This is why you need to stop to pay for the car when buying
As we overpay for the car when buying on credit.
Prices for new cars are growing like mushrooms after rain. Car loan interest rates not reduced and even increased slightly in recent times, after the Central Bank to stop the fall of the ruble against world currencies, again raised the Bank rate. Unfortunately, in this economy, which can not be called stable, incomes continue to fall. But in spite of this, currently on the market in this country has been booming – the market is growing since the beginning of the year at a faster pace. How is this possible? It’s absurd. And the thing is that currently 70% of the cars acquired on credit. On the one hand, if there is demand for loans, so it’s not so bad in our Kingdom. But there is this fashion on the loans and reverse side of the coin. We are talking about the huge overpayments when buying a car on credit. Unfortunately, this leads to inflation of the next bubble in the Russian economy. Indeed, in most cases, people buy on credit are not exactly the cars that can afford or originally planned to buy. And to blame the loans.
Despite the low nominal income growth, in fact, the incomes of Russians fell for a third consecutive year. This is due to inflation, which for several years eats nominal income growth. During this same time, all cars at the car has risen significantly. The worst thing is that the majority of car manufacturers continue to rewrite the price tags on their products almost every month. Yes, over the last few years, lending rates have fallen markedly. But still call them small, not dare. In the end, at the moment, cars have become less available than, for example, two years ago. Naturally, this led first to the actual collapse of the new car market, and then to a sharp increase in the share of credit purchases. And it is logical.
But why in such difficult economic conditions currently in Russia there is crazy on a car? People with not enough money to run the car dealerships and acquire expensive cars. Moreover, the demand for some models has led to the fact that people stand in the showrooms for a few months in queues. The secret of this paradox is that from 1 January 2019 in Russia raised the VAT rate from 18 percent to 20 percent. Naturally, this will lead to a rise in price of all goods. Including cars. Plus next year the Central Bank predicts the acceleration of inflation. Of course, the people, realizing this, ran to the showrooms to buy cars that are about to begin to rise again in price.
The worst thing is that this happens when 70-80 percent of the population with money problems. And very often buy cars happen impulsively, without any cold calculation. Many motorists are driving themselves into a loan for years, not thinking about the overpayment. And very often people buy more expensive cars than they really can afford (for that we have to say “thank you” to managers in car dealerships that knowingly eat their own bread with caviar).
But why is this happening and how to avoid it? After all, when the car can not afford, but still bought on credit, the result is that people overpay for a lot of money.
First you need to understand why you need to stop to pay for the car when buying it on credit. Why are we saddled with unsustainable loans by selling the Bank your future?
The thing is that when we come to the dealership, we inspire thought about the availability of the car. And even when we do not have on hand the necessary sum for the purchase of a car. Of course, telling us a story about the availability of car with attractive offers on car loans.
Often this process is as follows: the buyer chooses the car, makes a purchase on credit, making minimum down payment, and gets a printout with monthly payments. And very often the monthly payments are higher than expected by the buyer initially.
More sophisticated buyers (as they think) before you sign a loan agreement and conclude the transaction of purchase and sale, ask the Manager to give a preliminary printout for future credit to see the real monthly payments. Of course, many people, seeing such a large amount of printouts, you begin to realize that even buying a car on credit does not Bode well for my pocket.
As a result, some motorists are beginning to abandon the purchase. At this point in the game entering the dealership Manager to make the loan for a longer period to reduce monthly payments.
As a result, 90% of the customers agree on such a venture without thinking about the overpayment on the loan.
The combination of monthly payments with a long term loan creates a situation where buyers must eventually pay much more money than the cost of their car really is. Moreover, under a long term credit this overpayment becomes indecent. Especially considering not very attractive current interest rates on loans. Did you know that buying a car on credit for a long time – is a direct path to financial disaster?
First, the increase of the term loan, to significantly reduce the amount of monthly payments on the loan, clouding the buyers mind. They just begin a mistake to assume that can afford to buy a more expensive car. Although in reality it is not.
In the end, 80% of people when buying a car through auto loan are becoming more than is really necessary.
Here is a typical thought process of a normal car buyer:
[quote][/quote]”I need a small crossover. I like the Toyota Rav4. It costs 1.5 million rubles… But I also want to be in the car had leather seats, climate control, cruise control, stylish wheels, good rubber, Navigator latest model, button start-stop, Keyless access to the car, etc. eventually the car will have to pay 1.8 million rubles. Well, nothing, I’m taking a car loan. Can afford it. Because the background value of the car extra 300 thousand rubles – is nonsense. In extreme cases, to apply for a loan for a longer period”.
Now let’s look at an example of how much it will cost for such a typical customer buying a car on credit in basic version and with options that the buyer wanted to see in a new car.
As an example, consider the Toyota RAV4 crossover, which is our virtual customer decided to buy on credit.
For example, a down payment on a car loan is 20%. Interest rate – 14% per annum. The loan period is 5 years (60 months).
So if you buy on credit base version of the Toyota Rav4 over 1 500 000 rubles, if you make 300 000 as the initial payment amount of the loan will amount to 1 200 000 rubles. The amount of the monthly payment will be 27 922 RUB the overpayment on the loan for 60 months will be 475 314 RUB.
If you buy Toyota Rav4 with a variety of options that I want in my car the majority of drivers, the crossover will be cheaper. Suppose that the buyer decided to buy a more fancy crossover value of 1 800 000, but does not want the monthly payment exceeds 30 000 roubles. In this case, he will be forced to apply for a loan in 72 months (6 years).
Let’s see what the overpayment will be in this example.
So, a down payment on a car cost 1.8 million rubles will amount to 360 000. In the end, the credit amount 1 440 000. If you get credit for 6 years, the monthly payment will be 29 672 RUB Overpayment for the car will be 696 403 RUB.
As you can see, if you increase the loan term and the purchase of a car is more expensive on 300 000 roubles, the monthly payment remained virtually unchanged (+ 1750 rubles). That’s why so many people are willing to buy on credit more expensive cars than originally anticipated. Many motorists are attracted to, that virtually no increase in monthly payment amounts on auto loans they have the opportunity to purchase a more expensive car or a car in richer configuration.
It would seem, what here such? Because there is no free credits. Overpayment credit is always. That may be so. But once the overpayment for the car is reasonable when you have enough income to afford to squander their money. When the income of the poor and the future of the economy uncertain, it is not necessary to play financial roulette, overpaying for the car more than you can afford.
But what if you don’t see yourself driving a naked car? The best solution is not to stuff the basic version of the car with a range of options, lifting its price tag to the skies, and to look at the car alternative. For example, to purchase the same crossover another brand. For example, Hyundai Tucson is for 1 500 000 roubles will be more rich equipment than the same basic crossover Toyota RAV4.
Yes, of course, for many, maybe the RAV4 to purchase is preferable to Tucson. For some, the style by Toyota is the icon. But many people do not care how the car looks, it is important for them, as the car has inside. This is for those people buying Korean crossover credit will be more reasonable than buying a Japanese car.
But even those who don’t really like Korean crossover should understand that if you do not have the financial ability to buy a more expensive RAV4, better buy a Korean crossover. After all, you therefore do not only protect yourself from unnecessary overpayments, but also get many useful features and options in the car at a more affordable price.
The purpose of our example is not to convince people to buy a Hyundai instead of a Toyota, but rather to illustrate the point that the budget should be more important than a car. So you don’t buy a car that you essentially can not afford. We just gave an example comparison of buying on credit the two new cars. For many people counterintuitive, even buying a new car. Unfortunately, many motorists do not realize, or realize too late. After all, if you can’t afford a new car, there is a large selection of quality used cars on the market that you can also buy on credit. Don’t forget that when buying a new car you are only, in fact, lose money on the overpayment on the loan but also suffer losses due to depreciation reduce the value of the car. Buying 2-3 year old used car carries a lower risk of loss of value as the primary depreciation strike the new car has already received significantly down in the first years of operation.
Remember that people who buy more expensive cars, not on their income, usually confronted with the fact that monthly mortgage payments are high for the family budget. Often motorists pay the loan more than 50% of their monthly income, which is unacceptable. After all, it’s a risk. For example, God forbid something will happen, some event that will cause income decrease or unexpected expenses. In this case, to make mandatory payments on the loan? Many motorists who purchased more expensive vehicles than they could afford, in this case, be in a difficult position. Think about it. After all, when you apply for a loan, you can’t 100% predict their future and the future economic situation in the country cannot predict even our government.
Yes, we understand that cars became more expensive, the incomes of the poor, and the interest on loans I am unable to become more attractive. In such a situation people have no choice but to go into debt to get a car loan. And with that we can’t do anything. Unfortunately, it is not within our power to change the economic situation in the country. But despite this, each of us has a more reasonable approach to buying a car on borrowed money. First, you need to know where to buy a car at the best price. To monitor the stock of car dealers, etc. Also need to teach yourself to buy cars that are actually profitable to buy. When placing the car loan, every buyer should only buy the car from a financial point of view to be more comfortable with the process of payment of the loan and will not lead to a large overpayment.
Remember that actually the cars are not too expensive when buying on credit, if buyers approach this issue wisely, buying what they need, not what they want in dreams, or that impose cunning managers of car dealers, who have one goal – to sell us a car as expensive as possible.
Today’s market really is – a time of opportunity. Everything is in your hands. And let for most of us, cars have become very expensive to buy on credit they can. But remember: you should only buy something that will not break your budget.