How likely is this?

gizmo111

somethingcorporate wrote: »

Really? how much do you think the depreciation on that new Ka is going to be over the next two years?

I doubt it would be much worse than the lease costs of a new car.

But in less than 2 years the car will be owned - the lease car will never be owned and will be a ongoing commitment, or she will have to borrow again in 2 years time and start the paying out again.
I can't understand the obsession with depreciation - it happens but doesn't have any effect until you want to trade in - a lease car is just an ongoing expense.

gizmo111

citricsquid wrote: »

Purchasing a brand new car is always a poor financial decision because of the value loss, if you buy a brand new car for £20,000 by the time you drive it off the lot it's going to be worth significantly less, by the time it's a year old it's going to be worth up to 40% less...

Purchasing a brand new car on credit is a much worse financial decision because of negative equity, if her life falls apart for any reason she can't sell the car to cover the debt, because the debt is worth more than the car. Debt isn't bad but debt you can't pay is awful.

Poor financial decisions aren't always poor life decisions, sometimes money really isn't the most important factor. If the value the car provides her in enjoyment, flexibility and happiness is worth spending a few thousand pounds then it's not the end of the world.

Depending on the terms of the car lease your niece might not be stupid, she might be more financially sensible than your daughter. If she has the ability to end the lease at any time (if the car is returned) it means if her life falls apart then she is without liability. This is important when young because young peoples lives are rarely stable.

The most important consideration when taking on debt should be whether or not it can be repaid; part of that consideration is what happens if things go wrong in life? With a mortgage you can normally sell the house to cover the debt, with a new car loan... not so much.

Well seeing as she is putting down £2k herself and will pay off £1800 ish in 3 months and will still have the car to sell if worse comes to worse I doubt it will be a millstone.
In any event in th very unlikely event she couldnt afford the repayments I'd cover them fr a few months.
Life happens enjoy when you can instead of stressing over what might happen.
The lease car has no opt out without big penaltys.

Eonel

I can't understand the obsession with depreciation - it happens but doesn't have any effect until you want to trade in - a lease car is just an ongoing expense.

If she intends to hold the car for 10 years and drive it into the ground, then a loan fully paid off after 2 years is by far the most sensible way to do it.

However, she is 20 years old and more than likely in two years time she will want to trade-in the car for a new one. At this point depreciation will realise and if she gets in a cycle of replacing her car, the loan payments become a perpetual thing anyway.

TerryTorque

She'll regret it, talk her out of it.

gizmo111

TerryTorque wrote: »

She'll regret it, talk her out of it.

She may - don't see why she would though.
I have no intention of talking her in or out of anything, she has the facts in front of her and is more thancapable of making her own decisions.

pauletruth

you can get a brand new car thats done less than an hundred miles as a used car a lot cheaper than rushing out to buy a new one. just get her to research the diffrence in cost.
example
http://www.evanshalshaw.com/brands/ford/ford_new_car_offers/ka_cars/ka_metal_12/low_deposit/low_payment/?offerid=8373

http://www.perrys.co.uk/ford-ka-1.2-zetec-3-door/used-car-42030-22632191#.UXb46rWG1CY

not quite the same car but 3 grand cheaper.

gizmo111

pauletruth wrote: »

you can get a brand new car thats done less than an hundred miles as a used car a lot cheaper than rushing out to buy a new one. just get her to research the diffrence in cost.
example
http://www.evanshalshaw.com/brands/ford/ford_new_car_offers/ka_cars/ka_metal_12/low_deposit/low_payment/?offerid=8373

http://www.perrys.co.uk/ford-ka-1.2-zetec-3-door/used-car-42030-22632191#.UXb46rWG1CY

not quite the same car but 3 grand cheaper.

Except the one there has 8639 miles on the clock and is not in the colour she wants.

Anyhow my original question re would she get the loan on her income and expenditure has been answered by HSBC who have given her the loan at a very reasonable rate of 5.9 %. we will now go out this weekend and order the car she wants to spend her money on.

Thanks all.

Angry_Bear

Eonel wrote: »

If she intends to hold the car for 10 years and drive it into the ground, then a loan fully paid off after 2 years is by far the most sensible way to do it.

I bought a brand new car in my early 20's and I've still got it 8 years later. So far the only mechanical thing I've had to do (other than servicing and the occasional new tyre) is a new set of brake pads. IMO, the depreciation has far less of an impact on smaller cheaper cars than it does on executive cars.

I was wary before I bought mine, but I went for new because I needed the reliability and to knw it was covered by the warranty. I can't say I've ever regretted it, and I'll keep it until it starts to cost me money. I would definitely consider buying a new car again.

kinh

I think it's a bad idea splashing 9k on a car such as a KA, where it's value will plumet to 5 -6k like no tommorrow as soon as she takes ownership of it.

iolanthe07

HSBC who have given her the loan at a very reasonable rate of 5.9 %.

That is a very good rate indeed. Just check that it is 5.9% APR and not 5.9% Flat Rate. Car loans are often quoted at Flat Rate interest, which you need to double (approx) to get the true APR.