Is it ok to borrow money to buy a car?
‘Pay cash for everything or you’ll never have any money’
That was the advice given to me by a successful businessman when I first started out working for him at 17 years old, man that seems like a long time ago. He’d just bought a brand new Mercedes Sprinter van for his Kitchen business and paid cash for it. Now I’m sure there are many people out there, many accountants probably who might argue that there are more tax efficient ways to do things but I had to take my hat off to him, he’d done well for himself and he’s doing even better now.
That’s alright for you to say I thought. You’re loaded! How was I supposed to pay cash for a car at 17 – with no chance of help from my parents – and also afford to pay for the insurance? Anyway, I decided to take his advice and bought a low end car with the cash I had.
Elation to Dejection
All was going well for a few weeks as I made my way around the area visiting everyone I’d missed seeing for years. By this time I’d also decided to set up my own small business and so was using my car to get to and from jobs. I really was loving the freedom, until one dark day things went badly wrong. I was driving along and looked in my rear view mirror only to see a cloud of black smoke and yes, it was coming from me. Due to the large amount of money it was going to cost to fix my pride and joy it really wasn’t worth fixing at all. The car was good for nothing more than the scrapheap and my cash investment went there with it.
Let’s Try Again
So I was back at square one. Not only did I not have a car to drive around in at weekends, I also had a small business to run and I needed the car to get from A to B with my equipment in toe. I decided that I needed another car quickly so I bought another one with the cash I had left. A few months later I ran into problems with that one too and this cycle continued for a while. One day – while my car was in for repair – I totted up the amount of money I had spent buying and repairing cars and also the amount of income I’d lost out on during several periods of being carless, the figure was eye-opening! I can’t remember the exact amount but it was well into 4 figure territory and that analysis led me to disobey the sound advice of my businessman friend a year or so earlier.
Not Too Bad Considering
I went online and decided to try a car loan repayment calculator just to see how much the monthly repayment would be if I was to buy a nearly new car on finance. The payment came in at around $150 a month – according to my currency convertor. Given the year I’d had it was actually going to cost me less to finance a nearly new car than it would to keep buying and repairing the awful cars I’d had. Anyway I went for the finance option, bought a car and I’ve never looked back since. I’ve never had any big problems with either of the 2 cars I’ve financed and they have also allowed me to be reliable for my business and not to lose earnings when I couldn’t get to the jobs.
I’ll admit there must be lot of good reliable cheap cars out there but unless you’re good with cars and you know what you’re buying then it’s not always easy to find one. I’ve never bought a brand new car but the two I did buy were still under warranty when I bought them, so at least I had some peace of mind knowing that any major problems would be fixed by the manufacturer. I did have to use that service once or twice I must admit but it was in a controlled manner and at my convenience.
So what do you think? Is financing a car a bad idea full stop or is it justified in some circumstances or even just a fact of life for most?