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Originally Posted by silverbmwz3
It was supposed to  I was trying to sound like B A Baracus. |
I ain't gettin' on no plane fool
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Originally Posted by silverbmwz3
Which presumably you could spend on something else and keep your current car? Although I hadn't factored in that you had finance outstanding. If this works out financially why don't people change their cars every year or two? There must be a hit somewhere....
It almost sounds like you can change cars more frequently if you are on finance than if you buy outright which doesn't make sense to me.
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I'm actually very interested in the different ways people look at the economics of car ownership.
I think some people almost look at it as an investment, but since it's a depreciating asset it really isn't. For me it's more of a fixed monthly cost and it does seem to work out that my monthly payment is reasonably closely aligned to the depreciation.
Because my car is almost 100% financed I can't spend my monthly budget on anything else ... it's gone.
It would be more economic to use my savings to buy the car and then drop the monthly budget into my savings account. The only cost to me then would be a loss of interest on savings and the loss of some fluidity in terms of that cash. That would be cheaper than the interest cost of my loan, but not massively so.
I'd have to be careful not to spend the money elsewhere though, because the car would still be costing me the same each month in depreciation and my net wealth would reduce if I did not rebuild my savings.
So ... unless I have a cheaper older car where depreciation was not a significant cost (I'm to into cars and do too many miles to live with that) I might as well finance. (actually there are some cars that I would do this for, but most have 2 seats).
Let's say I am paying £500 a month for 3 years (plus lump sum at the end) for a car. There isn't going to be a time when that cost 'stops'. I'm never going to buy the car and am always going to swap it at some stage from yrs 1 to 3.
So the issue is simply the cost to change. Since the asset for me has no 'value' (I don't own it) so long as it clears it's finance I'm home free. So why continue to ay £500 a month till the end of the 3 yr period then change, when I could change at 18 months and pay £550 a month for a new slightly higher value car on a new deal?
There is a hit. If I change at 18 months I may need to put in a couple of grand to balance the books, because I may not clear finance. After 2 years this would be less and after 3 years it should be nil. However, I have a feeling that most people want 'nearly new' not proper 'used' when it comes to these cars. I think that the dealer will go toward the higher end of the value for an 18 month 30k car than for a 3 yr old 60K car. I think that this will lesson the relative difference between the 'costs to change'