Interest rate slaughter

[Nangi]

C'mon, man. No-one is suggesting credit is bad or that you should buy your house cash. This is not a moral or binary issue, either all one or all the other. It depends.

Long term debt is for most of us an essential mechanism for acquiring fixed property, for example.

But going into debt to fund consumables is the road to ruin.

All I am suggesting is that for most young people starting out their working lives, going into multi-year debt for the capital component of their transportation costs is imprudent and unwise.

I have seen it dozens of times ... Young man finishes school or university, gets his first job, and within three months has two thirds of his nett emolument committed in hire purchase contracts, all at max ladofca interest rate. Within a year the financial stress begins to take its toll.

One in a thousand takes the long term view, drives the fifth-hand hand-me-down from mom or gran for as long as possible, saving every spare cent.

Five years later, our first lad drives his second new car (the first was pranged), pays the same percentage of his pay servicing debt. The prudent one buys a new car cash, and is putting the rest into fixed property, RAs, our some other investment. Ten years later we see the really big difference. Etc.

This ability to take the long-term view, to sacrifice immediate gratification for long-term benefit, is of course also evident in the person's approach to work and other areas of life. Usually they're your best employees, and very often fast track to senior management or end up being entrepreneurs and business owners.

They understand how to balance today and the future.

A single person starting out their working life with a brand new motorcar financed through a debt with instalments more than 10% of their take-home pay is in my experience a good indicator of someone who can't see tomorrow.

I get your point, but you are making your conclusions based on what you assume my salary might be.

 

[Arthur]

Of course I know nothing about your particular circumstances, Nangi. Nothing is really personally directed, so apols if it comes across as such.

Your post really just occasioned my general observation about the propensity of young people to rush into debt for expensive cars and gadgets. You might well be an exception, and I hope you are.

 

[SauRoNZA]

If you cannot get to work, you are not going to earn a salary. Car finance is a necessary expense. Just make sure it is not too big an expense... and you'll be fine.

He didn't say don't buy a car.

He said buy a cheap one cash.

Personally I don't understand the need to swop the Renault Clio out for anything I would have just kept that and used the odd money I would have used on the new installment for maintenance. Even if he spends 20k on it in a year it's still cheaper.

OP : you can't negotiate the interest later so instead Just boost your payments and get it done faster so that you don't pay that much in interest overall.

 

[Quantum Theory]

He didn't say don't buy a car.

He said buy a cheap one cash.

Read the rest of the conversation. The guy kept editing his posts. His first post basically told everyone to buy all their cars cash, otherwise they cannot afford them... Not possible, most of the time.

 

[SauRoNZA]

Read the rest of the conversation. The guy kept editing his posts. His first post basically told everyone to buy all their cars cash, otherwise they cannot afford them... Not possible, most of the time.

Yeah sorry I only caught up down the line.

I do agree with the sentiment of vehicles costing less than 10% of your monthly salary though. Insurance included.

 

[Goliath]

So I just ordered a new Polo... 1.6 C/Line, Metallic blue, Panoramic sunroof, cruise, arm rest, RCD-320, 5yr 60 000km service plan.

After a R21000 discount because there's a new one due, became R232 000. Theyr giving me R20 000 for a 2005 Renault Clio 1.2 16v with 211 000kms (Dad's car, letting me use it as a deposit so I cant really complain about that).

The best interest rate they can offer me is 13.5%, apparently MFC refused (1st time buyer, been working for 4 months only). I'm taking VW insurance at R399. Is there a way to renegotiate the interest rate at a later stage when I have a better credit score? Or am I stuck with this interest rate until the car is paid off (planning to keep the car until it falls apart, that's if someone doesn't steal it)

Edit: added the 16" alloys too

Had same problem with interest rate with my Getz.. got prime plus 3 back in the day cause of my low income(still article clerk at that time), took it anyways and paid car off in 2 years instead of 5! And still driving it

 

[Nangi]

He didn't say don't buy a car.

He said buy a cheap one cash.

Personally I don't understand the need to swop the Renault Clio out for anything I would have just kept that and used the odd money I would have used on the new installment for maintenance. Even if he spends 20k on it in a year it's still cheaper.

OP : you can't negotiate the interest later so instead Just boost your payments and get it done faster so that you don't pay that much in interest overall.

Yes, but there is also the priceless point of enjoying the drive. People live for the future so much that they forget to live now. Its like your whole life is lived to ensure you are safe at retirement. So you make all these investments, drive a car you hate all your life just so that you can retire well with an X5 in the garage which you drive once a month? I get everyone's points, but there needs to be a balance. The Polo is where my balance is at the moment.

 

[Nangi]

Had same problem with interest rate with my Getz.. got prime plus 3 back in the day cause of my low income(still article clerk at that time), took it anyways and paid car off in 2 years instead of 5! And still driving it

That's the plan!

 

[Arthur]

Yes, but there is also the priceless point of enjoying the drive. People live for the future so much that they forget to live now. Its like your whole life is lived to ensure you are safe at retirement. So you make all these investments, drive a car you hate all your life just so that you can retire well with an X5 in the garage which you drive once a month? I get everyone's points, but there needs to be a balance. The Polo is where my balance is at the moment.

Good point. The only reason to delay gratification is so you can have longer and more enduring "presents" not stressed out by massive debt.

There's a thread here somewhere by a 33 year old who's share portfolio just cracked R2m. He can plonk down cash on pretty much any car he wishes, with change.

Saving now means it's so lekker when you finally buy that curvy 3 litre sports sedan with the five speed box. Cash.

 

[Rouxenator]

Yes, but there is also the priceless point of enjoying the drive. People live for the future so much that they forget to live now.

There is a balance in that. I can easily 'afford' a new A6 or E-class but I don't like having a depreciating asset on debt. I rather put a little extra into my bond, my house in Stellenbosch provides me with plenty enjoyment.
My cars also give me joy, especially considering one is 13 years old already. My view of people that go deep into debt and buy boring tasteless cars is like someone that pays for a very high price hooker on the budget plan of his credit card and then gets aids... or even worse, a Polo

 

[Nangi]

Good point. The only reason to delay gratification is so you can have longer and more enduring "presents" not stressed out by massive debt.

There's a thread here somewhere by a 33 year old who's share portfolio just cracked R2m. He can plonk down cash on pretty much any car he wishes, with change.

Saving now means it's so lekker when you finally buy that curvy 3 litre sports sedan with the five speed box. Cash.

That's awesome. Great for him. But if it were that easy I'm sure we would all be millionaires. You never hear about the guys who lose R2 million, you always hear about the ones who make R2 million.

I don't think there are any 5 speed 3 litre sport sedans anymore, unless you are talking about a skedonk again

 

[Arthur]

I'm not the current on sporty sedans, I must confess. Over time one's tastes evolve inexorably to MB, and they have some nifty carriages with a decent mill. Also, if you plan right, your wallet catches up.

Good luck. And enjoy!

 

[Nangi]

There is a balance in that. I can easily 'afford' a new A6 or E-class but I don't like having a depreciating asset on debt. I rather put a little extra into my bond, my house in Stellenbosch provides me with plenty enjoyment.
My cars also give me joy, especially considering one is 13 years old already. My view of people that go deep into debt and buy boring tasteless cars is like someone that pays for a very high price hooker on the budget plan of his credit card and then gets aids... or even worse, a Polo

Which is why I said the Polo is where my balance is... There will come a time when I will have given up on life, just living day by day, then I'll go out and buy a used Chana Benni, or worse, a new Opel Corsa 1.4 Essentia. Until then, lemme enjoy my sunroof!

 

[SauRoNZA]

Yes, but there is also the priceless point of enjoying the drive. People live for the future so much that they forget to live now. Its like your whole life is lived to ensure you are safe at retirement. So you make all these investments, drive a car you hate all your life just so that you can retire well with an X5 in the garage which you drive once a month? I get everyone's points, but there needs to be a balance. The Polo is where my balance is at the moment.

You are 100% right about balance.

Which is why for ten years I drove an Opel Corsa Lite (which I still own) so I could happily afford the motorcycles I chose to use as daily transport instead.

Thing is my first bike was 65k second hand, second was 85k new and the most recent about 120k new.

All three over a period of about 11 years cost me about the same as your new Polo does in one shot. Yes the car has a whole lot more stuff and bikes are extremely expensive on that comparison but for purchase price and cost it's significantly cheaper.

Then beginning of 2012 I bought a second band Golf V GTI because I'm also a petrol head and want to enjoy my driving.

This is a drivers cars and infinitely more so than a Polo although has less features I'm sure compared to a brand new car today. It did however cost me less than your new Polo and I paid half of it cash so my installments for my brand new bike and this car are still <10% of our household income.

I'm also boosting payments on both so they will be paid up in less than 40 months.


The fact is that the interest rate you are being offered tells your story of affordability. Yes you are right about balance and yes you are right that we don't know your income.

However that interest suggests that you are very close to hitting the 30% of monthly salary mark and that I think was Arthur's point that it's a bad idea.

10% of your income to enable you to make money easily by getting to work is a no brainer. 30% is just burning money.

 

[Nangi]

You are 100% right about balance.

Which is why for ten years I drove an Opel Corsa Lite (which I still own) so I could happily afford the motorcycles I chose to use as daily transport instead.

Thing is my first bike was 65k second hand, second was 85k new and the most recent about 120k new.

All three over a period of about 11 years cost me about the same as your new Polo does in one shot. Yes the car has a whole lot more stuff and bikes are extremely expensive on that comparison but for purchase price and cost it's significantly cheaper.

Then beginning of 2012 I bought a second band Golf V GTI because I'm also a petrol head and want to enjoy my driving.

This is a drivers cars and infinitely more so than a Polo although has less features I'm sure compared to a brand new car today. It did however cost me less than your new Polo and I paid half of it cash so my installments for my brand new bike and this car are still <10% of our household income.

I'm also boosting payments on both so they will be paid up in less than 40 months.


The fact is that the interest rate you are being offered tells your story of affordability. Yes you are right about balance and yes you are right that we don't know your income.

However that interest suggests that you are very close to hitting the 30% of monthly salary mark and that I think was Arthur's point that it's a bad idea.

10% of your income to enable you to make money easily by getting to work is a no brainer. 30% is just burning money.

Point taken. But at the same time how many responsibilities do you have? Because I have none. I think there are too many factors to consider, this 10%, 20%, 30% blanket statement cannot be applied without looking at the complete picture. Yes you might spend less than 10% on your car and bikes, but you might also spend 20% on your children, which I don't have, etc etc. I'm of the opinion that affordability depends on where you want/expect your life to be after a certain period of time vs how you want your life to be now. I could've easily went out and bought a Focus ST, and If I used the 10% rule I wouldn't have bought the car because it would not have been an upgrade.

 

[Fazda]

The chance of ever saving enough to buy a semi decent new car for cash, whilst you catch taxis is beyond 95% of the people in SA, I'm afraid....unless they join the EFF and become instant MP's that is!

 

[Sinbad]

I'm not the current on sporty sedans, I must confess. Over time one's tastes evolve inexorably to MB, and they have some nifty carriages with a decent mill. Also, if you plan right, your wallet catches up.

Good luck. And enjoy!

And either 6 speed manual, or 7 or 8 speed auto

 

[SauRoNZA]

The chance of ever saving enough to buy a semi decent new car for cash, whilst you catch taxis is beyond 95% of the people in SA, I'm afraid....unless they join the EFF and become instant MP's that is!

Yeah that is the stark reality.

Which is why I don't go for cash but rather mostly cash and low monthly cost in this regard.

 

[Quantum Theory]

And either 6 speed manual, or 7 or 8 speed auto

...and dual clutch, also 2 litre supercharged turbo > 3 litre naturally aspirated

 

[SauRoNZA]

Point taken. But at the same time how many responsibilities do you have? Because I have none. I think there are too many factors to consider, this 10%, 20%, 30% blanket statement cannot be applied without looking at the complete picture. Yes you might spend less than 10% on your car and bikes, but you might also spend 20% on your children, which I don't have, etc etc. I'm of the opinion that affordability depends on where you want/expect your life to be after a certain period of time vs how you want your life to be now. I could've easily went out and bought a Focus ST, and If I used the 10% rule I wouldn't have bought the car because it would not have been an upgrade.

For sure. Like we already established we can't see into your life or your finances.

It's all relative.

On one hand hindsight being 20/20 I think back to what if I didn't buy that first bike and invested the money instead where would I be ten years on with that cash, not quite retiring but certainly sitting with a chunk of change.

At the same time if I didn't buy it I would have missed out on a great many experiences that ultimately made me the person I am today.

It was just a statement to make you think twice. If your conclusion was that it's still affordable to you and that you aren't overspending or buying emotionally then it did exactly what it was meant to do.

Most young people don't even have these conversations online and simply take the first deal thrown at them, so you've already won, over most people, in that regard.

If I was in your position though I wouldn't look at the 20% I spend on my children as per your example as more money to spend on a car. I would look at it as more money I have free over other people and invest it instead. But that's just me and I'm a Jew like that and we aren't all the same.

But do consider yourself at 40.

Important question though. Have you got medical aid? Have you got an RA or other investments in the region of 15% or more of your salary?

If the answer to both those questions is no, the you shouldn't be buying this car.