starting salary was £16,000 but in 6-7 months it has been raised to £16,750 (not a huge raise I know but I'm very grateful).

I live at home with my parents and pay rent etc. After paying my board, phone and car insurance I have about £750 of 'disposable' income. I manage to put £400-£500 into my savings (although I just had to restart after purchasing a rather expensive PC...)

So here's the story, I've been driving a 12 year old Fiat Punto around for the past year and a half. It's grey with black bumpers, it's ugly, and it's starting to become a little less reliable, believe it or not it's been pretty good up to now with only a few niggles but I can feel a storm coming.

My workplace is 5 miles away down country lanes so isn't a huge journey although my girlfriend of 3 years lives 90 miles away (a rather tasty trip up the M5 + M6 - Gold star to whoever can work out where I live and where she lives). I'm desperately looking for a new car. I love cars, always have, always will. They're more than just a runaround to me, I've had a pants first car, I want something a little sweeter that will be comfortable on the motorway and also nippy around the country lanes.

My only problem is I can't find anything for less than £4500 that seems suitable. I don't want something with over 60,000 miles preferably and I want it to be sort of 2004 and after. So far I've spotted a Seat Leon that I'm in love with and also a couple of golfs. This will require me taking out a £5000 loan though...

Is this really a bad idea? I know I should save and that it won't take a massive amount of time if I can put away £500 a month but I do want to get rid of my Punto asap and I'm looking at it from the view that instead of paying into my savings each month, why not be paying for a loan and have the cars 10-11 months earlier to enjoy the benefits?

I am stable in my job and I never leave myself short of money. If anything paying to a loan would be better for me because it'd be a strict procedure where as my savings I can take out whenever I want to. My only other issue is I'm potentially thinking of going back to College/Uni in a year or two as I don't want to be stuck in a general admin job for too long (no offence to anybody that does it, I just don't think it suits me). This isn't definite and I may just leave where I am in a year or two into a better job straight off but it's still on the table at the moment.

So yea any help would be much appreciated. I've used tesco's loan calculator and it's £5300 with interest if I pay back in 18 or 24 months I think. If you can advise on if you've had past experiences similar or how long I should be looking at taking a loan out for, etc I'd be very grateful.

Thanks
Sam~

I think it could be difficult to get a loan based on age/salary. Re the actual car have you had a look at Ford Fiestas? I've seen 2007 models with under 60k miles for less than 3500.

Do you have any existing credit? Mobile phone contract, credit cards, etc?

ChopperST

Hi Sam,

It seems like you are quite sensible and put alot of thought into this. The best advice I would have given my former self would have been to have saved for longer and bought my cars outright.

However like you I was a petrol head and I borrowed nearly £20k for a Focus ST. Loved the car and had 6 years happy motoring with it but obviously it depreciated and I paid interest on the loan, losing out alot. Like you I had a reasonable disposable income and could have saved a bit harder for a bit longer and bought it outright.

For my new car (my pride and joy), which is an Audi Q5 I saved and saved and saved and bought it outright. And have now got into the habit of saving significantly and then "borrowing" from myself. If you could do that I'd strongly recommend it.

Good luck whatever you decide. Definately look into the SEAT, you'll get more bang for your buck with them over the VW and they are excellent cars.

Just read that you can save £500pm. Save £500 a month and in 10 months you've got £5k for your car. Simples.

Peelerfart

OP,
have you had any insurance quotes for your prospective purchase?

And yeah SEAT does give you more,for less than VW, but the VW will be worth more when you come to move it on.

Tixy

Hi
Have you any existing credit history at the moment? what credit agreements do you have and have all payments all been made on time.

Given your age and salary you may struggle to get a personal loan for that amount. Are you looking at private buy or car dealers?

Be careful of using a lender's loan calculator online - as they use the representative APRs, and even if you are accepted it could be at a much higher APR and so higher monthly cost.

Given that you are potentially considering going back in to education then I would not take the loan out over any longer than that would be. If you'd be going back in September 14 then you'd want no longer than 18months on a loan - and if your max repayment is £500 a month then that might affect how much you can afford to borrow.

Grimezy

nathand wrote: »

I think it could be difficult to get a loan based on age/salary. Re the actual car have you had a look at Ford Fiestas? I've seen 2007 models with under 60k miles for less than 3500.

Do you have any existing credit? Mobile phone contract, credit cards, etc?

Yea I've looked at Fiestas but from what I hear they're cheap for a reason and plus they don't really appeal to me so I'd instantly be looking towards a new one again (although I will give them another look, some of the newer models can look smart).

My phone contract was taken out by my parents when I was 15 and it's still in their name even though I pay for it. I do however pay for my car insurance monthly. My first year was £2200 and worked out at £200 per month and this years is £93 a month. Never missed a payment, etc (does car insurance count towards credit rating? I'd assume it does).

And thanks Chopper, I do like to think of myself as sensible even though at the moment I have a habit for wanting to latest tech (hence why I bought a custom gaming pc, still cheaper than a Mac though!).

And I know what you mean about SEATs, £4500 for an 07 Leon, 1.6 litre, Black Sport model with only 43k on the clock. Full service history, etc. I know it's not the quickest but it's not a bad second car to aim at!

I'm still torn then... I'd love to save and pay it off but I still really don't want to wait that long in fear of entering depression from browsing autotrader every night knowing I can't have one. I don't really want to get into debt either but then I think I'd be heartbroken saving up £5000 and watching it disappear (my pc was £1000 and that was painful enough!).

Hmmm.

P.s. Renewal insurance quote on my potential cars have been around £600-£700 fully comp. Not bad seeing as the quotes for my punto are around £600 as well.

Tixy

You car insurance may or may not appear on your credit file as a credit agreement - you'd need to check copies of your credit reports to know.

But even if it does is that is the only credit showing on your file then you are likely to struggle to be accepted. Your own bank that can see your income going in each month, and presumably your savings being made each month might be the best place to try.

Have you checked out the IG of the type of car you are looking at? Its going to cost a good chunk more than your punto.

Grimezy

Tixy wrote: »

You car insurance may or may not appear on your credit file as a credit agreement - you'd need to check copies of your credit reports to know.

But even if it does is that is the only credit showing on your file then you are likely to struggle to be accepted. Your own bank that can see your income going in each month, and presumably your savings being made each month might be the best place to try.

Thanks Very useful advice, I did plan to go to my bank as I've been with them since I was about 6...

Would you suggest getting myself a credit card to make the occasional purchase on and pay the balance back instantly? In hope to slowly build my score?

If I recall correctly, I'm pretty sure my insurance was classed as a credit deal so fingers crossed it will count. I'm with LV and it was talking alot about "Amount of credit borrowed" and stuff.. I'll have a look tonight

Also as I mentioned above, it's not that much to insure at all. I've done it the hard way, never been on parent's insurance, always paid myself. I almost have 2 years no claims now on my own policy and current quotes have been coming out at £700 for the Leon.

Tixy

A credit card can be a good way to build up a credit history, buying a couple of items a month and paying back in full after the statement is produced but it would take 6-12months of that for it to start to make a significant difference to your chances of getting credit.

ChopperST

Also check if your car insurance provider is charging you for the privelidge of paying monthly. If they are get some money put aside every month for your insurance and pay it off annually from your savings (again borrowing from yourself). Even better if you could use a cash back credit card. If you have minimal history you could get an AQUA credit card and use it to build a payment history by repaying in full every month and earn cashback on what you buy anyway.

Please heed the advice you are being given, 10 months isn't too long to save and you will own your own shiny new car rather than a finance company, you will also not be wasting your income on interest leaving you more to spend in the future.

If I had adopted this ethic back in my youth I reckon I would have nearly been mortgage free by now (aged 32).

(I know what you mean about looking at Autotrader every night, try and get a spreadsheet sorted and track your savings instead!) Maybe even go onto the debt free forum (I know you are not in debt) and post a statement of affairs - see what else you could squeeze every month to save that bit more...

Also dont listen to the others saying buy this, that and the other if you know what you want and it brings you joy, buy it if you can AFFORD it. We are here for a good time, not a long time. Like I said before you seem very sensible in your outlook and £5k is not an unreasonable ammount to spend given your income, just make it your money rather than the banks.

Grimezy

Tixy wrote: »

A credit card can be a good way to build up a credit history, buying a couple of items a month and paying back in full after the statement is produced but it would take 6-12months of that for it to start to make a significant difference to your chances of getting credit.

Ah fair enough, looks like I'll just have to take a trip to the bank then if I do decide to get one! Like I said, I've never left myself short on money and I have been consistently earning an income for the past 2 years, although it has only been the last 7-8 months that I've started earning a normal wage as opposed to an apprenticeship.

Thank you for your help