Taking a loan out to purchase a newish car

MattEng

Hi All,
I am looking for peoples opinions on taking out a loan to purchase a car which I cannot justify buying outright. I know this is highly dependent on individuals lifestyles so I will try and give a clear picture of my current situation.
I am 28, I own my own home with my girlfriend. We currently have 12 years left on our mortgage. We both work full time, We both earn a little above average and live quite comfortably, so not wanting for much but still very careful with how we spend our money. We have each been able to save a decent amount of money but are using bits of this on house renovations.
So more to the question in hand now. I have owned my current car since it was 2 years old and have owned it for 7 years. It cost me £11000 and has cost a further £3000 in maintenance and repairs so I feel like this has been a good purchase. Its now worth a little more than £2000 and has a few issues so its time to get rid.
I really want to get a new shape ford mustang. Current cost for a 2 year old with 10 to 20k millage is around £23000. My plan is to take out a Loan for this or at least most of it, And plan the loan in such a way that the repayments are around £300 per month. (£18000 over 5 years or £22000 over 7) My current plan is to keep the car for 2 years and use the loan to pay off the depreciation. My estimate is that the car will depreciate around 15% per year as it had already taken the biggest drop as it is 2 years old. So car will have lost £6400 over the 2 years. I would pay £7200 towards the loan, Which would cover depreciation and interest of loan. After 2 years I can sell the car to pay off the loan early, taking the 2 month interest fee into account. But on current 3% deals that wouldn't be much. So effectively if all goes to plan A newish mustang will cost me £300 per month + Insurance/Tax/Maintenence (Which I'd have to pay on any other car)
So what are people's opinions on this? I can't think of any lease or purchase deals which would be cheaper.
Thanks for taking the time to read my ramblings and I'd appreciate anyone's input.

Thanks Matt

foxy-stoat

If you can secure a low rate loan for £18K for 5 years, you sell it for £16,600 or there abouts in 2 years, and you dont get hit for any big bills which you shouldn't then there is nothing wrong with your plan.

Depends how confident you are that you can sell it for cash in 2 years for £16,600 on the private market, dealers may buy it for cash from you but at maybe a reduced price - depends on the market in 2020 I suppose.

tacpot12

Yes, your plan is probably viable subject to the risks outlined by foxy-stoat, but have you factored in the increased cost of insurance and servicing? Higher performance cars have more expensive parts and items like tyres can be very expensive (£200-300 each)

You also haven't mentioned whether you have pensions yet. If you don't, and you plan will prevent you from starting a pension, you will lose another two years of growth and so have to work longer when you are older. 28 is a bit old to not have a good pension plan in place.

The Ford Mustang is a nice car, but not having to go to work when you are fed up of working is better!

MattEng

I have a very good credit rating so I don't see a problem with securing the best loans on offer. (Currently 3% I believe)
My only concern is that my estimation on depreciation is just that and it's a bit of a gamble. Looking at the current figures of the Ford Mustang is persuading me that its not a completly terrible idea.
2018 32k
2017 26k 19% Loss
2016 24k 8% Loss
2015 23k 4% Loss
2014 (Older Model) 18k 22% Loss
2013 (Older Model 18k Steady Price

So I guess I need to hope the motor market doesn't take a beating and Ford don't release a new model and I should be alright.
I would look at a MK5 but I don't want a LHD vehicle, especially on UK roads.

Penelopa.Pitstop

There's new 2018 model, so 2 years old one will be previous soon. Ford is getting rid of stock cars cheaply via leasing deals. Also in couple of years from now, there will be more Mustangs available on the market, it won't be that rare any more. Prices may go down more than you expect.

https://www.ford.co.uk/future-vehicles/new-mustang

At the same time: enjoy life and car :-)

System

Factor in the higher running costs. Don't know what your current car is but if you're going for the V8 expect 20MPG or less. Other than tyres being a bit more pricier the service costs aren't going to be that much higher and Ford main dealer service prices are quite low especially once you get to 4 years old and switch to their 4+/Motorcraft services. Ford currently also offer 12 months/next service interval pan european free breakdown cover of the "take you to the nearest garage" type with every service.

As long as you've done the maths and it works, go for it. A Mustang is on my wife's list but not for a few years yet.

MattEng

I have a basic pension that I was automatically enrolled into and as of yet I have not increased my donations. I will look into that further before making any decisions on the car. Thanks for mentioning it.

I would be happy if I could find a lease deal for around £300 per month or even a PCP on a used car for the same money but I don't think that's likely. Also Its a very good point about the cars becoming less rare so will obviously come down in price.

Also I'd be looking at the 2.3 EcoBoost.

foxy-stoat

MattEng wrote: »

I would be happy if I could find a lease deal for around £300 per month or even a PCP on a used car for the same money but I don't think that's likely.

Not without a large deposit which you would end up losing.

At least your way you should end up just paying £300 x 24 plus tyres and servicing - hopefully repairs will be covered as the car will be fairly new anyway.

The new model looks more rounded than the old one - this will either be good or bad for you when you come to buy and sell.

whambar

Hi Matt

I am a bit of a petrol head and like my cars - however it is apassion that is an expensive hobby in real terms and something that took me a few years to learn - the mustang is of course a decent old school muscle car regardless of engine choice. Typically at around £22k as a buy price from a franchised dealer will have a sell price (p ex / trade) of around £16.5k so to stay in the game and stay neutral I would say you would need £6k upfront and £16k on a loan which would be around 3% APR if you are in the right profile for lender leaving you in at about £300 per month for 60 months. This would keep you the right side of negative equity in the car if you care for it and keep it serviced and but the right colour etc. Count the £6k you put in intially as dead money , as effectively you have paid the dealers margin with this.

From experience you will have little chance of selling a car over £8-9k private as most cars are bought on finance and buyers are wary of handing that to a private seller with far less condumer protection and no warranty etc - so you would end up part exchanging or selling to the trade - so it will be auction type value so a low ball. Things to consider are that regardless of which engine you choose it will be thirsty (fuel prices up nearly 30% in past few years - way above wage inflation) and its emissions will be high so changes in legislation such as changes to residents Parking schemes or emssions related tolls or road tax increase may devalue car rapidly. But you should hopefully remain ahead of the game.

I bought an Alfa Romeo 2 years ago - fully loaded with everything and in the right colour etc it was £28k New I paid £17k when it was 6 months old with 9k miles so it had already lost £11k in that period when the whole diesel Emissions thing broke I thought I would jump ship before cars prices changed for the worse (I had put £2.5k in and borrowed £14.5k at 3.1% Apr over 54 months so £257 per month) I sold this 19months after buying it to the trade (a car buyer who is a very large Wakefield based car supermarket) who bought it for £10.5k - I still owed the bank £10800 so it cost me £300 to sell it in essence - the car had lost a total £17k almost in 2.5 years.

In comparison my very sensible wife bought a brand new but pretty basic Kia Rio for £8k in 2009 that we sold this week with 21k miles on it for £2k so she spent less in 9 years then my Alfa cost in 20 months and that excluded insurance and servicing etc.

When I sold the Alfa I thought I should remove risk of depreciation so I leased a brand new Seat Leon 1.6tdi SE Tech the lease is 3 years at £173 per month including vat and RFL with 10k miles per year and was 3 months upfront (the deposit) followed by 35 monthly payments total cost £6k over 3 years which is less than a Seat Leon would depreciate in its first month. I will never own it and dont wish to and I simply return it after 3 years. The disadvantage of lease is that you cannot end the lease early as you would still have to pay the total lease remaining, must keep it in pretty immaculate condition so save a little for smart repairs at lease end and Just the usual full comp insurance and serviced by main dealer and if you exceed mileage it will cost you dear. My only regret is that I took a 3 yr deal instead of 2 years as 3 years to me is a long time to keep a car but as Im getting married the money I saved per month allowed me to pay for wedding without borrowing a penny or using credit card.

I will lease again when current car nears end as on my credit report it shows my borrowing / commitment as the cost of lease over 3 years so says £6k and has dried each month to reflect the payments made so sits at under £3k now and says operating lease whereas a loan or pcp would show far higher borrowing which may be a factor if you want a larger mortgage particularly if you are pushing towards higher loan to income ratio .

As an example of lease you can get a brand new VW Golf R for under £300 per month on a 3plus35 profile so a more modest £900 down and no worries about selling it or deprication - car makers are always looking to shift stock so it is worth looking at a car lease brokers special offers as there are relative bargains eg: VW Golk GTIs can be leased for around £260 per month. This is very long winded sorry - but I think if you can afford it and love you cars the mustang is nice and your approach is good but in essence you will be leading it from the bank as you will just be ahead of negative equity -

if you love cars and want to be more prudent lease is worth consideration, if you want a car that sounds real mean that you can own maybe consider a Chrysler 300c SRT model - 5.7 or 6.1 hemi engine used which will be £9-12k used - this has such a cult following it would fetch almost the same In a year or 2 when you get bored with it

anyway hope this helps

sourcrates

Please.......use paragraphs !!!

MattEng

Thanks Whambar, Loads of good advice there and I've thought it over a lot during the weekend.
I would really love to own the Mustang and financially I could afford to do so but I'm beginning to think that worrying about any damage to it may drive me crazy.

I have been looking more towards a lease deal now on a more sensible car. Do you have any companies you would recommend?

Thanks again for your advice.