When borrowing for a car is the smart thing to do

Getting a car loan was the smartest thing I ever did

Taking out a car loan when your partner is basically unemployed and you’re living on one income. Sounds like the worst idea ever and the start of a judgey Reddit thread, right?

Yet that is just what we did.

I kept trying to hold out until T got a steady job, but eventually both the safety and reliability of our car deteriorated to alarming levels. We’re a one-car household and public transport will never be a viable option for BOTH of our commutes so it’s vital that we are able to rely on our vehicle. T needed to be able to get to job interviews and to start work at the drop of a hat.

It was a bad catch 22 – needing a car to earn money but needing money to pay for a car. I’ve said before that our strategy of buying cars we can afford in cash has not worked out well in the past – thus, the loan, despite the terrible, terrible timing.

A photo posted by egesther (@egesther) on

Our car-buying process

The last (and only time) I discussed our car issues with my mother, her advice was succinct: go for something in the $10k plus range, as cheap cars have always turned out to be money pits for us. Both her and my dad did and I don’t recall them ever having issues with their cars growing up. The difference of course is they had the cash to do that, and we don’t.

Much as I’d like the peace of mind of a brand new car, there just weren’t any good finance deals around (Subaru had 0% and 3 lump sum payments, Mitsubishi had some good driveaway prices, but not for models we had any interest in). So we took a punt on the used market again, just higher up the price ladder. The one small comfort was that we know more about cars than ever before and T knows car sales from the inside out now.

Looking in the $15k range (give or take) we were looking at cars falling roughly along two lines: 4 to 6-year-old cars with 80,000 to 100,000 plus km through to 10-year-old cars with 50,000 plus km, and everything in between. Basically, the best case choices split between newer model, higher ks and older model, lower ks. The older cars are usually Japanese imports, while the newer ones are occasionally New Zealand new (and thus with a full history).

T zeroed in on a few different specific models; narrowing down our choices made things easier in some ways and harder in others. He loves driving, does 99.9 percent of the driving, and needs to be happy with whatever car we have (and let’s face it, it’s really the only decision he gets majority say in – I’m the boss on everything else). It’s got to be big enough and hardy enough to handle him – a little 1300cc is not going to work for space or engine power.  Being a gearhead he’s very specific about particular models and year ranges and knows all the little differences – features and problems alike.

In the end we set our sights on a Mazda – possibly an Atenza but ideally a 6 (the Mazda 6 is the NZ version).

The Subaru Legacy was another contender, but it’s difficult to find a lightly used Subaru without ridiculously high mileage, and being the most stolen cars in NZ, insurance is higher on them.

(Toyotas are famously awesome for reliability but expensive as they don’t tend to depreciate as fast. Also, he doesn’t like any of their current models – last time we were car hunting he would have killed for a Caldina wagon but apparently the later years are definitely off the list.)

Random thought aside: I feel like I don’t seem to see many Hondas or Nissans around Auckland anymore. Growing up there were tons of Civics, Integras,  Accords, Pulsars, and Primeras on the roads – these days the models have changed of course, but anecdotally the makes just don’t seem as common.

Closing the deal

So, what did we have to compromise on? In the end, we went for newer with higher mileage – a 2011 wagon with a little over 100,000 km. It’s an ex-lease car with a full service history that’s had regular maintenance, all documented.

(I gotta say, it took a while to get used to the quiet engine. None of the rougher rattling, shaking or ticking kind of sounds we’re used to.)

I’d read a little bit about negotiating with sales people at dealerships online, but it was truly bizarre sitting through the process. It actually happens – writing down the price you want to pay on a sheet of paper, then sitting and waiting for the rep to take the offer to the manager. I was super tense the whole time, convinced they were out to get us, but it really wasn’t that bad. I’d even go as far as to say that the rep didn’t really seem into it – maybe their commissions are small. He was definitely not overly pushy.

If I recall right, we got a little over 10 percent knocked off, paying $16,000. Compared to what similar cars, even private sales, were going for, it was a very good price.

Getting finance

It’s funny how things work out. I was determined to shut down any attempts to sell me on dealership finance, and yet…

1. The AA completely disappointed me. In their pre-approval email they gave me absolutely no details beyond the fact that I was pre-approved for a loan. I had to hit reply asking what my interest rate would be, and it wasn’t the best one they advertise.

2. My bank was the complete opposite – what a great experience! I was actually almost excited about the whole thing. A banker called me up, went through every little detail with me, took the time to make sure I understood everything, and was incredibly patient.

3. But the dealer in fact bettered the offer through their finance company. (There was slightly less flexibility around making extra repayments – however, given our situation, it was highly unlikely we’d be in the position to make extra repayments any time soon.) Also, going through them meant the whole process would be quicker, which was a bonus.

Incidentally, I had to laugh at this:

For every instance of a car loan “horror story”, how many people have no trouble or regrets about financing their car? You aren’t going to have a bunch of threads titled “Two years ago I bought a nice car, negotiated a good deal on it, put down a sizeable down payment, had excellent credit and secured a low interest loan and I couldn’t be happier!”.

(Yes, I have become a Reddit addict. Reddict?)

Plenty of my PF blog friends have borrowed for cars in order to get something reliable and on the newer side, and done so responsibly. Ideally nobody would ever take out a loan for a car, but we don’t live in an ideal world.

I won’t say it’s the best financial decision I’ve ever made, but it’s definitely far from the worst one.

I set the car loan up as an 18-month loan, so payments were rather high with the aim of killing the debt all the quicker. But halfway through, thanks to my new job, I decided to pay it off. That monkey is now off my back.

It’s the best vehicle-related decision I’ve made to date. Our car hasn’t given us any trouble and will hopefully give us many more stress free motoring years.

BONUS: having a car this new reduces our annual registration costs by heaps.

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12 thoughts on “When borrowing for a car is the smart thing to do

  • Reply Kath November 4, 2015 at 08:23

    It sounds like you made a smart and well-informed choice on your car. However, i have to stop and be amazed for a moment, because: Wow, you paid off $16K (plus interest?) in nine months? While living in Auckland, and with a partner who was unemployed for some or all of that time? I guess you have a really well-paying job, but that is still extremely impressive. I’m one of those Billfold-y types who is curious about all the details, on the other hand I don’t want to be nosy. Anyway, congratulations!

    • Reply eemusings November 4, 2015 at 08:40

      Ah, great point – to clarify, I pulled from savings to pay off the balance (which was about half, as it was halfway into the loan). Normally I’d never be comfortable taking that much out of my cash cushion, but yes, new job/pay gave me the security to do that and still sleep at night. Now in terms of cashflow what was going to the loan can go to rebuilding savings.

      Yeah it wasn’t fun during the unemployed times, which was probably about….sheesh, maybe about half of the 9 months.

  • Reply nicoleandmaggie November 4, 2015 at 10:30

    I always say never to finance a depreciating asset, but sometimes in the case of a car the appreciating asset is *you*. Having reliable transportation is important for earnings potential!

  • Reply Leigh November 4, 2015 at 18:15

    Congrats on paying off the car loan early! I’m not against car loans – it sounds like your situation was a great instance of where one is helpful. I wish you many years with this new car 🙂

  • Reply J November 4, 2015 at 23:36

    Woah, you paid your car loan in 9 months! That is super impressive. Congratulations! I also took out a loan to buy a car 2 years ago even if I had the cash because I didn’t feel comfortable spending all my money on it. I wasn’t into PF then, too, so my finances were less organised. I managed to pay it off early as well, but not 9-months-into-it early.

    How was your rego fees reduced? Are NZ fees based on car models and not on where you live?

    • Reply eemusings November 5, 2015 at 08:42

      NZ is a small place…

      Used to be the same no matter what car you had but about a year ago the system changed and now rego fees are based on car models. Broadly speaking, newer cars = cost less in annual rego fees.

  • Reply Little Miss Moneybags November 5, 2015 at 09:38

    We just did the exact same thing, except in our case the interest rate is so low that it actually makes more sense to invest our excess money into retirement funds than pay the loan off early. (We’ll still probably pay the loan early, but excess money is going into maxing out retirement first, then the loan second.)

  • Reply Anya November 5, 2015 at 11:26

    Too bad you don’t have too many Hondas in NZ because they’re so reliable and last forever. We’ve had 7 different Honda products and have never been disappointed. We’ve been fortunate that during the economic crisis, we were able to get 0% on our cars – thanks to good credit. I just bought a new Honda Fit with 7k down. Ended up financing and I’ll have it paid off in less than 2 years but even with 3%, the payments are minuscule. Most of the time it doesn’t make sense to finance cars but if the interest is low enough and you’d rather keep the cash in savings for emergencies, it’s worth it. This year has been full of emergencies for us so keeping $$ in savings softened the blow.

  • Reply Abigail @ipickuppennies November 6, 2015 at 09:35

    I hated our last car buying experience. It was rushed because we were a week away from leaving for a trip, after which we’d be exhausted and still need a car but have no ability to cope with it.

    Like you, a lot of cars in our price range had ridiculous mileages. We’d settled on a Honda Civic since they tend to be reliable, and anything under $15k had at least 50k on it.

    In the end, we found one with cosmetic issues (random strips of paint chipped off) but almost no miles. Less than 25,000 to be exact. After trade-in, we got it down to $14k for everything. I’m hoping we have better luck with this auto than the others. This is the third car in 5 years, both of the others lost to accidents.

  • Reply Michelle November 7, 2015 at 13:06

    You have to get around and you have to go to work. I purchased a car while being self-employed. I did purchase it cash and it was only $1500 but I’m really excited about my car. It’s a Mazda too! Umm, but I’m in the process to learning how to drive it..that’s another story.

  • Reply Jayson @ Monster Piggy Bank November 7, 2015 at 15:54

    When I bought my car, it took me years to save for it so that by the time I bought it, I paid less and it felt good that I was like not in great debt because the amount of loan was less than expected.

  • Reply J. Money June 29, 2016 at 23:02

    As someone who just financed a new (to me) car, you know I’m nodding in agreement over here 😉 There’s taking on debt irresponsibly and then there’s doing it responsibly. You still pay for the privilege of it of course, but much better to go in with a plan than blindly. And yours was killer! Way to put it all out there… not easy to do in the $$$ scene, I know.

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