Elizabeth Kerr thinks the rich get richer because the poor are paying off their car loans

Elizabeth Kerr thinks the rich get richer because the poor are paying off their car loans

By Elizabeth Kerr

This week I want to add to the list of stupid things that the middle squeeze do to stay poor, with a column about our completely insane, but socially accepted, practice of car ownership using debt.

In the last quarter of 2014, 84% of people in America who bought a car did so using finance at an average of  US$26k. It’s a bit harder to capture that information in NZ as there is no one source that records it, but by my own investigation up to 75% of car yard sales involve some sort of finance; so for argument's sake let's just say more often than not people are borrowing money to purchase their cars.  

In a country where we bleat about the widening inequality between the rich and poor, no one has stopped to call out that the rich get richer because the poor are paying off their car loans.

I want to start by taking the emotion away and reminding ourselves of what a car actually is. It is a chunk of parts attached to four wheels that have the ability to transport you to your desired destination at speeds quicker than crawling on all fours.

A car has the benefit of protecting you from the elements. In turn you have to pour your money into them in the form of fuel, registrations and taxes.

A car may be a large part of the reason your bum is getting bigger, you are always rushing, and your kids can’t walk 50 metres without whingeing.

Cars are NOT outward symbols of your success, a storage locker, or a tool for courtship.

Advertisers work very hard to convince us that we will appear more attractive and accomplished if we drive their vehicles, but that’s just not true. A new car can’t hide the fact you might be a narcissist.

I find it ironic how doing something stupid like buying a car one can’t afford gets everyone’s admiration: “Look at her, isn’t she doing well; those years at uni must have been worth it because look at the car she is driving”! If only they could see the financial hole hiding under the bonnet.

We need to work hard on ourselves to push past our feelings of entitlement for a new car and remind ourselves that we are entitled to buy that which we can afford to purchase with our own money!!!

If you are broke and you can’t buy the car you want, then you have to either do without whilst you save some more, or settle for what you can afford right now.

Being able to afford the monthly finance payments on a new car is not affording the car.  

If you want to buy a vehicle but have only saved $1500 that is not a respectable deposit on a late model Mazda 3, it is a second-hand Honda Civic/Toyota Corolla – which will get you from A to B just like your more expensive model would, but without strapping you to monthly payments for the next five years.

So what’s the Alternative?

Car payments are “not just a way of life”.  It is our shallow and entitled emotions that have endorsed this behaviour; but there is another way!!!

What if I said you could use those car payments that you would have been giving to the finance company, and instead have a new car AND a healthy savings account at the same time? When it comes to car ownership you can have you cake and eat it too!

Let’s go car shopping...

Katie, my favourite fictional friend, wants to buy her first car. She wants something new and sporty looking but she has only saved $1500. She has an imaginary income that would allow her to meet the car payments if she financed a car.

The column on the left describes what may happen if she finances her dream sporty new car today; and the column on the right if she uses her money machine mind and exercises some patience and self control. (The cars were sourced on Trade Me and the calculations on sorted.org.nz).

Oh oh – I’ve already brought my car on finance… What do I do?

Okay you have a few options here – but the story isn’t great for the short term.   Firstly, you look after it as best you can, because it is a risk machine for as long as you are making payments on it. Writing it off while boy-racing does not mean the debt on it will be forgiven.  

Secondly, look to see if you can refinance the car at a lesser interest rate than you are currently paying. Be careful for loan establishment and transfer fees, which might make this not worth the hassle depending on how far through the payment plan you are.

It is unlikely, because of depreciation, that you will be able to sell your vehicle for more than the balance on your loan unless you are most of the way through the payment plan. If you did sell it and pay off the loan then you are essentially starting at the beginning again and it could be three years before you can afford a new car. So, it makes sense just to hold the one you have been paying for as it should have at least another 10 years of life if you look after it well; and this gives you time to save your money and get on the front foot to buy cash next time.

But I NEED a car like this for the kids...

No you don’t!!!

Kids need you to be smart with your money. They don’t need a certain car. Cars these days are way more comfortable than we had as kids - and I’m not sure that it’s doing anyone any favours.

Conclusion

As I have said, most of us buy stuff we don’t need to impress people we don’t know - and cars are great examples of this.  

I want us all to break up with our car fetish and start thinking with our money machine minds instead.  

Let's work hard on our own egos and stop celebrating cars as expressions of ourselves and remember them for what they are – large chunks of parts that inefficiently transport us around.  

We need to discourage car ownership using debt and be more supportive of our family and friends saving up for a new car the same way one should for any expensive purchase.  

If you have an opinion on today’s column, or want to share your idea of a great cheap reliable car suitable for those working their way up to their dream purchase – please comment below or email me at Elizabeth.kerr@interest.co.nz.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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95 Comments

Excellent logic Elizabeth - love it.
My only pause for thought is the bit about how people "bleat" about the widening gap between rich and poor.   Bleat?
Aside from that, I think it's good that you used the example of buying a nearly new car rather than a brand new car.   However,  I think most would happily plump for a decent 5 year old car and get something safe, comfortable and affordable.   You don't have to kangaroo down the road in a backfiring jalopy for two years.
The loan for this will be better coming from the bank, particularly if you can pay it off more quickly than the original term.  Finance done at the car yard gives me the heebeegeebees.
 

You've (deliberately?) missed out the important parts of what a car is.

Getting to and from work, while staying clean and dry.

Carrying groceries, tools, and family to distant locations that is across the bus schedules (buses normally run in suburbs or to/from central hubs and schools - no use if your hobby meet up is cross town...and is 6:30pm to 9:30pm).  or worse, out of town.

Things like the kids.  With working parents it's time factor.  Don't forget we're now got such an advanced successful society that you can be arrested and have your children removed for making them walk to school unaccompanied.

Even you need the asset to accomplish this task, especially more than once in a year.  Then purchase becomes likely.

But no-one gets rid of a car because it runs too well.

So buying second hand it's a matter of deciding which collection of faults or shoddy hidden fixups by the secondhand car industry you think you can handle.
Could buy new...but you pay a big premium in NZ for that privilege.

US (since I assume you're not talking Canada or Mexico) buying cars on credit at $26k.  Wow - 26k gets you a lot of car in the US.  Although we have to remember that they get massive subsides to buy SUVs, and there are incentive programs which pay you money to buy electric cars.   No such thing in good ol' NZ of course, our government is too busy asset stripping the population to actual help with change.

In Japan children are required to walk if they live within X distance of a school and to ride a bike there if they live further away. And possibly get dropped off by car if they live a long distance away. There are no traffic problems around schools at all. Japanese children as a consequence are in general, not fat.
Then again, Japan is safer than NZ because it is a fairly homogenious society, very few solo mums and harsh penalties for criminals.
It is safer too for those walking and riding because car drivers really do give priority to and take care around bikes and bikes give priority to walkers.

There are also huge cultural diifferences, with respect to decency to other peoples privacy and comfort, which is absent in most noisy Western culture.

In the US $500 a month gets you driving around in a brand new BMW. Second hand cars are more cost efficent than new cars. You may have to deal with the odd repair but overall it is cheaper. Even buying a car 2 years old and upgrading every year is probably cheaper. You would still get the benefits of the factory warranty etc too most likely. 

. double

Haven't paid more than $3500 for a road vehicle for 25 years. Currently driving a 2001 S80 T6 Volvo, pure luxury and gas gusslling power ( straight six, twin turbo, 265bhp) safe as and only done  150000 kms. Cost $3000 courtesy of trade me. Took me to CHCH and back, 1850kms, in January. Love it.
i gotta note I don't have that sort of money in my account but. Damn what happened.

Currentlt got Ford Courier ute. $15k.  had to redo complete motor for another 10k.  need it for tools and timber.

Also thinking about getting onee of these http://tinyurl.com/n92ehky  but the range is still an issue

Oohhh i quite like this.   I love how in the blurb it hits the cynics first with how fast it is and then mentions the electric motor.....

I like this - keeps the weather out.  Unfortunatley our Gummit still plans roads/transport based on the user being a 1 or 2 tonne lump of steel.  Short sighted in my view....
 

I have one of these: http://electricbikehub.co.nz/product/expedir-cargo-bike/
I have two kids under 5 so have set it up so i have a toddler seat and a baby seat and pannier bags.  The suburb i live in is hilly so the electric motor helps us get up the hills easier.    I use it for dropping off the kids and picking them up from preschool and I would argue that i am just as quick as those in a car because i can park at the door and i never have to worry about parking.
This is a great option for those arguing they need a second family car just for the kids.  It can carry a fair weight so a surfboard or toolkit would not be out of the question either.

For that sort of price why not just purchase a fancy second hand scooter?

Lots of reasons - can't legally take the kids on the scooter, dont have to pay WOF or registrations or fuel and insurances, and i like the idea of moving my own legs and getting my heart rate up as well.  (you dont have to use the pedal assistance that the motor provides all the time).   I also think it is good for the kids to see me putting in some effort and having a positive attitude towards riding a bike.  

An E-bike is a motor bike. It is a bike with a motor, hence it is a motor bike. I know lots of people who own an E-bike, and non of them ever pedal the things without the pedal assist. You'd have to be very fit to pedal them without the assist, as they weigh an average of 20kg (or more).
.
Most E-bikes are shoddily made or shoddily assmebled, or both. E-bike riders get into accidents quite often, because:
- brakes wear down a lot quicker on E-bikes, because of the speed and weight
- most people using E-bikes are not people who are used to cycling, and hence have no idea how to do a simple safety check on a bike
- they are powered vehicles but because we call them 'bicycles' people underestimate the power with which they take off.
 
All of the above is from experience, talking to people who own them, talking to people who maintain them and fix them.
 
Yes - Auckland is hilly, and yes, it takes effort. Yes, Auckland is not cycle friendly and itis dangerous to take your kids out on th bicycle.
It would be nice if more people demanded safe cycle ways, and a reduction of the inner city speed limit, instead of adding to the motorised traffic, however.....
Imean - I've seen people use E-bikes on footpaths....madness!
 

...end of year 4 smacks her overpowered sports car into a lamp post.   should have stuck with the toyota corolla! 

We buy things we don't need, with money we don't have, to impress people we don't know.
 
Most people don't turn up in their flash car, with their repayment plan painted on the window.  Which is how they manage to impress people.
 
Totally rational argument for not buying a car on finance.  If the efficient market hypothese were true, thats how people would act, as rational players. 

I physically cringe whenever someone mentions they bought a car with debt. It is monetary madness...but almost everyone does it!
I understand why people do it, status, comfort, safety etc. But they've let their emotions buy the car and haven't thought about the cost they're actually paying.
Also, 2+ car families have let themselves been blindsided by a desire for convenience at an even greater cost. You'd think nobody has working legs for walking or a bicycle anymore. Sure, you'll have days when its raining or cold, but that's what wet weather gear was invented for. You'll at least be able to throw away that gym membership...

In our present age a car is essential due to how we have laid out our cities.
Given a car is usually many months of someone's annual wage buying it via some form of debt seems to be the only avenue for many.
2 cars? well if husband and wife work in different parts of the city or even if only one works the other needs a car as about the only practical way to ship mass about ie weekly shop and transport children.
Gym membership, LOL, that does strike me as a waste of a) money and b) energy taht could be used for productive purposes.  We'll learn that this is an error within a decade or so.
 
 
 
 
 

Yes i do find it ironic that people drive to the gym.... if they didnt use the car they could negate having a gym membership all together and get their workout on the way to and from work.   Incidental excersise for the day = tick!
 

The gyms that have escalators or lifts are the best.

I agree about a car being required in many cases. Public transport can work for those who live near a popular route and then work in the central city. Two cars are often required due to different schedules and work locations. I'm not completely opposed to buying a car with debt but you must need it and the purchase price should be modest. The cheapest car isn't always the best idea but you can get cars for a reasonable price (well less than $10k).

I agree about a car being required in many cases. Public transport can work for those who live near a popular route and then work in the central city. Two cars are often required due to different schedules and work locations. I'm not completely opposed to buying a car with debt but you must need it and the purchase price should be modest. The cheapest car isn't always the best idea but you can get cars for a reasonable price (well less than $10k).

I cringe when I hear someone bought a new car.  And often the reason being is that they will have 'no problems with it' as opposed to an older car where they'll be forking out on maintenance.  I suspect the real reason that they won't admit is 'I want something flash to show off...'
A new car at 20k depreciates at a rate far higher than any regular maintenance on a cheap second hand car.  And if you know anything about cars that risk of maintenance on the older car can be (an I have many actual examples) reduced to almost zero.

My car is 19 years old, just did the cam belt for <$300 (v $800+GST quoted at a mechanics) incl alternator, power steering belts and a complete oil change (which were not in his quote), gaskets etc (had to drop the sump to jam the crank) good for another 5~6 years at which point ~=250k it will need an engine rebuild, ouchie, probably scap then.  Really most cars these days are highly reliable and long lasting with decent maintainance so there is little reason to buy new except for status IMHO. I mean a 6yr old car has 12~18+ years reasonably low running costs ahead of it and most of its depreciation behind it if my experiences for the last 2 decades are fair.   You dont need to know a lot about cars to reduce that risk IMHO just obey the simple rules of keep it well maintained/serviced, (good oil in changes on schedule) and even the 6month WOF helps with that.  Also if it sarts to run "funny" take it in immediately.  Most ppl I think simply [mis-]treat a car as disposable which it isnt, or take one on not realising the cost of decent maintainance and skimp, bad idea, then say a new car is [significantly] more reliable. 
 
 
 
 
 

Agree entirely.   This supports the illustration that buying second hand until you trade up really doesn't need to be perceived as risky.  
(Cars have come along way since my first - 1970 Honda Civic i nicknamed "rollerskate")
 
On another note: Having a new car is mistaingly seen to be less effort/stress than having a second hand car but it doesn't have to be that way if you are proactive in your attitude and seek help when you need it. 
If you don't know about cars then seek someone who does - you have plenty of cash in this scenario to afford to pay people to help you get what you want.  
No one needs to be a victim and jump into a finance arrangement unnecessarily just because they don't know alot about cars.
 

Tell me about it Steven. When I started Uni in 09 I bought myself a 1990, Hilux Surf, 130kms for 3.5k. Did all the maintenance myself so it only ever cost me in parts and time, which is pretty cheap when you’re a student. I sold it 6 months ago with 50kms more on the clock for 3.5k… I actually laughed when it sold. Bought myself a pretty flash motorbike, that was only 5k and I’d saved for it. Plus I’m now saving on gas and doing the commute in half the time. Still though I’d be lying if I wasn’t tempted every time I saw no deposit down, 1% for the first 12months…. But thanks Elizabeth for the reminder, guess it’ll have to wait.
 

A breaker bar and long socket, $30 at supercheap auto. Affix and use the starter motor to undo. Did a 2002 Lexus ES300 that way for a friend last year for the 150K service. The car was bought on my recommendation because they will do 400K. Was taken to the tyre shop where they put a rattle gun on the nut to tighten it for free :-)

My son did the right thing and went 2nd hand a few years ago. If he had pushed a bit further he could have gone new. Much to his regret. New motor, new gearbox etc was required on the 5 to 6 year ute. On the new ute he has 3 to 5 year warranty. More safety features. Peace of mind and good trade in value. No days off work while waiting for repairs. So thats what he has done this time. The new diesel engines are rubbish and buying 2nd hand is not a great bet like it used to be. With a loan at 6% a new ute is a no brainer if your job depends on it. However I do agree with Elizabeth a lot of us go overboard on our vehicles. But the pleasure of driving a new car is something I dont regret. It has taken me all over this beautiful country of ours. From Cape Reinga to Te Anau. With a plan to get to Bluff later this year. Packed with a dog and fishing gear. Yes its costaplenty. But sometimes you just gotta live a little.

If he pushed a bit further - does that mean using cash or finance?  If he could pay cash then sure buy whatever you want to.   How much did the repairs cost?  
There is a perception that having a new car will cost less over the term because of repairs.  In this illustration you can afford repairs and possibly extend the life of the car at the same time by buying second hand.   (Don't get one where parts are like hens teeth).
 

You must be talking about Holdens :)

I think you are better off buying a 3-4 year old car every year than a new car every 3-5 years. You still get most of the benefits of a new car but far less depreciation and mechanically it should be very good. Mechanical warranties can also be purchased if it is a concern. You can drive around in a much nicer slightly older car for less money. Regardless of interest, anyone buying a $25k car that is only worth $10k after 3 yrs has lost $5k a year.

I used 25% as a depreciation in my scenario but i hear some cars depreciate faster.   Is this true?

Sounds reasonable. It will depend on the make and model etc. Cheap new cars probably don't last as long so might depreciate faster. My sweet spot is around $10-12k. You can get something decent without losing a huge amount in depreication

Agree.   And in this scenario you could do that almost twice within 5 years.   
Initially I thought 25% was a ludicrous amount and almost chocked on my coffee when my husband told me.

Well the IRD allows you to depreciate vehicles at a rate of 30% p.a.!

Last vehicle was 2 years old at purchase and I drove it for 12 years and 270,000kms.  This vehicle is new, and diesel, and I intend to drive it for about 300,000kms at least.
Changing cars is the killer in costs.  I still get a wee tear when I see my old one on the road.

It's an expensive asset that sits idle for more than 90% of its life. The best rule of thumb I've heard is to "buy the cheapest car you afford to be seen in".
 
A friend of mine bought a new car, "got a good deal from the dealer his dad uses". Not sure how he financed it, but he would have been better off using that cash to pay off his $400k+ mortgage!

I think you guys are all working urban scenarios. When you are rural different rules apply. Being a rural contractor nonreliability costs you hugely in work not done. Each day off work can easily be $1k. The mileage you do can be a lot more. And seriously Elizabeth have you priced a diesel motor these days?
I have done the buying a hilux at 3 years of age and reselling it 3 years later for my original purchase. Never doing any work on it. Thats not generally possible now. The common rail diesel is a feisty piece of machinery.

Hi Belle  - can you elaborate on your comments on the common rail diesel.  I'm interested.

They dont like dirty fuel or water. In fact I dont think they like living. I am a little biased. New injectors at 60k. Under warranty there. But know several people that just out of warranty had big bills. My old hilux on a couple of occasions I put petrol in by mistake. I just added more diesel and away she went. What a trooper. Not a drop can go in a new diesel. You even have to fit an extra fuel filter on the newbies. To grab the water that condenses. I know little about mechanics and thats how it should be. So I cant help you much more than this.

An example of depriciation... A BMW 320i Sedan is $75k brand new base model.
One that is 4 years old that has traveled only 30,000 km is $32k. It comes with a BMW warranty and sevicing etc. Basically the benefits of a new car. That is $43k in 4 years. Owning a new one really doesn't make financial sense.

... especially because i bet that come years 4/5 the owner will get itchy feet for a new one again and will refinance and the circle just keeps going around and around.

Worse still, the 4 yr old one probably looks exactly like the new one. I don't think the finance side of it matters. You still lose heaps owning a new car. That said, buying a car on finance isn't a good idea unless you really need one and even then no more than $6-7k. For that money you can get something reasonably decent and reliable. Buying something too cheap can be a false economy and the hassle of getting unplanned maintenance doesn't help either.

Yes good point.  Lets come back to the fact that buying cars using debt is a stupid thing to do.  New versus 2nd hand is a different argument.

also buying more car than you need, that buying choice makes big difference.
Look at US market - the price of new disposable cars is so cheap who would bother with the labour involved in 2nd hand.

An example of depriciation... A BMW 320i Sedan is $75k brand new base model.
One that is 4 years old that has traveled only 30,000 km is $32k. It comes with a BMW warranty and sevicing etc. Basically the benefits of a new car. That is $43k in 4 years. Owning a new one really doesn't make financial sense.

Argument is flawed because you completely ignore repairs and maintenance which on an older car can become prohibitive!
why do you infer that the finance company makes all the profit? The financier  passes on proceeds to the Dealership and/or Seller, Veda, Ministry of Economic Development (ppsr registration), often a Broker, and in most cases an Insurer. Profits are split bewteen all the respective parties.
 

No, i dont agree with this comment.   Repais and maintenance apply to both scenarios but one can afford to pay the repairs and maintenance on a second hand car using cash from savings which would likely extend the life of the car as well.  
As for sharing the profits around... a very philanthropic point of view.... but should only for those who can pay cash up front.

Repairs and maintenance on new cars? 100K warranties.....free servicing for the 1st 12 months!!!
Some people can't afford to buy new and some people cannot afford not too.....everyone should do the figures specific to their circumstances........
 
If someone can save up $25K then I think it is a terrible waste of money to go and buy a brand new car...why not invest the money somewhere and use some of the income off that investment to pay for your car payments???? If people are going to be savvy with money then growing their asset base is highly important.

Excluding 'wear and tear' costs, which really is most maintenance replacement items, and any tricky faults the dealer decides is not covered by the warranty. Come on.

No, the repairs on older cars far exceed good brand new cars.
older cars looking 2 - 10k in 5 years.
new car should only be running and maintenance for the same period.

Don't buy any depreciating assets on finance. And minimise the amount/magnitude of deprecating assets in your life.
 
If you are serious about low costs over the life of the vehicle (you should be) then the car should meet these criteria:
- at least 4 years old
- low mileage
- as simple as possible - manual transmission, no turbos, no fancy electircs
- japanese (preferably toyota/honda)
- as small as possible (physical size and engine size)
- pay cash and haggle hard
 
Even better, go without a car. I lived several years pre-children without one.  A taxi back from the supermarket once a week and a rental for a the occasional long distance trip is much cheaper than running a car 365 days a year.If you must have a car, minimise its use - walk/cycle more and choose to live close to things you need the most.
 
My total car cost (depreciation, petrol, tyres, rego, WOF, servicing, fully-comp insurance) for a family of 4 is $2948/year.

Thank you Kiwimm.   Agree.
People often say they need a certain car for those once a year 'road trips'.  I think they would still be better off with a cheaper car and hiring a vehicle to get where they need to go for that trip.
As for groceries.... the entire world can now be delivered to your mailbox/doorstep these days largely negating the need for a car at all.   If not, one could take a taxi every week and still come out better off in the end.

Don't but a depreciating asset on finance? A house is a depreciating asset.

you don't normally get savings for cash, as the company gets "commission" (kickbacks) on the finance deals.

>>>> - as simple as possible - manual transmission, no turbos, no fancy electircs
There's nothing wrong with modern autos, will not cost any more to maintain, and on the 2nd hand market auto cars tend to be a little cheaper because of scarcity of manuals.
>>>> - japanese (preferably toyota/honda)
Oh goodness go get a job at a used car yard. You can con people into paying the 10 or 20% unjustified market premium on 2nd hand Jap cars while the smarter folk will get a deal on certain more undervalued Euros, or god help me even a Commodore.
>>>> - as small as possible (physical size and engine size)
It may give fuel savings in urban usage but particularly for rural folk a larger car and engine doesn't necessarily equate to higher costs so this is an unjustified generalization as well.

manuals have less tricky parts and don't need bands checked/maintenance by specialists.  Also manuals are more efficient on normal driving, and better for towing (stronger, cooler, more efficent).

Yes, with the mass production there is less motive for cars to come out in manual (or "stick" to use the US term) and that closes the gap on production cost and parts.

I find that for most short distance drivers the efficency vs getting gear shifting right actually comes out in favour of the automatics, as the bands are normally set by the manufactures to show off the best spec numbers, while with manuals people tend to either under rev or over rev.

>>> manuals have less tricky parts and don't need bands checked/maintenance by specialists
 
Come on if you need to rebuild an auto before 200,000 km it is either a crap model or has been thrashed. How often do you replace clutch bits?
 
>>> better for towing (stronger, cooler, more efficent).
 
I disagree - towing on a manual results in way faster wear on syncmesh and clutch plates. With an auto you just churn oil in the torque converter. With a proper transmission cooler you're fine. Underpowered city cars sure don't tow with them, but how many Vitz's with towbars do you see.
 
>>> and that closes the gap on production cost and parts.
 
I was talking purely about the 2nd hand market which has its own supply & demand pricing, anyway in the cars I'm interested in I've always found the manuals harder to find and a little pricier.

Owning a flash new car makes a lot of sense, if you have a profitable business. You can offset the depreciation off against the tax you pay, so in reality it costs a lot less for some people to drive flash new cars than others.
 
The breakdown of private vs business sales of new cars would be interesting. My bet is that of the, say, 75% of the market that's bought with finance, the vast majority of that would be business sales, as you'd be daft as a business to pay cash-up-front for a car.

Writing off the depreciation aginst tax only saves you 28% of the value. So instead of losing $10k/year, you only lose $7.2k/year to depreciation. You are stilll better off to buy second hand.

Yes.  When making my own calls enquiring about this i was careful to point out i wasn't interested in those deals made to businesses - only private sales.   I found the further out of town and into the suburbs i went the more finance deals were used.  
I also thought insurance agencies would be interested in recording whether a car is purchased with debt or not....turns out they don't really care either.
 
 

It all depends on the business and cash flow etc. If you pay cash for a vehcile you can still claim depreciation as an expense. If you buy it with debt you can claim the interest as expense but the depreciation is the same. Leasing is different and you can claim the full amount paid each year as an expense. 

Unless you're a shareholder-employee who has donated a significant value of your vehicle to the company, a company owned car used privately will cost a fortune in fringe benefit tax.

If you have private vehicle and business reimburses you for your business usage at the correct rate, then buying second hand makes even more sense because your disposal value will be so low, and you'll likely be running many many km's up.
 

Or....buy a decent wagon which enables you to go out and earn a good quid. Lots of people are unemployed cos they dont have wheels. Public transport sucks in the most part of this country. Good wheels means access to good employment

No reliable wheels mean access to employment - they don't have to be yours and they don't have to be brand new.  
If one doesnt have employment then they wont be financing a car for very long anyways.
http://www.freep.com/story/news/local/michigan/oakland/2015/01/31/detroi...

I've lost contract renewals because my carpooler  (or motorbike pooler in this case) didn't show up.  Not so bad in the day of the cellphone, but back then the place I was staying overnight at didn't have phone access (at 4:30am which was pickup time).
 All it takes is someone taking leave or a sick day, or a sick kid and your job's on the line - can be even more embarassing if you're contributing to vehicle costs up front.

Chicken and egg. But I made sure my kids had good cars. Living rurally that enabled them to get well paid jobs. This in turn made them more business like in their approach to work. Thinking poor can make you poor. Getting to where you want to go reliably is important when it comes to making money.

Right on Esprit. Sometimes you have to spend money to earn money.

I am very glad for these people who eat the deprecaition cost so that I can pick up a second hand car of equal utility value for a fraction of the price.

Bahahahahaha.... true true!!

Don't disagree but when it comes to the family/personal car.... this does not apply.
 

No-one's mentioned to need to tow stuff (e.g. moving house or carting firewood in trailer), to have a fixed permanent load (tradie tools) or to cart whanau (the people-mover).
 
Let alone go skiing or even mildly off-road (where front-wheel drive is a disaster waiting to happen - ask a motor-homer with a Fiat Ducato....).  
 
Horses for courses, and even electric-assist cargo bikes don't handle any of the above... 
 
Plus, the common tater who desires "as simple as possible - manual transmission, no turbos, no fancy electircs (sic)" needs to lift the bonnet.
 
Almost any car within the last 10 years will have a combination of the following:

  • managed injection to the motor (lotta fancy electrics there)
  • stability control (lotta fancy suspension doo-dads there)
  • braking control (lotta electro-mechanical complexity there)
  • cruise control (lotta - well, y'all get the point by now)
  • 'lectric windows (when wuz the last time yez ever saw a wind-up job?)

The days when you could have a mechanically injected diesel, parked on a convenient slope by the house, roll 'er down in gear and drop the clutch to start the motor non-electrically, are, I regret to advise, well past......

I still can't see why any of your applications above would require a new car and/or car finance. And unless you are doing them every week it would be cheaper to run a small car and hire another when needed.
 
As far as electrics, some level is to be expected in a modern, safe car however you should aim to keep it as simple as possible - by this I mean no fancy integrated sat-navs, no electric opening doors/boots, no electric sunroof, no electric seats. no heated seats, no 18-speaker sound systems, no electric folding roof, no TVs in headrests etc etc. Keep it as simple as possible

If you have a mortgage and pay cash for a car your are still actually effectively borrowinf for a car.
I would add that old cheap Jap or euro cars are death traps in an accident
Rule 1 Buy Mazda/Toyota
Rule2 See rule 1
Rule 3 see rule 2

The best way to avoid an accident is to reduce the number of km driven.  Small- and medium-sized cars are also statistically safer in an accident that large cars or SUVs (regardless of the size of the other car in 2-car accidents)

In regards to your point about paying cash while you have debt outstanding, I competely agree. You are effectively borrowing at your highest rate of outstanding debt. If you have no debts, you are borrowing at your lost opportunity cost. You should aim to tie up as little capital in a depreciating assets as possible hence my car buying rules above.

You keep buying those overpriced 2nd hand Mazdas, Toyotas, and Hondas, and leave the better value Euros for the likes of me!

2014 Mazda 3 vs 1990 Honda Civic.  OK in an accident, which one would you prefer to be in?  Perhaps that 24K is cheap in life insurance.  Even more so if you have a family.
After all that according to my old trusty mechanic "owning any sort of expensive European cars is like having a mistress, feel good now but it will end up in tear and empty out your wallet!'

In an accident i prefer to be in the car which comes out unscathed, i dont think the type of car really makes all that much difference if your time is up.  
I think it's the type of driver thats most important.  If you are a careful and conscious driver then it doesn't matter what car you drive.
Marketers work hard to make you feel unsafe in an old car so you that you buy new cars.    (I hesitate to argue that new cars make people lazy drivers by removing them further from the reality of the road and cushioning them in technology which is more often than not distracting as oppossed to useful).
 
 

Cars have come a long way is safety standards since 1990, but even more so since 1965 or even the 1970s Austin Alegro.........shudder.  Is a then well designed 6 year old car significantly less safe than a similar 2015 car?  hmmm I doubt it. 
Cars wont come out unscathed they are designed to absorb the crash energy by deforming so you come out unscathed, if you want an un-scathed vehicle you need to buy a tiger tank. however put an egg inside a container and drop it on the floor for how you will come out.
 
 

"In an accident i prefer to be in the car which comes out unscathed, i don’t think the type of car really makes all that much difference if your time is up". That'd be Mazda 3 - it has all the passive safety features like airbags, crumple zone.  1990 Honda.. nothing just a padded steering wheel.  Few months ago, I witnessed an accident involving a small truck and modern Corolla. Nothing much left with the Corolla, all airbags deployed and the driver walk away with some minor bruises. 
And you're right about drivers are becoming lazy, the latest bunch of new cars came as standard features such as: auto emergency braking, lane departure alert, blind spots detection and self-reversing.  In Aust, they are looking at making this compulsory along with stability control, 6 airbags etc.

>>> I think it's the type of driver thats most important.  If you are a careful and conscious driver then it doesn't matter what car you drive.
 
If you are a careful and conscious driver then it will be the other idiot's fault that you are dead. You are still dead. Modern car crash safety features do matter.

A more fair comment would be 2015 mazda 3 v a 2009 one ie 6 years old when most depreciation has occured which really was the point of buying new V a second hand newish car.  On top of that lots of people are not so much buying a 24k car as a $50k or more car to impress others with.  
European cars, well you mechanic is spot on IMHO, except for flair.  Japanese are the most reliable and cost effective but just lack style. 

Yup all of this is true, and it would also be true of any example you wanted to give. Why buy new clothes, get your groceries second hand from the dumpster, only marry some one on their second marriage etc.
If the point is don't buy a depreciating object with debt, then what has it got to do with whether or not it's new?
After all before you can buy anything second hand someone first had to buy it new.
And why second hand when you could have this new
http://www.theguardian.com/commentisfree/2014/feb/03/tata-nano-car-cheap...
Although I hear that Toyota have seen this gap in the market for second hand cars so are going to create a range of new secondhand cars. 

The first thing I did when leaving Uni and after getting a good job was to purchase a new motorbike on credit. Best thing I ever did. Now, later in life I can look back on the pleasure and memories that the fabulous machine gave me . I spent my money on a new bike and not at the pub. I paid it off asap. Its too late when you are tied down with mortgages and kids etc to think of a nice car.
If thats your thing spend your money on it rather than new shoes, or whatever it is you spend your money on.
BTW, new cars are much safer than old cars. Good luck with the 15 year old gun powder in your air bag when the foreign tourist comes at you on the wrong side of the road. You are twice as likely to die in an older car than a new one.

What I see missing from this article is discussion over the distortion that favourable tax incentive have to the price of commercial vehicles. Try buying a ute or van, which are simple vehicles that should be cheaper than their non commercial equivalent.

Ute's have less volume and heavier, more solid construction. The two wheel drive ones aren't too pricey but the 4wheel drive carries a premium (as they're either commercial use or luxury toys)

Whats a little misleading about this article is saying that you would pay $9100 in interest over 5 years, most people that had a home could remortgage out say at 5.5% for 5 years and would pay about $3500 in interest.

Great analysis, logic, advice. Something so easy but yet people still make their purchases based on image, ego and those bloody feelings! Haha! Don't stop with the commonsense advice but be careful you just might hurt someones feelings with your brutal pragmatism! Haha!

Some people may pay way over the odds for vehicles plus GST, plus taxes, plus high interest...compared to other countries....for the same car....
Must be right hand, not knowing what the left hand is doing.
If you really, really must..
Have a cheek, have a cheque...then haggle....margins are so over rated here in N.Z.
http://www.autoblog.com/car-finder/

Banganomics. I buy a $1000 car (usually late-ish model, 10-15 years) and drive the thing into the ground. Then put it back on Trademe, someone always pays $500-$1000 for the wreck, and start again. Almost free motoring. If you get a good one, spend small amounts on keeping it safe and going.  If the thing blows up, you've only lost $1000 bucks, less what you can get for what's left. Last few cars, i've even made money on, including rego and insurance. Being a mechanic helps, but know others with same outlook who aren't, and have same outcome. Cars are just a means of transport to me.

Hi Rdee,
Do you have a few makes/models that you find generally hold up well for banganomics ?
EK

Ditto with skeeter bought a ve lumina v8 when I had no kids, mortgaged to the bone, best car I ever had and memories last a lifetime, while leaky 1990 civics lead to major depression!

Sorry EK, but i really can't agree with your argument for so many reasons. I guess you would recommend not insuring the car either? Because that would be a waste of money. Why stop there, why insure the house for that matter, or the Bach or the contents! As this would just reduce savings. Pity the individual you crash into.. Or in the case of losing your home through some disaster I guess you would be the first to come bleating to the taxpayer for a handout. Sorry doesn't wash. Individuals decisions to purchase a car a based around individual circumstances. You should insure away risks in a manga le way, structure purchases in the most tax efficient manner, and have the end goal of accumulating wealth. 

No Kane02, I favour insurance - infact it appears on my "non-negotiables list" if you've been following my weekly columns.