Financed cars are becoming ever more
alluring to young people who have recently got on the job market, a
chance to drive around in a brand new car, looking cool amongst
friends etc... You regularly see adverts on the TV or on billboards
saying 'Buy now for only £75 per week'
On the surface this can look like a
reasonable purchase, especially in a £15-£20k starting salary job
with no outgoings. However I would argue the exact opposite.
I have done a bit of light research and
looked at the figures and was shocked by how mad of an investment
financed cars are.
I looked at a BMW 116 d as I regularly
see people driving around in these around my home town who can't be
any older than 22.
An initial deposit on the vehicle was
£299 with monthly payments of £348 (Inc interest) over the course
of 47 months. On a car that is worth £22,359.39, that works out at a
total price over the 4 years of £25,379.95 (With a one off payment
of £8707.50). Already a loss of £3,020.56 on interest payments.
Of course the argument you could say is
that after the whopping £25,379.95 price tag, you still retain the
car at the end of it which is an asset and has a resale value. I then
looked at the equivalent model but 4 years old, to come up with a
rough estimate of how much the car would be worth after the 4 years.
I found the model up for £7,595.00, which would mean the buyer of
the car would have lost £17,784.95 by the end of the 4 years due to
interest payments and depreciation.
Which is probably around a years salary
for the young buyer after tax.
My advice: buy a second hand car, go
travelling with some of the savings and stop wasting your hard earned
money on materialistic products.
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The figures break down:
BMW 1 SERIES 116d
£300 deposit
Loan payments £16,373.45
Loan payments £16,373.45
Baloon payment at end £8707.50
Total payable: £25,378.95
47 months of £348.37
47 months of £348.37
Value of 4 year old equivalent model:
£7,595 with 37,000 miles on the clock.
Total cost of car = £25,379.95
Depreciation loss = £14,764.39
Interest payments loss = £3,020.56
Interest payments loss = £3,020.56
Total loss of capital = £17,784.95 @
end of 4 year term.
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