Low Interest Rates From 3.99% Fixed – 5.08% Comp Rate
When buying a car there are 3 major considerations i.e. what is its purpose, type of vehicle and what is the cost of ownership.
There are a number of factors in each of these 3 categories to work through to decide which vehicle suits you and your situation best.
- Off road
- Shopping basket for getting from A to B
- Model e.g. ute, sedan, wagon
- Tax benefits
Multiply these factors and that is 120 different scenarios that will run through your mind to narrow down your decision making on what are the most suitable vehicles for you to test drive. Most of these scenarios will have already been done subconsciously and are common sense; but are they?
The PURPOSE of the vehicle will already be decided for you; a tradie may be buying a work ute or van, a family could be buying a wagon or SUV, maybe a sports car for a single person or couple for weekender or leisure use, a 4WD for a farmer or a small hatchback for getting to and from work or the shops.
When it comes to TYPE it gets more interesting.
BRAND: your focus will be on reputation, reliability, economics, resale, specifications and aesthetics.
Ask yourself some of the following questions:
- Am I going to happy driving a Japanese car when my neighbours are driving a European car? Is impressing my neighbours a priority?
- Japanese and Korean vehicles are highly reliable and less costly to run and repair?
- Toyota have a higher resale value but cost more than the equivalent Nissan or Mitsubishi to buy initially so is that really relevant?
- Latest technology……Apple Carplay, Hybrid, fuel efficiency?
- What car do I feel and look good in?
Now let’s try and answer some of these questions.
Trying to keep up with the Joneses can be an expensive exercise. There will always be a friend or neighbour driving a flasher car and realistically you cannot keep upgrading your car every time a friend or neighbour buys something better. Focus on what you ‘need’, not what you want and is a smart decision for you. A new car is only a new car for a few weeks. Much like buying a Gucci handbag. It quickly goes out of fashion well before it wears out.
Cheaper Japanese and Korean cars are just as reliable, if not more so, than more expensive European cars. The cost of an annual standard service for a Mitsubishi is around $300 to $500 versus your Maserati at $3000 to $5000 (an extreme example I know, but I am saying, look at the potential ongoing holding costs of your car before buying).
Yes, some cars have higher resale than others. Toyota Hilux versus Great Wall is a prime example. You are paying double the price for a Hilux so haven’t you paid more when buying anyway. Afterall, a tradie ute is going to be knocked about and need replacing in 3 to 5 years anyway about the time a Great Wall grinds to a holt? Getting back to the earlier paragraph, you may not look as flash in a Great Wall as a Hilux, but looking cool in any car expensive car comes at a price.
Technology and accessories – these are important but not all are needs. Two examples;
- After market alloy wheels – say, $4000 for wheels to make you think your vehicle is better looking than your mates. They do not add any value or performance, just for aesthetics!
- Paint and Fabric Protection – dealers charge up to $2500 for a product that comes in a spray can and costs them $200. Will you still own the vehicle in 10 years’ time when the paint protection MAY give you a benefit? No!
Whatever car you buy, you must feel good driving it. If not, you will upgrade it sooner rather than later and every time you change your car it costs you $,000s.
Is your new car affordable given the money you earn and monthly surplus after you cover rent (or mortgage), other living costs and financial commitments?
The rule of thumb for affordability is: one third of your income covers accommodation costs, one third normal living expenses and one third other financial commitments including your car loan. So, if you are earning $60,000 per annum you cannot realistically afford an $80,000 car, if you are financing it. Right?
The cheapest way to buy a car is for cash, no argument there.
However, even though the cost of cars, relative to the average wages, has reduced significantly in the past 30 years, borrowing to assist in the purchase of your new car occurs in probably 80% of occasions.
When borrowing to buy a depreciating asset such as a car, the loan term should either not exceed the useful life of the asset or not exceed the time you are likely to own it. How often do you upgrade your car? If you normally trade up every 5 years you should not be borrowing over 7 years just to meet your budget. You will be going backwards financially and I suggest you are buying a car too expensive for your income. If you need to change your car within the first 5 years you will need to deal with negative equity
Tax Benefits – Covid 19 has driven the introduction of large tax write-offs for self employed car buyers. No better time to buy for those fortunate enough to still be operating a profitable business. The purchase price is fully tax deductible in the first year, GST refunded, interest deductible, loan fees claimable. A great time to buy for some but make sure you weigh up all the factors before buying.
Finance Specialist – Broli Finance