Residual on finance

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NickyJ

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Hello there,

For various reasons I have to buy a cheaper car than what I currently have, which is a 2012 Polo Vivo, but obviously going cheaper than R 2200 pm will not get you something newer than 2010, MAYBE. So my question is, if I HAVE to drop by at least R 800pm, would it be worthwhile to go the residual route, or rather just get something older and try to save money in the meantime for a deposit on a new car in 5 years time? Options to buy without residual would be a Ford Fiesta 2007/2008, with residual Ford Figo or Hyundai I20 (if I get lucky with a deal).
This is quite a sad thing I have to do but unfortunately I do not have very many options at this point.

Thx guys.
 
Avoid residual at all costs.

If you have to go cheaper for financial reasons, all the residual will be doing is deferring the financial pain to a later date and when it comes it will hurt a hell of a lot more.
 
Please don't take a residual structure, it's never a good idea unless you're investing the residual amount with a higher return than the debit interest rate
 
FalconZA said:
if you have to buy a car using a residual, you cant afford the car.

simple as that.
Click to expand...

Yeah I understand not being able to afford something. That is the whole problem. But thank you for the input.
 
Thank you for your assistance guys. So with residual being a lousy idea, any input on the car choices?
 
It can be a bad idea ; it isn't always a bad idea.

If it was always a bad idea, you wouldn't mind the wealthy and financial savvy making use of them often - people that can pay their car off many times over
 
Currently I am paying R 2200, plus R600 insurance. Need to drop to at least R 1500 with the car and hopefully another R200 - R300 on insurance. So budget would be R65000 max.
I have a 7 year old son so I need something reliable and economic, driving to all the activities can become hectic. Obviously also something that will last for the next 5 - 6 years - I don't plan on buying a new car every 3 years.
 
Dolby said:
It can be a bad idea ; it isn't always a bad idea.

If it was always a bad idea, you wouldn't mind the wealthy and financial savvy making use of them often - people that can pay their car off many times over
Click to expand...

:) Touche. But gathering from replies, for me it would not be the best thing to do, so I was more referring to that with my reply.
 
NickyJ said:
Hello there,

For various reasons I have to buy a cheaper car than what I currently have, which is a 2012 Polo Vivo, but obviously going cheaper than R 2200 pm will not get you something newer than 2010, MAYBE. So my question is, if I HAVE to drop by at least R 800pm, would it be worthwhile to go the residual route, or rather just get something older and try to save money in the meantime for a deposit on a new car in 5 years time? Options to buy without residual would be a Ford Fiesta 2007/2008, with residual Ford Figo or Hyundai I20 (if I get lucky with a deal).
This is quite a sad thing I have to do but unfortunately I do not have very many options at this point.

Thx guys.
Click to expand...

You might be able to get a 2011 Ford Figo for around R75 000. That's would cost you about R1769pm. Its insurance will probably be around R400 to R450 depending on your risk profile.

You wont get a 2007/2008 Ford Figo, they didn't exist then, just the Ford Fiesta.
 
supersunbird said:
You might be able to get a 2011 Ford Figo for around R75 000. That's would cost you about R1769pm. Its insurance will probably be around R400 to R450 depending on your risk profile.

You wont get a 2007/2008 Ford Figo, they didn't exist then, just the Ford Fiesta.
Click to expand...

I had a 2007 Fiesta and it was a great little car, thinking that might be the way to go then.
 
Dolby said:
It can be a bad idea ; it isn't always a bad idea.

If it was always a bad idea, you wouldn't mind the wealthy and financial savvy making use of them often - people that can pay their car off many times over
Click to expand...

The "financially savvy" would never make use of residual value to purchase a car. It's the most expensive way to finance a vehicle. The wealthy may do so, but that's may be because they can afford to be stupid just to have a flash car that is beyond "normal" financing methods. I believe that the really wealthy actually lease cars (at a major loss basically) in order to be able to get the latest and greatest every two years or so.

But, as the OP indicated, finances are a concern at the moment and it would be extremely stupid to choose the most expensive financing method under such circumstances.
 
Splinter said:
But, besides my stoic reply, care to give an example where residual would make financial sense?
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If you can use the cash on hand to invest at a rate of return greater than the interest rate on the capital loan amount. Then it would make sense to maximise available cash on hand to invest by taking a residual.
 
NickyJ said:
I had a 2007 Fiesta and it was a great little car, thinking that might be the way to go then.
Click to expand...

Why not investigate consolidating you debt with a second bond on your house. The interest rate difference might be the key to keeping the car.
 
Splinter said:
But, besides my stoic reply, care to give an example where residual would make financial sense?
Click to expand...

There's one :

reactor_sa said:
unless you're investing the residual amount with a higher return than the debit interest rate
Click to expand...

Do a quick poll among people you know.

I tried it a few years ago and I promise you the wealthier and more educated either said 'yes' or 'depends'. The more 'average' were dead against it. I'm not a finance person myself and get the information from others - but really do that poll. Go to your CEO, CFO etc and then go to some of the younger PAs and see how they differ in their replies.

I'm trying to find some link on it now, but so far check this :

http://www.dailyfinance.com/2013/02...y-from-middle-class/#!fullscreen&slide=977574

1. The middle class focuses on saving. The wealthy focus on earning.
"We're taught to save, but we end up without enough money," says Siebold. "The average income per person in 2012 was $38,000. If you save 10 percent, you'll have $3,800 at the end of the year. That's not a model for wealth-building, and you'll never get rich that way."

Siebold says that rich people save money, too, but first they focus on boosting their earnings so that the percentage they save will be more meaningful.
 
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For me it works, because I use my car for work, do 30-40k per year. So I shall never own the car, or pay it off.
I see my monthly payment as a rental amount, and I keep the car only as a tool. I don't add anything to the vehicle, just replace rubber and glass if needed, and use service plan to service.

Every 2.5 year i trade in and take another vehicle. I don't getting any money back, hence my rental opinion.
 
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