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Financing a ride


Jaco-fiets

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Yes its called leverage. But to truly create leverage you need an income stream which you can use to service debt

 

 

 

Done correctly it's the single biggest way to get rich quickly and is what Don aka PoTUS was very good at.

 

 

Just a small correction, the single biggest way of getting rich quickly is by being an Inheritologist.

 

However you are right that having a rich father who died before him is something that the POTUS was good at.

 

I sometimes wonder how he would have turned out if he didn't start off life with a large NYC commercial property portfolio.

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Well not really. Because if you had the R350k in the first place (in order to get to a future value of R800k) you would just buy the car cash.

 

what i meant was that the money that you have already saved grows along at a faster pace than inflation.  So the argument saying that by the time you finally saved enough for a car that you can't afford that same car anymore is silly.  You only have to save enough in today's terms for your first bike/car, then you bank the installment for future purchases and you are debt free form that moment on.

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NEVER buy a car cash, unless your credit record is trashed or the car is significantly cheaper than the retail price, or it's too old to qualify for cheap credit..

 

Rather invest the cash and use the growth in asset value, interest earned & dividends yielded to pay for the finance. Then you still have R 350k + growth at the end of the day and you have a car paid off. 

 

Uhmmm... I don't agree.

 

First positive about buying a car cash is it provides an upper limit.  With finance those salesmen always get you to get that larger engine, that optional extra etc.   And since you're borrowing a tonne of money anyway, what is big deal about spending that extra R30k for the diesel version, a canopy or a the larger mags...

 

If you don't have debt, you have freedom to control your risk.  I.e. I have a new car, but I don't have a R6k installment, which means I can save R6k every month towards my new car (in 5 years' time).  That means that I can take a very heavy risk on that investment if I want.  If it works and I get 15% returns, I can buy a much better car in 5 years than I hoped, or alternatively I can buy the car and save a few bucks for my next bike.  If it doesn't work, well then I need to go for the 1.4l version instead of the 2l version, or drive my car car for a 6th year, but that decision is still in my hands.  If you have debt, you need to save responsibly, because you have already committed to the money that you still need to own, so you need to be more conservative.

 

If you don't grow your money significantly more than the cost of finance, you'd be better off not borrowing also, so you need a super investment to make financing a car a smarter financial decision.

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Example

R52 000.

Deposit would be R5200

Payment term would be 36 months min (from Wesbank if im not mistaken)

Interest rate 13%

Monthly installment R1 685.61

Total payment at the end of the term would be roughly R65 881.91

if you can afford the monthly payments comfortably, then why not.

 

 

I find this fascinating( but have not done it) 

 

Compare the above to the scenario of saving that amount for three years and than  bike you have being saving for has gone up to R75k and you cant afford it and not having had use of bike for 3 years 

 

You are essentially taking a put / call type option on the bike,  betting against fiance cost vs bike inflation and  Rand / $

 

or just gambling ;-)  

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Uhmmm... I don't agree.

 

First positive about buying a car cash is it provides an upper limit.  With finance those salesmen always get you to get that larger engine, that optional extra etc.   And since you're borrowing a tonne of money anyway, what is big deal about spending that extra R30k for the diesel version, a canopy or a the larger mags...

 

If you don't have debt, you have freedom to control your risk.  I.e. I have a new car, but I don't have a R6k installment, which means I can save R6k every month towards my new car (in 5 years' time).  That means that I can take a very heavy risk on that investment if I want.  If it works and I get 15% returns, I can buy a much better car in 5 years than I hoped, or alternatively I can buy the car and save a few bucks for my next bike.  If it doesn't work, well then I need to go for the 1.4l version instead of the 2l version, or drive my car car for a 6th year, but that decision is still in my hands.  If you have debt, you need to save responsibly, because you have already committed to the money that you still need to own, so you need to be more conservative.

 

If you don't grow your money significantly more than the cost of finance, you'd be better off not borrowing also, so you need a super investment to make financing a car a smarter financial decision.

True, but that also presupposes that you're diligent and DO save that R 6k per month. As I said before, the large majority of people aren't....

 

The fact of the matter is that there are so many permutations that are out there. If it's just R 350k cash (investable) vs a car purchase with that cash... I know which one I'd suggest to the man in the street (hence my previous posts) 

 

If you're diligent, a seasoned investor and KNOW what you need to do in order to come out ahead, then it's a different discussion. 

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I find this fascinating( but have not done it) 

 

Compare the above to the scenario of saving that amount for three years and than  bike you have being saving for has gone up to R75k and you cant afford it and not having had use of bike for 3 years 

 

You are essentially taking a put / call type option on the bike,  betting against fiance cost vs bike inflation and  Rand / $

 

or just gambling ;-)  

yep. there's also that to consider. 

 

There's also the consideration of disposable cash vs the cost of the item you want to buy, and the present value of the purchase cost vs the future inflation & exchange rate adjusted cost. 

 

That's an entirely different argument to the "use existing cash or finance" argument. 

 

But now we're getting into a more in depth discussion than is necessary. 

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i am late to comment on this but here is my side of the debate:

 

i managed to snap my bike frame 2 years ago and was desperately looking at my options, insurance wouldn't pay out and i was a very miserable person( or so my wife tells me)

 

i looked around and had a frank conversation with my wife and cycle lab and found exactly what i wanted.

i looked a bike life through other shops etc but this wasn't feasible as they would not allow me to build my bike the way i wanted it. the do not allow discounted bikes to be financed through them, only 100% retail cost( i have found out via the grape vine that they receive a 10k subsidy form the bike agents/ manufactures/ whomever it may be due to this).

the Lab went out of their way to get me a Santa Cruz Nomad frame and all the parts i wanted to build my bike, they discounted the hell out of it and i ended up roughly i for R54k excluding the interest, i have finakced over 36 months and will all in end up paying roughly 70k.

there are people that are going to say its stupid and i should never have done it but my reasoning was that i would never have been able to buy that cash, if i wanted to save for it i would have been without a bike for the time it took me to save and due to the R going to hell in a handbag my bike has now increased in value( very substantially i might add)

 

i look at it from the point of view that i can afford the installments and the interest i see as an investment in my happiness. i have my dream bike, am more often than i care to mention complimented on my awesome bike and couldn't be happier. if i take what it is going to cost and work it backwards vs the frame alone now costing close to 50k i am up on all accounts. no financing toys isn't smart but again that depends on where you sit financially and your affordability, personally i ca t save 5k to buy anything i want as i always find ways to spend the money so for me the investment is in mine and my families happiness.

 

the cost of cycling is stupid in this country, so much so that its almost cheaper to take a trip to France and buy a YT there, spend a week riding and come back than it is to buy locally.

so my 2c is that financing a bike isnt smart no but for some is the better way to go.

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Compare the above to the scenario of saving that amount for three years and than  bike you have being saving for has gone up to R75k and you cant afford it and not having had use of bike for 3 years 

 

You are essentially taking a put / call type option on the bike,  betting against fiance cost vs bike inflation and  Rand / $

 

 

You are trying to make an impulsive decision an Investment decision. But that is false economy.

 

Look at it this way.

 

You buy the R52 000 bike today and as calculated end up having a three year commitment to pay R65k.

 

As you wheel your bike out the shop it is worth only R40k but you still owe the R65.

 

A year later and you would be lucky to get R25k for it in a rushed sale. After 3 years you are riding a 3 year old, very expensive bicycle.

 

Or, you could save hard for 18 months and buy the same bike second hand but for cash.

 

It will cost around 60% less and you will riding the same bike.

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You are trying to make an impulsive decision an Investment decision. But that is false economy.

 

Look at it this way.

 

You buy the R52 000 bike today and as calculated end up having a three year commitment to pay R65k.

 

As you wheel your bike out the shop it is worth only R40k but you still owe the R65.

 

A year later and you would be lucky to get R25k for it in a rushed sale. After 3 years you are riding a 3 year old, very expensive bicycle.

 

Or, you could save hard for 18 months and buy the same bike second hand but for cash.

 

It will cost around 60% less and you will riding the same bike.

This doesn't take into account the "value" of a warranty on a new bike . having a frame replaced in a year when the frame cracks has to be worth something ?

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