Bike finance

[madbradd]

Financing toys.... no. Financing a lifestyle benefit. Yes. But there's a difference huge between financing a 15 or 20k bike and a 50k bike.

 

We all know that if you spend 6k on a bike and enjoy it you will spend more on a new bike very soon. So why not spend 15 and not have to wait? You're not gonna lose much more by financing and then reselling. We also know that it is way more fun riding a better bike.... so the odds of being bitten by the bug on a 15k bike are higher than on a 6k bike.

 

The financing cost is purely the cost of having the item now, because you could easily save the money in a shorter time. But when you have to wait a year and a half to save up for the bike while your mates are riding is also a cost.... that cost is missed rides.

 

So for me.... finance a good bike if you need to. But don't finance anything top end. The line for me there is a 105 spec carbon road bike, or a deore spec light hardtail, or fullsuss mtb.

[Boerklong]

Its a d!(k swinging competition. Yes we all want new shiny top of the range stuff but in actual fact it wont make any difference in our performance. Each to his own how he buys his toys. When I still played golf I moerd a R60 Pro V just as deep in the water as R15 TopFlite

Just saying...

[Beefy]

It really all comes down to the interest rate, and the present value of the money that you have paid for it over the 2 or 3 years, versus the PV if you buy it in 2 years time after saving that same cash over the same term.

 

If the interest rate is too high, it won't work out and it's not an advisable solution. If the interest rate is favourable, then go for it. If you can afford it. It gets you on the bike sooner, and it allows you to purchase something that you may not ordinarily have been able to buy (which in itself is a problem, but that's not the question here)

 

Having said that - a bike is a pure liability (from a financial standpoint) and you should ask yourself if you want to finance it. 

 

The better thing to do (generally speaking) is invest that cash in something (please, NOT money market) and let it earn you returns and then once it's at a certain level, buy that dream bike. 

 

If you absolutely must have that bike, don't go for the top of the line one because it's "only" R 500 p/m more than the base level one. Get the middle of the road / cheaper option and then invest the rest. 

 

In short - don't buy toys with your income whilst not being able to pay yourself first, and being able to put some away. If it's the last R 1000 in your budget, and you're thinking of doing it, DON'T. 

 

 

Truly speaking, and looking at it from an accounting perspective, this isn't actually correct. Yes, it's a physical item that appreciates in value, but it costs you cash every month, and in order to realise the "asset" you need to sell it. And then you aren't actually realising it, as you're going to need to buy another one. 

 

The only time a house should be described as an asset, is when it's either earning you cash over and above your mortgage payments and other bills (rates insurance etc) or you're using it as a base of business operations (it's being used to generate an income) or your mortgage payments and all associated bills (rates, insurance etc) are less than what you'd have to pay for it if you were renting it. 

 

It's a myth that your primary house is an asset. In 9 out of 10 instances, it's not - it's an expense.

 

I know that this is against the norm, but in order to build true financial independence you need to realise that your primary home is not an asset, unless it was purchased very carefully, and you paid far below purchase price for it. 

 

 

I will admit that it has been over a decade since my accounting studies but how is a bike a liability? The loan on a bike would be a liability right? Could see a bike as an expense rather than an asset as you could maybe justify no future economic benefit?

 

Also surely a primary residence could be seen as an asset based on the assumption that you will receive future economic benefit? (When the asset is realised, again assuming a potential bond would be the liability linked to the asset) I wasn't aware that direct income had to be able to be linked to something for it to be deemed an asset but my reference could be outdated.

 

Anyway something else to consider is if you run into issues with the repayments you could be in trouble. Bikes tend to depreciate very quickly and you could very easily find yourself in trouble if you can't make the loan repayments as the value of the bike could be less than the outstanding loan.

[GoLefty!!]

I agree that there are many ways to look at it, but for me those ways are all justifications, which 9 times out of ten are BS. Because if it were just a healthy lifestyle thing then you could pick up a bike on here for 5k and achieve that. Or start jogging or running or whatever they want to call it...  Hey in the past I would have most probably done it, 2k a month is far less of a hit than 60k up front, but technically the bike wouldn't be mine, if i wanted to sell it I couldn't because it's lost too much value, so i'd have to upgrade or load the price of a new bike in order to meet the deficit of the old one or pay in the balance. Theres no benefit of tax or VAT right-offs through my business etc etc... I really don't see an upside other than I can have my dream bike now, which would most probably end up being my dream bike plus every conceivable upgrade because 'i can afford the monthly repayments'...

 

 

Anything that isn't a necessity requires justification and is likely bs. The difference between buying cash or financing is that with cash you exchange one large asset for a liability vs exchanging less cash in the short term for that liability. How the financing option works well is keep the cash invest it and use the growth to fund the repayments.

However 90% of people don't do this because they don't have the cash but have the cash flow (disposable income). People don't want to wait to jump on a fad and let's face cycling is very much a fad at this point in time and like all bubbles it's going to burst

[DIPSLICK]

Anything that isn't a necessity requires justification and is likely bs. The difference between buying cash or financing is that with cash you exchange one large asset for a liability vs exchanging less cash in the short term for that liability. How the financing option works well is keep the cash invest it and use the growth to fund the repayments.

However 90% of people don't do this because they don't have the cash but have the cash flow (disposable income). People don't want to wait to jump on a fad and let's face cycling is very much a fad at this point in time and like all bubbles it's going to burst

 

SHIIIT ITS A LOOOOONG LASTING FAD

[DIPSLICK]

LEFTY    

 

fad

 (fæd)

n

1. an intense but short-lived fashion; craze

2. a personal idiosyncrasy or whim

 

    GO CHECK OUT WHEN MEN WERE MEN AND SHEEP WERE NERVOUS

 

DIPS RUNS

[Captain Fastbastard Mayhem]

I will admit that it has been over a decade since my accounting studies but how is a bike a liability? The loan on a bike would be a liability right? Could see a bike as an expense rather than an asset as you could maybe justify no future economic benefit?

 

Also surely a primary residence could be seen as an asset based on the assumption that you will receive future economic benefit? (When the asset is realised, again assuming a potential bond would be the liability linked to the asset) I wasn't aware that direct income had to be able to be linked to something for it to be deemed an asset but my reference could be outdated.

 

Anyway something else to consider is if you run into issues with the repayments you could be in trouble. Bikes tend to depreciate very quickly and you could very easily find yourself in trouble if you can't make the loan repayments as the value of the bike could be less than the outstanding loan.

On your balance sheet a home will reflect as an asset but the fact of the matter is that it will hardly ever be realised unless you leverage it.

 

Sell it, you need to buy a new one and it costs you cash each month in terms of expenses insurance maintenance etc. So it never actually brings you cash and for purposes of financial planning you shouldn't list it as asset. It's an expense. A necessary expense but an expense all the same.

 

A bike... You're right. It'd be an expense not a liability. But for the same reason as the home, it's not an asset when doing proper financial planning

[Captain Fastbastard Mayhem]

Sorry I should have qualified. I'm talking from a financial planning perspective, and how you should treat or see your various incomes and expenses...

[Nayr]

On your balance sheet a home will reflect as an asset but the fact of the matter is that it will hardly ever be realised unless you leverage it.

 

Sell it, you need to buy a new one and it costs you cash each month in terms of expenses insurance maintenance etc. So it never actually brings you cash and for purposes of financial planning you shouldn't list it as asset. It's an expense. A necessary expense but an expense all the same.

 

A bike... You're right. It'd be an expense not a liability. But for the same reason as the home, it's not an asset when doing proper financial planning

 

In my world, anything that costs money every month is technically a liability and as you say your primary residence is a liability until sold. In the banking world your NAV is what counts, but it only counts in so far as you can raise finance against it... always a catch. Rainy day banking, while it's sunny outside they are only too happy to give you an umbrella, as soon as it starts raining they want it back...

[Captain Fastbastard Mayhem]

Only finance "need to have" and not "like to have", and even if it's "need to have", preferably an asset which can appreciate. Einstein's eighth wonder of the world is fundamental to understand ... 

Compound... Very important. 

[eddy]

Financing toys.... no. Financing a lifestyle benefit. Yes. But there's a difference huge between financing a 15 or 20k bike and a 50k bike.

 

We all know that if you spend 6k on a bike and enjoy it you will spend more on a new bike very soon. So why not spend 15 and not have to wait? You're not gonna lose much more by financing and then reselling. We also know that it is way more fun riding a better bike.... so the odds of being bitten by the bug on a 15k bike are higher than on a 6k bike.

 

The financing cost is purely the cost of having the item now, because you could easily save the money in a shorter time. But when you have to wait a year and a half to save up for the bike while your mates are riding is also a cost.... that cost is missed rides.

 

So for me.... finance a good bike if you need to. But don't finance anything top end. The line for me there is a 105 spec carbon road bike, or a deore spec light hardtail, or fullsuss mtb.

 

Irrespective of the principal amount, a debtor can never be free.

 

Work hard, save, invest, then consume.

[madbradd]

Irrespective of the principal amount, a debtor can never be free.

 

Work hard, save, invest, then consume.

Philosophical thoughts... Nothing is ever free, sometimes the cost isn't money.

[Shepherd]

Not necessarily true, if done properly. 

 

Not a provoking question, but a genuine one...

 

What is doing is properly with regards to buying a car with a residual "Balloon Payment"...?

 

I never opted for this when I bought my car 3 years ago, I have a little less than 3 years left to pay... and I am SUPER stoked now that I never went and took a Balloon Payment... could never figure out in my head or on paper how that would work out in a positive for me?

[Captain Fastbastard Mayhem]

Not a provoking question, but a genuine one...

 

What is doing is properly with regards to buying a car with a residual "Balloon Payment"...?

 

I never opted for this when I bought my car 3 years ago, I have a little less than 3 years left to pay... and I am SUPER stoked now that I never went and took a Balloon Payment... could never figure out in my head or on paper how that would work out in a positive for me?

Again, it depends on the interest rate you get. 

 

But, in essence - properly done is to budget on the full payment (without risidual) and then have a look at what the residual plan's payments are. Go for the residual, and invest the difference in a mid to high risk UT investment (balanced fund an above) 

 

That way, your money is being put to work, and you'll actually have more than the required balloon at the end of the 5 or 6 year term. Just don't spend the cash you're putting away - it's got a very narrowly defined purpose - to pay for the finance that you're putting off. 

 

EDIT: What people usually do, though, is have a look at the car they want, then see the normal payments (which are normally far above their budget) and then try and structure a balloon finance arrangement so that they can afford that flashy car they've always wanted. Then they're stuck with the balloon at the end of 5 / 6 years, and no way to pay for it but to refinance. Which isn't a lekker idea. 

 

That's the wrong way. 

[madbradd]

Not a provoking question, but a genuine one...

 

What is doing is properly with regards to buying a car with a residual "Balloon Payment"...?

 

I never opted for this when I bought my car 3 years ago, I have a little less than 3 years left to pay... and I am SUPER stoked now that I never went and took a Balloon Payment... could never figure out in my head or on paper how that would work out in a positive for me?

For instance BMW offer reduced interest rate deals. So you can invest the remainder of your payment in a higher interest earning investment, and come residual payment date you uave enough for your balloon payment plus some change. But you still are committing the full payment equivalent on a monthly basis.

 

Eg. I got a 5percent deal on my car, so upfront I put the full balloon payment amount into my bond which is say 9percent. So yes i pay more on my car at the end of the day, but i save even more on my house.

[GoLefty!!]

Again, it depends on the interest rate you get. 

 

But, in essence - properly done is to budget on the full payment (without risidual) and then have a look at what the residual plan's payments are. Go for the residual, and invest the difference in a mid to high risk UT investment (balanced fund an above) 

 

That way, your money is being put to work, and you'll actually have more than the required balloon at the end of the 5 or 6 year term. Just don't spend the cash you're putting away - it's got a very narrowly defined purpose - to pay for the finance that you're putting off. 

 

EDIT: What people usually do, though, is have a look at the car they want, then see the normal payments (which are normally far above their budget) and then try and structure a balloon finance arrangement so that they can afford that flashy car they've always wanted. Then they're stuck with the balloon at the end of 5 / 6 years, and no way to pay for it but to refinance. Which isn't a lekker idea. 

 

That's the wrong way. 

 

 

100%

 

Also again residual deals are also there to make lease schemes more attractive to corporates with car schemes. It allows the user to in effect rent the vehicle for a defined period and the owner will guarantee the future value of the vehicle as long as the maintenance and mileage restrictions are adhered to.

These schemes only really work well on established luxury brands like Mercedes Benz, BMW and Audi. Porsche can be bought at 60% residual (which means you have a Cayman for the installment of a GTi Mk VII.....!!)

 

So if you're not interested in owning the vehicle and consider the vehicle a transport cost then residual is attractive. However its stil high risk as the vehicle will likely be involved in at least one fender bender which will impact on its buy back value at the end of the term.

 

For most peole not interested in owning the vehicle leasing is probably a better option but personal circumstance will dictat3e which is better: Hp Or lease