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Car loan - to take or not?
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Mkimwa
#1 Posted : Sunday, October 04, 2009 12:07:00 PM
Rank: Member

Joined: 10/26/2008
Posts: 380
Decision has been made to buy a car. Financing is the issue.

The car will cost x. Say you have half the amount available in cash.

You also have opportunity to take a Sacco loan at 12%. Two options:

1. Pay half the amount cash,and take the sacco loan for the other half.
2. Take sacco loan,and invest your cash,say in the stock market and make about 30% in a year(which you have done every year for the last two years).

Looking for advice. Currently inclined towards Option 2.
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Wendz
#2 Posted : Monday, October 05, 2009 4:35:00 AM
Rank: Elder

Joined: 6/19/2008
Posts: 4,268
2. Take sacco loan,and invest your cash,say in the stock market and make about 30% in a year(which you have done every year for the last two years)................................ would be my choice.

I did that a few years ago and have no regrets - I put in property though and am happy with the decision today..

Experience is what you get when you don't get what you want.
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mukiha
#3 Posted : Monday, October 05, 2009 4:49:00 AM
Rank: Elder

Joined: 6/27/2008
Posts: 4,114
@Mkimwa;

I will assume that you are talking about a personal car. In that case never buy one on a loan....SACCO or BANK!!!!

A car is not a priority,unless you cannot get to work without one.....

If your employer offers you a loan,take it IF AN ONLY IF he increases your salary by an amount equivalent to your repayment inatallments (including fringe benefit tax)

Remember also that a car is a major liability....it loses a big chunk of its value the moment you sign the transfer document!!!

Behind the gardens...Behind the wall...Under the tree (Including: Red...Dark Blue...Yellow)
Nothing is real unless it can be named; nothing has value unless it can be sold; money is worthless unless you spend it.
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stonemimi
#4 Posted : Monday, October 05, 2009 6:08:00 AM
Rank: Member

Joined: 5/16/2009
Posts: 145
Since the decision to buy is made,my only option will be to pay some portion in cash and take a bank loan with vehicle as security. Then I will take the sacco loan and invest.
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Kamaa
#5 Posted : Monday, October 05, 2009 6:35:00 AM
Rank: Veteran

Joined: 10/6/2007
Posts: 1,177
Location: Nairobi - Kenya
'...the decision is already made...'

the options on the table don't sound very nice so the decision may not be nice too....

if it is a personal car,then i beg you opt out... like @ mukiha said,you will be financing a liability... otherwise,for a commercial car,then you can finance it 1/2 by savings and 1/2 by sacco loan since it is cheaper than bank loan...

if you are sure with other better investments,(whose rate of return is higher than the financing rate for the loan) then you can go for option 2...


When you run so fast to get somewhere,you miss the fun of getting there... Life is not a race,so take it slowly....
When you hear what I say, you will not understand. When you see what I do, you will not comprehend
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sparkly
#6 Posted : Monday, October 05, 2009 8:18:00 AM
Rank: Elder

Joined: 9/23/2009
Posts: 8,083
Location: Enk are Nyirobi
@ kamaa ... If the employer's loan is interest free,i would take it. why?

1. Discounting of the repayments,say in three years you pay less than actual amount borrowed.

2. After the three years,you still have the car. You can trade up,sell or hire out if in good shape.

3. Anyway there comes a time when a professional has to buy a car

Maintaining the car is the issue - Insurance,repairs,fueling,servicing etc
Life is short. Live passionately.
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Wendz
#7 Posted : Monday, October 05, 2009 8:24:00 AM
Rank: Elder

Joined: 6/19/2008
Posts: 4,268
Well,how do guys here finance their vehicles? do you buy them cash? what happened with own cash being more expensive than someone else given a reasonable interest rate? True a car is a liability just as a home is if you look at it in an investment angle but depending on what you need the car for,you find you cant really do without some of these liabilities.... because it doesnt matter whether your salo will be increased in the near future or not,that car will still remain a liability or whether financed by cash wholly or by loan. Unless you decide never to own one. May be what we can call a necessary evil at some point in your life.

Bet it also depends on circumstances.

Experience is what you get when you don't get what you want.
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mozenrat
#8 Posted : Monday, October 05, 2009 8:49:00 AM
Rank: Veteran

Joined: 5/18/2008
Posts: 796
@Mukiha,

In line with Sparkly's argument,a friend was in the same dillemna some time ago...

The company she worked for was offering an interest free car loan... While it wasn't an absolute necessity at that point in her career,she was moving up the corporate ladder and planned to change employers...

Employers offering interest free car loans are rare and in all probability she would end up working for one who did not offer the same 'benefit'....

Her argument was that if she took the interest free loan and repaid it in,say,a year... She would 'own' the car in a year and could change employment comfortably knowing that even if the new employer did NOT offer the same benefit or offered it at a higher interest rate,she would already own a car that she could trade up or trade in every once in a while...
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McReggae
#9 Posted : Monday, October 05, 2009 9:22:00 AM
Rank: Elder

Joined: 6/17/2008
Posts: 23,365
Location: Nairobi
Wendz,hata mimi sometimes hushangaa how people buy their cars,I think the issue ni kujipanga,a personal car will remain a liability irrespective of how you finance it's purchase!!!!

The chief value of money lies in the fact that one lives in a world in which it is overestimated.
..."Wewe ni mtu mdogo sana....na mwenye amekuandika pia ni mtu mdogo sana!".
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Kamaa
#10 Posted : Monday, October 05, 2009 9:52:00 AM
Rank: Veteran

Joined: 10/6/2007
Posts: 1,177
Location: Nairobi - Kenya
interest free loan equals savings appropriated upfront....and the is no harm in buying a car with it,(unless we want to assess the opportunity cost)...

i am advising against purchasing luxuries using interest bearing loans,coz at the end of the day you will have suffered both principal & interest (negotiation & standing orders costs) to get it,not forgetting the maintenance costs....


When you run so fast to get somewhere,you miss the fun of getting there... Life is not a race,so take it slowly....
When you hear what I say, you will not understand. When you see what I do, you will not comprehend
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