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Car loan - to take or not?
Rank: Member Joined: 10/26/2008 Posts: 380
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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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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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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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Rank: Elder Joined: 6/27/2008 Posts: 4,114
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@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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Rank: Member Joined: 5/16/2009 Posts: 145
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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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Rank: Veteran Joined: 10/6/2007 Posts: 1,177 Location: Nairobi - Kenya
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'...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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Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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@ 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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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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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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Rank: Veteran Joined: 5/18/2008 Posts: 796
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@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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Rank: Elder Joined: 6/17/2008 Posts: 23,365 Location: Nairobi
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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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Rank: Veteran Joined: 10/6/2007 Posts: 1,177 Location: Nairobi - Kenya
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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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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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@kamaa
Very true. but i think cars are quickly moving from being a luxury to a need. whats with having to criss-cross town to work,own a house(if you cant afford kileleshwa,milimani etc,you better be making friends with people in juja,ngong,rongai,mombasa road and the like),take kids to school,go for your evening classes and do some side show jobs that complement your day job. You need the convenience and also to save time. Sometimes,its may actually turn out to be cheaper to have a family car than take public means - considering the schools are charging a leg and an arm for transport only. Ask anyone with a kid living on say Mombasa Road and going to school on Ngong Road.... multipy that by 3 if you have 3 kids(which is roughly the average for a typical kenyan family)
Experience is what you get when you don't get what you want.
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Rank: Member Joined: 10/26/2008 Posts: 380
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@Mukiha..
As i said,the decision to buy car is made.. whether its on loan/cash is the issue here.
I am at a point where i need a car to run more errands,and the convenience in it will make me more money in the long run. Its not a luxury.
I appreciate the fact that it is a liability,and will lose value in the long run.. whether its bought with cash or a loan.. it will still lose value.
@stonemimi
Whats the rationale behind taking a bank loan + cash for the car.. and then taking a sacco loan to invest?
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Rank: Veteran Joined: 10/6/2007 Posts: 1,177 Location: Nairobi - Kenya
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@ wendz a car is essential and will always remain a such,but for the owners cum users (in most cases the privileged)... i don't intend to discount its usefulness to the the rest of the world but i must say that it depends with an individual and the way he/she perceives it... i don't know why but i know it is addictive and the same reason make it essential to those who have tasted its goodness... i get to wonder if it will still be essential when the psv sector (road & rail) will be to the like of the western nations... 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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Rank: Member Joined: 10/17/2008 Posts: 338 Location: Kenya
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@Kamaa..psv system becoming like the one in the West will probably happen Post Jesus' 2nd coming. if you are sure you can afford to maintain the car,pay the interest and the repayments then go for the sacco loan and invest the other money somewhere else. i know of pple who get loans to buy cars from banks and fuel the car with an Overdraft from the same bank.. A little Blindness is necessary when you undertake Risk. Think the unthinkable but wear a dark suit
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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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@kamaa
If our public sector is streamlined and becomes like the western nations,then the car will not be as necessary as it would be today and i believe majority of kenyas would be enticed to leave their vehicles home. why,because there will be specific schedules of when the vehicles leave and arrive at a certain destination. that way,every is able to organise his/her around that time.
Picture the current situation and morning dramas where say on bad day day you have fixed a meeting at 9am(and this is not to say if I dotn have a car i wont make it to the meeting) then you go to a bus stop not knowing if yo will get a mat or not. catch one,and you are coming from mombasa road. on reaching GM,the dude decides that enterprise road is better and heads that way. Finds jam at Tetra pack and decides to use mlengo towards south B on some rough road. On reaching the middle,the road is blocked so he goes back to enterprise road (If the bugger is lucky not to be arrested and he refunds you money and you have no idea if to take mats going back to mombasa road or jogoo road!!! daaaaaamn!) follows the jam till city stadium and after getting to that muthurwa roundabout,takes the road going to nairobi river because he has found some jam there na 'amechanuka'.... and comes back to town via nyamakima side and leaves you at 'tusker'.... the meeting is at upper hill and ( and you are lucky if you have no kid in tow to drop at (what's that school opposite jeevanjee gardens?).... now you trek ( and you lucky if its not pouring in this particular morning) again to railways to catch some mats to head to upperhill which drop you opposite NHIF coz the meeting is at victoria towers!!!! all this in a morning!
And dont mis-interpret what i write here... this does not mean i dont use a mat.... on the contrary... i do,all the time... just highlighting the dramas.... on a bad day
Experience is what you get when you don't get what you want.
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Rank: Veteran Joined: 5/20/2008 Posts: 1,126 Location: Nairobi
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... go for the sacco... @ Wendz That's an interesting piece. One thing I can attest to though is that mats,esp. Eastlands mats are the fastest means of transport on land... whether there's a jam or not.... one day just go spend at your friend's in Buru.... the next morning let him take his car ... even map for him the best route... then take a nganya,the likes with screens everywhere,loud music e.t.c.... I guarantee you you'll reach commercial before the guy On the other hand,when there is a bad jam somewhere and you are on a personal car,you might take hours while if you were on PSV,you can easily alight walk on kidogo and take another one.. Anyway both have advantages and disadvantages but top on the car's advantages is comfort When we pray in praise to God,he makes a difference in our lives. JOIN MY FREE MINI-COURSE FOR WRITERS. CLICK HERE
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Rank: Member Joined: 9/7/2007 Posts: 168 Location: Nairobi
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Case scenario Analysis
Assume you borrow Ksh 500,000@12% for three years to buy a Toyota,mmmm say Corolla 110/111 KAZ Registration.
Total Cost of Car Acquisition
Ksh 500,000 at 12% per annum for 36 months = Ksh 16,607 monthly repayment.
Total repayment after 36 months = Ksh 16,607X36 = Ksh 597,852
Plus loan arrangment fee and insurance 3% = ksh 15,000+597,852=612,852
Car's Expenditure for the Three Years
Insurance/year @4.5% = Ksh 22,500X3=67,500
Fuel at ave of 12,000km/ year where the car does ave 12Km/l =1000litersX78(today's price) = Ksh 78,000X3=243,000
Service both major and minor per year Ksh60,000X3=ksh180,000
Miscelanous Costs per year Ksh 30,000X3=Ksh 90,000
TOTAL COST OF BUYING AND KEEPING THE CAR FOR THREE YEARS
Ksh 612,852+67,500+243,000+180,000+90,000=Ksh1,193,352
Basicaly,a mere Toyota 2nd hand will cost you Ksh1.2Million.
That's food for thought
each day is a gift from God; I dont know if I will be here tomorrow; should I be,I'll make the most of it for God's glory; should I be not,pick up and keep the legacy
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Rank: Veteran Joined: 10/6/2007 Posts: 1,177 Location: Nairobi - Kenya
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@ wendz yes a personal car saves the hustle & the madness associated with the mats... @ akowally i concur. mat za buruu are like usain bolt on a track event... @ mkristo that is a good piece of calculations... even though the comfort associated with the private car cannot be quantified.... 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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Rank: Veteran Joined: 5/20/2008 Posts: 1,126 Location: Nairobi
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Yeah,like I said,people pay a lot for comfort. That is why a soda is 20 bob,at Walkers it's 50 bob,at Carni,I think 70 bob,at Stanley 110,et cetera .... and in all these places you'll find people. As long as someone still has his basics,as a Christian he tithes,saves,invests e.t.c. he can pay for whichever comfort he pleases ........ When we pray in praise to God,he makes a difference in our lives. JOIN MY FREE MINI-COURSE FOR WRITERS. CLICK HERE
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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True,if I lived in Buru,I wouldn't buy a car...
Mats are 24 hours,so you can still rave till the wee hours of the morning...
Nganya's don't recognize traffic jams and will get to town an hour earlier than persons in their private cars...
But what about those of us that don't live in Buru...
Where there are no shortcuts or alternative routes for the 20KMs to town...
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