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ferrytales

Why you should NEVER do $0 driveaway or 10 years loan

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4th Gear (edited)

Been seeing alot of dealers offering such promotions to unknowing customers or customers whom are financially unsound.

This is the WORST decision you should NEVER ever make as people tend to get tempted only by looking at the monthly instalment. There are some hidden sums that people are unaware of and the interest accumulated is absolutely insane. You will be STUCK few years down the road if you decide not to keep the car and sell it off unless you have $$ to pay off your outstanding loan.

You need to have $0 outstanding loan to do a transfer of car ownership (ignoring whatever grey areas possible).

'Disclaimer: The numbers are for illustration only and by no means an accurate reflection.'

__________________________________________________________________________________

Let me give you an illustration based on the conditions below. 

1. You get excited at this $0 driveaway promotion + 10 years loan and decided to buy a car @ $100,000 with parf value @$2500.

2. Loan interest rate est. 3% pa and you decided to loan for 10 years.

3. Now its time to do the sums!

Car Purchase Price: $100,000

Interest incurred @ 3% pa: $100000 * 3% * 10 years = $30,000 [YES IT IS $30k]

Total Cost: $100,000 + $30,000 = $130,000/-

Monthly instalment: $130,000/10years/12mths = $1084/mth

__________________________________________________________________________________

3 Years Later

So you've made the purchase and happily drove off but 3 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 7 years remaining) + parf value of $2500 = $48,000 + $5,000 (token sum from dealer) = $53,000

Outstanding loan (before rule 78): $13,000 * 7 = $91,000

With a trade in price of $53,000 and outstanding loan of $91,000, you have to fork out $38,000 to clear off the loan.  

__________________________________________________________________________________

5 Years Later

So you've made the purchase and happily drove off but 5 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 5 years remaining) + parf value of $2500 = $35,000 + $5,000 (token sum from dealer) = $40,000

Outstanding loan (before rule 78): $13,000 * 5 = $65,000

With a trade in price of $40,000 and outstanding loan of $65,000, you have to fork out $25,000 to clear off the loan.  

__________________________________________________________________________________

7 Years Later

So you've made the purchase and happily drove off but 7 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 3 years remaining) + parf value of $2500 = $22000 + $5,000 (token sum from dealer) = $27,000

Outstanding loan (before rule 78): $13,000 * 3 = $39,000

With a trade in price of $27,000 and outstanding loan of $39,000, you have to fork out $12,000 to clear off the loan.  

__________________________________________________________________________________

Hope this post and sharing will help as many people as possible to not fall into the debt trap for the sake of owning a car. These sums are already relatively conservative for illustration purposes. 

Edited by ferrytales
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Hypersonic

Not applicable here... MCFers full cash only 😂😂

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4th Gear
1 minute ago, Vid said:

Not applicable here... MCFers full cash only 😂😂

i know 🤣

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Turbocharged
9 minutes ago, ferrytales said:

Been seeing alot of dealers offering such promotions to unknowing customers or customers whom are financially unsound.

This is the WORST decision you should NEVER ever make as people tend to get tempted only by looking at the monthly instalment. There are some hidden sums that people are unaware of and the interest accumulated is absolutely insane. You will be STUCK few years down the road if you decide not to keep the car and sell it off unless you have $$ to pay off your outstanding loan.

You need to have $0 outstanding loan to do a transfer of car ownership (ignoring whatever grey areas possible).

'Disclaimer: The numbers are for illustration only and by no means an accurate reflection.'

__________________________________________________________________________________

Let me give you an illustration based on the conditions below. 

1. You get excited at this $0 driveaway promotion + 10 years loan and decided to buy a car @ $100,000 with parf value @$2500.

2. Loan interest rate est. 3% pa and you decided to loan for 10 years.

3. Now its time to do the sums!

Car Purchase Price: $100,000

Interest incurred @ 3% pa: $100000 * 3% * 10 years = $30,000 [YES IT IS $30k]

Total Cost: $100,000 + $30,000 = $130,000/-

Monthly instalment: $130,000/10years/12mths = $1084/mth

__________________________________________________________________________________

3 Years Later

So you've made the purchase and happily drove off but 3 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 7 years remaining) + parf value of $2500 = $48,000 + $5,000 (token sum from dealer) = $53,000

Outstanding loan (before rule 78): $13,000 * 7 = $91,000

With a trade in price of $53,000 and outstanding loan of $91,000, you have to fork out $38,000 to clear off the loan.  

__________________________________________________________________________________

5 Years Later

So you've made the purchase and happily drove off but 5 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 5 years remaining) + parf value of $2500 = $35,000 + $5,000 (token sum from dealer) = $40,000

Outstanding loan (before rule 78): $13,000 * 5 = $65,000

With a trade in price of $40,000 and outstanding loan of $65,000, you have to fork out $25,000 to clear off the loan.  

__________________________________________________________________________________

7 Years Later

So you've made the purchase and happily drove off but 7 years down the road, you had a change of mind and decided to sell off the car. Based on an estimated trade in price at a depreciation of $6.5k from dealers and now lets do the sums again.

Trade in price: ($6500 * 3 years remaining) + parf value of $2500 = $22000 + $5,000 (token sum from dealer) = $27,000

Outstanding loan (before rule 78): $13,000 * 3 = $39,000

With a trade in price of $27,000 and outstanding loan of $39,000, you have to fork out $12,000 to clear off the loan.  

__________________________________________________________________________________

Hope this post and sharing will help as many people as possible to not fall into the debt trap for the sake of owning a car. These sums are already relatively conservative for illustration purposes. 

U forgot one very tragic use case? 
 

on year 3 you kanna accident n total loss. You still have to cough up the 91 k.. no?

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4th Gear (edited)
4 minutes ago, Sdf4786k said:

U forgot one very tragic use case? 
 

on year 3 you kanna accident n total loss. You still have to cough up the 91 k.. no?

You are right, that's another scenario. Even with insurance payout based on market rate and if owner at fault with zero insurance payout + still gotta pay for the other party, its gonna be bad. 

Edited by ferrytales

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5th Gear

Bro, depre not exactly linear.. The 6.5k is averaged out over its COE life.. 

If you sell off the car in the 3rd or 4th year, the depre can be up to 10k.

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Turbocharged
16 minutes ago, ferrytales said:

You are right, that's another scenario. Even with insurance payout based on market rate and if owner at fault with zero insurance payout + still gotta pay for the other party, its gonna be bad. 

If u over leveraged u be bankrupt n may further agrevate with a job loss

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4th Gear
7 minutes ago, thebutcher said:

Bro, depre not exactly linear.. The 6.5k is averaged out over its COE life.. 

If you sell off the car in the 3rd or 4th year, the depre can be up to 10k.

thats why its an illustration with the best case scenario. if i use sums of 10k depre, the numbers are gonna make everyone jizz!

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Turbocharged
8 minutes ago, thebutcher said:

Bro, depre not exactly linear.. The 6.5k is averaged out over its COE life.. 

If you sell off the car in the 3rd or 4th year, the depre can be up to 10k.

Base on the usual second hand dealer it’s 30k or 25% for first year.. 

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Twincharged

The example raised by TS is more than good enough to warn those who are unaware of the pitfalls of taking a $0 drive away plan. 

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Supersonic

wah ... now then you say

i peasant already signed liao

cough blood to pay...

😓😭

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Turbocharged
57 minutes ago, ferrytales said:

 

Interest incurred @ 3% pa: $100000 * 3% * 10 years = $30,000 [YES IT IS $30k]

Total Cost: $100,000 + $30,000 = $130,000/-

 

Anyone with a PSLE cert will know NOT to take up this loan. Why would anyone buy something that's 30% mark up is beyond me. I'd pay upfront FULL CASH if there's 30% discount. Any SE wants to PM me?? 😌

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6th Gear
32 minutes ago, Sdf4786k said:

Base on the usual second hand dealer it’s 30k or 25% for first year.. 

Then how do they account for 2nd n thereafter years annual depn/value? The 1st yr 30k/25% also plucked from the air figure?

I never trust the second hand dealers numbers, for they could never give me the detailed proof of their calculations.. not that they are highly educated accountants in the first place..lol..

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Twincharged (edited)
42 minutes ago, Zxcvb said:

Anyone with a PSLE cert will know NOT to take up this loan. Why would anyone buy something that's 30% mark up is beyond me. I'd pay upfront FULL CASH if there's 30% discount. Any SE wants to PM me?? 😌

It is easier said than done, there would still be people may  do it for reasons despite knowing the financial risk involved, some may assume that the mentioned scenario will not happen to them, they will only wake up to the reality when they are caught in a situation which is usually too late for them to bail themselves out. 

No need 30% discount, many MCFers would full cash when there is a 20% discount, except for myself as i am closer to the $0 drive away type. 😅

Edited by Ct3833
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Hypersonic

Saying is easy but to be prudent really takes discipline. 

 

I love the gen 4 sorento and I could afford it by taking up a 50k loan. 

But decided to just buy a few years old gen 3/ with AD warranty with cash and be debt free. 

That feeling outweighs the thrill of driving a new car for me. 

But that's just me and not for anyone. 

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6th Gear

Ya not everyone so disciplined.

I also lazy to calculate the costs and just took a 50% loan without much thinking, also assuming if pay full cash the AD will just load up to offset any interest savings. Silly me didn't even bothered to ASK and compare, ended up redeemed the loan after a year.

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Moderator

In reality, car buying experience is more of heart over mind decision for some and thus all these obvious are ignored. I have written alot on such calculations in the past, almost can become a thesis liao... 

There are many other traps awaiting cash tight buyers, such as balloon scheme (start with very low installment at the beginning), over-trade, inflating sales price to secure more loan, re-packaged leasing scheme (you will not get back a single cents at end of the tenure), etc. etc. In fact, the most common one currently is the over-trade scheme, which make buyer ended up in another deeper sh*t hole. (will share more if I can spare some time to table the figures).

Rule of thumb (again just my theory), make sure you are comfortable with the down-payment, monthly installment, maintenance and running cost (these should be something out of your budget for daily expenses, saving plan and such) and in the event that you need to dispose the car off (assuming at deregistration value), you will still get back some money (as you are most likely in need of cash at the very moment).

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Supersonic

Indeed true not to buy a car with $0 downpayment with a 10 year loan. This means the person not really can afford to own a car.

I have a friend last time who bought a car with $0 downpayment with a 10 year loan, along the way he cannot even afford to pay for the car insurance and ended up sold off the car with a huge loss.

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