Maximising return

racing_blue

Hey I'm your cheap twin.

We both have cars. But I also have 38000 little green soldiers are still working for me, rather than for Elon Musk or whoever you gave 6 months pay to

Actually that' a lie, my kids schools got the little green soldiers :mad:

But they got cash on the barrel, no PCP

grey_gym_sock

mp80 wrote: »

Well, I didn't want to wang out 40 g's on a car.

you preferred to pay 40gs + interest at 6%?

IMHO, if you can't afford to pay for a 40g car in cash, you can't afford it at all.

mollycat

mp80 wrote: »

Well, I didn't want to wang out 40 g's on a car. I also remembered that life isn't just about a race to see how much you've got on your deathbed!

Wang. Great word. How appropriate.

bowlhead99

grey_gym_sock wrote: »

you preferred to pay 40gs + interest at 6%?

IMHO, if you can't afford to pay for a 40g car in cash, you can't afford it at all.

Businesses / companies lease or finance assets all the time. There is a sensible 'matching' concept when doing your books that the costs are attributable to the periods in which you get the use out of them.

If you can afford to suffer depreciation or pay lease payments over a period of several years because you have income coming in to cover the costs of your use of the car over several years then you can 'afford' it imho. Although with a high committed cost base, your annual 'build up savings' or 'dip into savings' number is highly geared to your income ; this adds some risk to your life, and so people who only have one income (e.g. wife on maternity) might look to avoid it.

I think there would be a lot of people who would take the choice of PCPing a car at an interest rate lower than typical long-term investment returns while taking 60% tax relief in a pension, rather than buying a car outright and having smaller pension and ISA investments and missing all that tax relief. It seems eminently sensible if you want or need a new car. Whether you 'need' a new car with the crazy depreciation that involves... well that's an obvious 'no I don't need it but I would like it' situation.

I spent a chunk of money (for me) on a car a bit more than a year ago. And I 'afforded' it by not having so much in investments and not spending quite as much money on other extravagances. Turned out fine because with hindsight the investments have not performed amazingly well over the period anyway and I enjoyed the car as much as I would have enjoyed the alternate extravagances.

But instead I could have kept the investments and financed it. If I had, I wouldn't have appreciated someone telling me 'ha, you financed that, you can't really afford that'. It sounds very sanctimonious. As I haven't got to the end of my life yet, we don't know how much surplus I have ended up with and how it compares to anyone else.

Of course, my preference for a more laissez-faire attitude from others is at odds with my above post where I effectively said he would be a retard if he paid down his mortgage instead of taking the 60% tax relief... but hey.

grey_gym_sock

borrowing for investment is different from borrowing for consumption. if you need e.g. a van for your business, it may make sense to borrow to buy it: the pay-off may be greater than the cost of the finance. you may need a car for business purposes, i.e. to get you to/from/between places you work, but you don't need a £40k car. a cheaper car would do the job, and the extra of the cost a more expensive car is consumption, not investment.

there is also a bit of difference between borrowing to buy an expensive car when you can't raise the money any other way, and borrowing when you could raise the money by cashing in a small part of your investments. you could view the latter as equivalent to buying the car for cash while running a geared investment portfolio. which is a bit risky, but not totally crazy - it is probably safer than borrowing on margin against your investment portfolio, because it avoids the risk of margin calls. though the obvious question is: why buy a car on finance, instead of having a larger mortgage on your house, which would presumably be lower cost?

IMHO, a lot of ppl shoot themselves in the foot financially by borrowing for expenditure. my comments were meant as a friendly suggestion that perhaps that's a bad idea. rather than a call for it to be banned. though i think some areas of lending should be regulated more strictly (not especially car finance - more for payday loans).

racing_blue

Sure, everyone has different priorities & ways in which they choose to spend their hard earned. Maybe in some jobs having a really expensive car builds client confidence and future opportunities. That's not my beef.

The thing is, this is a thread about maximising returns- the car finance gives a return of -6%.

mp80

grey_gym_sock wrote: »

you preferred to pay 40gs + interest at 6%?

IMHO, if you can't afford to pay for a 40g car in cash, you can't afford it at all.

What a load of rubbish. Do you use the same logic applied to buying properties?

mp80

racing_blue wrote: »

The thing is, this is a thread about maximising returns- the car finance gives a return of -6%.

Probably quite a good return, if the speculation on widespread global asset devaluation this year is to be believed.

The car finance is largely irrelevant and costs me c. 6% of my net income; there's too many sanctimonious fuddy-duddys on here who probably live their lives in the dark with the heating off connected to next doors Wi-fi just to save 60p. Well, I'll tell you what happened to my mum, who grafted for years living frugally and then got taken out by the Big C three months after retirement.

DominicH

mp80 wrote: »

Wyhat a load of rubbish. Do you use the same logic applied to buying properties?

It's not the same logic, though. A loan such as a mortgage can make sense when the thing you're spending it on would otherwise take you a significant portion of your life to save up for. It makes less sense for things that you could afford out of pocket, or with maybe a year or two's saving. And a PCP or lease on a car is just another type of loan.

I get your point about enjoying today for there may be no tomorrow, I do. But it nevertheless does not make financial sense to borrow money to own a car that you could simply buy. You're paying other people to use their money when you have perfectly good money of your own.

racing_blue

mp80 wrote: »

I'll tell you what happened to my mum, who grafted for years living frugally and then got taken out by the Big C three months after retirement.

Sorry to hear about that