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Debating the merits of taking out a car loan
Comments
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Income really doesn't feel tight to meIt works out as an average of £725 left at the end of each month£725 a month is disposable at the moment
This is great news. It turns out, you neither need to wait a year, nor to get a loan for the £2k. You can simply wait and you'll have the money in less than 12 weeks. Problem solved.
If, in your mind, you are already objecting to that answer and coming up with reasons why not... please do stop, and have a real think about why you think that's not the answer. I am not being disagreeable, but am genuinely interested to learn. What is it that is wrong with waiting 12 weeks? Is it that you are really very keen indeed to buy now, and pay later, regardless of the cost and the very short waiting time of under 12 weeks. Or is it that you aren't actually keeping 725 back each month, and simply think you do in your mind?
An easy trick to play on oneself, regardless of whether the numbers are high or low. Be careful not to confuse disposable income with discretionary income; or to confuse either of those with how much you are actually spending each month and how much you have left. It is very easy to underestimate expenses. Start with the simple question - is your bank balance increasing by 725 every month like clockwork? If it's not - take a look at the statements and see where the money goes. You may find, for example, that every Friday night you spend £15 at the pub. I think this would be a very reasonable, justifiable, and normal expense. But - if that expense exists, you must then take £65 a month off the figure you expect to have left at the end of the month. Repeat the exercise from everything else you find, see what's left.
I know this very well as for a long time I had a good disposable income, and yet never had any money left. This is because I was successfully disposing of it all, and perpetually told myself I had plenty of disposable income and therefore it didn't matter. I'm not suggesting that you are thinking like this, necessarily. But I am suggesting that it's vital to understand exactly what money really is going out before considering taking on any debt load at all.
I don't think you can be seeing it very clearly, because the income figures you show really don't allow you to carry that debt.
Your perception that you do not have a low income is simply wrong. Remember that it is not solely about cash-flow on a monthly basis. Supposing you really do keep £350 from earnings each month, and that this is truly disposable - i.e. none of it must go on fuel for the car, for example. And you've calculated some of the items that aren't really luxuries, for example a drink out at the pub each week. If all this is the case, and £350 is left, this is a reasonable start.
But there is a bit of a problem, as you mention that the remainder of your 'income' is from a loan you have taken out. It is a student loan, but a loan is a loan, nonetheless. If your entire disposable income (after vital housing expenses etc) is £350 per month, but you are already borrowing and adding £325 to your debt every single month, making further borrowings is not a good idea. Your cash-flow is reasonable, but your net position is tenuous, because you incur £325 of new debt each month but only have £350 income after covering your absolute barest expenses.
The purpose of the low-interest student loan is to make this innately tenuous position workable and stable enough to maintain, and allow you to have the considerable luxury of studying full-time. It's a good system. But, it's not income and you should not spend it on servicing a new debt. The entire purpose of the student loan is to avoid having to resort to expensive commercial borrowing.
It is probably reasonable enough to consider student loan debt, like mortgage debt, slightly differently from other debt. But it is debt nonetheless, it is absolutely not income and you should not consider it as income when thinking about taking on more debt.
The reason you will see so many people suggesting that a loan is not a good idea is not because they are negative or argumentative. It is because many of them (including me) have already learned their lessons, and are genuinely keen for you to avoid some of the same mistakes.0 -
This is great news. It turns out, you neither need to wait a year, nor to get a loan for the £2k. You can simply wait and you'll have the money in less than 12 weeks. Problem solved.
If, in your mind, you are already objecting to that answer and coming up with reasons why not... please do stop, and have a real think about why you think that's not the answer. I am not being disagreeable, but am genuinely interested to learn. What is it that is wrong with waiting 12 weeks? Is it that you are really very keen indeed to buy now, and pay later, regardless of the cost and the very short waiting time of under 12 weeks. Or is it that you aren't actually keeping 725 back each month, and simply think you do in your mind?
An easy trick to play on oneself, regardless of whether the numbers are high or low. Be careful not to confuse disposable income with discretionary income; or to confuse either of those with how much you are actually spending each month and how much you have left. It is very easy to underestimate expenses. Start with the simple question - is your bank balance increasing by 725 every month like clockwork? If it's not - take a look at the statements and see where the money goes. You may find, for example, that every Friday night you spend £15 at the pub. I think this would be a very reasonable, justifiable, and normal expense. But - if that expense exists, you must then take £65 a month off the figure you expect to have left at the end of the month. Repeat the exercise from everything else you find, see what's left.
I know this very well as for a long time I had a good disposable income, and yet never had any money left. This is because I was successfully disposing of it all, and perpetually told myself I had plenty of disposable income and therefore it didn't matter. I'm not suggesting that you are thinking like this, necessarily. But I am suggesting that it's vital to understand exactly what money really is going out before considering taking on any debt load at all.
I don't think you can be seeing it very clearly, because the income figures you show really don't allow you to carry that debt.
Your perception that you do not have a low income is simply wrong. Remember that it is not solely about cash-flow on a monthly basis. Supposing you really do keep £350 from earnings each month, and that this is truly disposable - i.e. none of it must go on fuel for the car, for example. And you've calculated some of the items that aren't really luxuries, for example a drink out at the pub each week. If all this is the case, and £350 is left, this is a reasonable start.
But there is a bit of a problem, as you mention that the remainder of your 'income' is from a loan you have taken out. It is a student loan, but a loan is a loan, nonetheless. If your entire disposable income (after vital housing expenses etc) is £350 per month, but you are already borrowing and adding £325 to your debt every single month, making further borrowings is not a good idea. Your cash-flow is reasonable, but your net position is tenuous, because you incur £325 of new debt each month but only have £350 income after covering your absolute barest expenses.
The purpose of the low-interest student loan is to make this innately tenuous position workable and stable enough to maintain, and allow you to have the considerable luxury of studying full-time. It's a good system. But, it's not income and you should not spend it on servicing a new debt. The entire purpose of the student loan is to avoid having to resort to expensive commercial borrowing.
It is probably reasonable enough to consider student loan debt, like mortgage debt, slightly differently from other debt. But it is debt nonetheless, it is absolutely not income and you should not consider it as income when thinking about taking on more debt.
The reason you will see so many people suggesting that a loan is not a good idea is not because they are negative or argumentative. It is because many of them (including me) have already learned their lessons, and are genuinely keen for you to avoid some of the same mistakes.
Some very good points made, just one or two little things, as you mentioned the student loan isn't like an ordinary loan, I'm on the new scheme where none of it need be paid back until i earn a salary over £21k, aside from that the amount I pay back will be 9% of any earnings above that threshold, its more like a graduate tax than a loan. Its vastly different to that of a mortgage even.
As for the motives, I think you're right, waiting may well be the best bet. Who knows, i may find the same car for the right price with less millage and in a colour i like more than the one i found at the moment. Though one thing I've definitely thought about it was you said regarding the despising of disposable income, that 1100 quid i saved in around 3 months before having spent from it for things like nights out or takeaways, other bits and bobs such as new stationary and serviced this car myself in that time period as any normal student would, s to be fair the estimation of around 750 a month seems not totally unreasonable, but classing it as disposable income i think would not be the right term on contemplation, pre luxuries spending disposable income perhaps.0 -
Some very good points made, just one or two little things, as you mentioned the student loan isn't like an ordinary loan, I'm on the new scheme where none of it need be paid back until i earn a salary over £21k, aside from that the amount I pay back will be 9% of any earnings above that threshold, its more like a graduate tax than a loan. Its vastly different to that of a mortgage even.
That aspect of student loans isn't all that new, only the threshold for starting repayments has changed. The fact remains that you'll have to pay it back if you earn enough.Though one thing I've definitely thought about it was you said regarding the despising of disposable income, that 1100 quid i saved in around 3 months before having spent from it for things like nights out or takeaways, other bits and bobs such as new stationary and serviced this car myself in that time period as any normal student would, s to be fair the estimation of around 750 a month seems not totally unreasonable, but classing it as disposable income i think would not be the right term on contemplation, pre luxuries spending disposable income perhaps.
You saved £1100 in three months (and then spent it on luxuries/servicing your car)? How does that equate to £750 a month spare cash?0 -
That aspect of student loans isn't all that new, only the threshold for starting repayments has changed. The fact remains that you'll have to pay it back if you earn enough.
You saved £1100 in three months (and then spent it on luxuries/servicing your car)? How does that equate to £750 a month spare cash?
Firstly that should have been 2 months, secondly no not following on from saving it, while saving i wasn't completely 100% saving every penny, and then yeah the gearbox came after.
Though starting to realise i seriously need to review my finances.....
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Firstly that should have been 2 months, secondly no not following on from saving it, while saving i wasn't completely 100% saving every penny, and then yeah the gearbox came after.
Though starting to realise i seriously need to review my finances.....
Yeah, this site did that to me too.
I do sympathise with you, I've gone through love/hate with my car (the hate peaked when it needed a new clutch, and head gasket in the space of about a month, and I needed a police escort to remove it from blocking a dual carriageway). :rotfl:
It's been reliable since then though, and I'm saving for a new one for as long as it behaves...and now I'm finding it's fun to browse cars online while my money builds. Each month I can afford something a little better... 0 -
The "it rains sometimes" excuse is really the lamest one to avoid biking, just check the weather forecast the day before :P
May well be spunking a lot on fuel if you're doing a lot of short journeys to uni, I know when I was at uni my old car (freebie from a family friend) did around 1/2 the mileage of motorway driving when I was doing 4ish miles to uni in town and then driving around uni to find a space (and we had the benefit of free parking which seems to be going now) - money saving tips there
As for the car, I think you're rather overestimating the value and the sale price, especially given all the work done unless you're setting it a decent amount below similar models. As you noted yourself you've done pretty much everything but the engine - as a private buyer that service record would suggest to me a combination of:
1) Boy racer who has ragged the car to bits (maybe not you, guy before)
2) Bad manufacturing on that model
3) Lot of work done = possible money pit
4) Engine replacement a matter of when not if
5) Probably a car that does a lot of short stop/start journeys (which I would guess your 6 miles to uni from parent's house is) causing more wear and tear
A buyer with sense will see that and want to negotiate on price. You don't list your car model / make or age/total mileage but if I was looking to buy I would be comparing the price you want vs similar cars on ebay/autotrader and looking at the likely mileage parts needed replacing and comparing them to what you've had to do and seeing if any are being done ahead of time. If you're pricing it based on the repairs increasing or at least holding the value based on above research, I'd go in about 1500 lower and see what you'd haggle. There are plenty of decent cars with reasonable mileage that have better service records and aren't a risk that the engine will go - and that's the risk someone has to spunk 3 grand on!
As for the student loan - don't forget you need to factor in all sorts of things for the whole year - course materials, maybe a new PC if your current one goes pop (uni computers were at a premium when I was there and I was doing a computer related course so we had more!) and don't forget if you are in your second or third year you need to do more work (thus less time for paid work for your parents) if you want to get a good degree out of it - factor in time for a dissertation (if applicable), revision (2nd year in some cases counts towards final grade for example) and so on. Will your parents bail you out if you have no cash to go out for the weekend or if you get a new hobby?
Save up and get a decent amount before worrying about the rest - you won't recoup the cost of your repairs in a sale price so factor that in too and maybe get some sort of seat cover to help your back in the mean time.Sam Vimes' Boots Theory of Socioeconomic Unfairness:
People are rich because they spend less money. A poor man buys $10 boots that last a season or two before he's walking in wet shoes and has to buy another pair. A rich man buys $50 boots that are made better and give him 10 years of dry feet. The poor man has spent $100 over those 10 years and still has wet feet.
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Overall a good post, but I'd just like to say that the current student loans are not low interest by any means. I've not even finished my degree and they're already adding on 6.3% to my student loan (I'll end up with £55-60k by the end of my degree, bear in mind that I will have only borrowed £50k (capped).The purpose of the low-interest student loan is to make this innately tenuous position workable and stable enough to maintain, and allow you to have the considerable luxury of studying full-time. It's a good system. But, it's not income and you should not spend it on servicing a new debt. The entire purpose of the student loan is to avoid having to resort to expensive commercial borrowing.
It is probably reasonable enough to consider student loan debt, like mortgage debt, slightly differently from other debt. But it is debt nonetheless, it is absolutely not income and you should not consider it as income when thinking about taking on more debt.
Student loans shouldn't really be factored in to your day-to-day expenditure (when you're finally working, it gets taken off like a tax, so you'll know what your general monthly net salary will be. You'd just have to calculate your finances from that). At the end of the day, whilst you're studying it's there to pay for things that you need/want so that you don't have to work (as much) to survive. OP could afford a car, whether they should get a loan is a different story, which all depends on whether they're reliable with their finances, or if they'll just end up blowing a load of money on other goodies.
And there's the little bit about even getting accepted for the loan. You're a student, in most lenders eyes, they don't want to touch you with a 500 foot barge pole.Credit 'Score' - Don't buy the credit 'score' that Experian, Equifax and Noddle want to sell you. It's an arbitrary number that means nothing when it comes to applying for credit.
ALWAYS HAVE A DIRECT DEBIT SET UP FOR THE MINIMUM PAYMENT ON YOUR CREDIT CARDS, REGARDLESS OF WHETHER YOU PLAN TO LOGIN AND PAY EACH MONTH.0 -
Lot of good information here, gotta say I'm off the idea of taking out a loan now, just going to wait. A good friend of mine who I've known for nearly a decade now has said he may be able to spot me the difference when I get back from turkey to tide me over till October so that may be an option, but it's not something I'd take lightly. Being such a close friend I am more concerned about getting it right if I'm borrowing from him than if I were to borrow from a bank!
In terms of the valuation I've placed on my car, at present similar models sell for around 150-500 pounds more which is a substantial amount given the sticker price of around 2750-3250, that margin is taking a middle value of 3000. So while 3250 may be a little optimistic I recon its not so bad as even if I got that 2750 (putting the difference at 400 less than similar models) Im still within reach of the next car.
The short journeys don't take as much toll on the car as most as usually I let the car warm up a bit on idle in the drive before I head out, gives the car a chance to get ready for driving and I do at least 2 30-45 minute steady a road motoring per week to ensure dpf filter is clear, engine has a chance to pick up that steady driving for a bit and shake out the fact its not meant for short start stop journeys. Much as I know petrol is probably better for my use, I'm a diesel fan boy.
Just a side note my course is Mechanical Engineering and from second year I'll be specialising in Motorsport, in a way its taught me way more about cars having to fix so much, a lot of it wasn't me doing it but I got to either watch or help out and some of it I did myself to save labour costs.
All in all, just gotta grit my teeth and hang on for a little while longer basically.0
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