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Only 7 years old, less than 100k miles, must be worth much more to you than you would ever get for it.
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>>>So you've spent £5000 on a car, plus the £1000 depreciation means that the real cost is £6000.
No no no no no! The real cost is only £5000. Trust me, I'm an accountant.
But spending £1000 on a banger is not worth it. Go out and buy a 'new' one from eBay or auction!
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But spending £1000 on a banger is not worth it. Go out and buy a 'new' one from eBay or auction!
I have a Saab 9-5, good condition, but has done 156,000 miles. Runs sweet as a nut. BUT it still has the original exhaust and turbo, plus I do about 20k per annum. Cost to replace exhaust & turbo will be £1000 in round figures. Cost to replace car with a similar but perhaps newer/lower mileage model will be far, far more than that - and besides, I have only got £1000. And indeed may need the same £1000 spent on it. So it's a bit simplistic to try and decide purely on economic terms - my view is that spending £1000 on my current car is the most sensible, and indeed only, option in my case.
BTW, if anyone comes up with a convincing argument to buy a 2-3 year old 9-5 Aero that I can get past the finance committee (aka SWMBO), I'll buy them a beer!!
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>>>So you've spent £5000 on a car, plus the £1000 depreciation means that the real cost is £6000. No no no no no! The real cost is only £5000. Trust me, I'm an accountant. But spending £1000 on a banger is not worth it. Go out and buy a 'new' one from eBay or auction!
Surely the real cost is only £1000 because the residual value is £4000.
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He's an accountant, he can make the answer any number you care to choose! :-)
Just think of it as riding the lower slopes of the depreciation curve and enjoy it. A 7 year old car should still be in good nick and running well. If you're bored, swap it, but why bother trying to justify it on economic grounds?
With thanks to the floppy haired one, who demonstrated the existence of "man maths", which we all suspected existed but never quite pinned down.
JH
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>>Surely the real cost is only £1000 because the residual value is £4000.
Says who?
I was building on the original analogy that was just plain wrong. I think we've confused him enough without bringing in residual values... Most people equate cashflow with cost. They spend £5000 on a car in year one and nothing for the next four years. Simple.
Most people don't understand deprecation... including I suspect you. Depreciation is there to match the economic benefits of an item with with economic cost of the item. Costs you £5000 lasts five years, it makes sense to define depreciation as £1000 per annum.
Depreciation has nothing to do with the value of the asset in the open market. (Common misconception.) Because...
If you plan to sell that car within a year and a day of buying it, your depreciation is likely to be more like 2000, which should be reflected in year one.
________________________________________
£1 for counting the beans, £99 for knowing which beans to count
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As a 'bangernomics' person running Omegas then I ask myself this question a lot...The way i look at it, I'm perepared to spend the equivalent of the depreciation on a 'better' car to keep this one running. So i tend to buy cars for around 1-2K and accept that I will spend between 200 & 600 quid per year keeping them going.
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Also with dealer servicing its highly likely that a new car is going to cost quite a bit to keep on the road and if its out of warranty its not unheard of that big bills are around the corner - all that AND you have to pay depreciation.
Generally, the cheapest car to own is the one you have got. Even if it costs you £1000 a year in repairs its still going to be cheaper than buying something new or newish and running it for a few years.
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It's always cheaper to run the old car, that's why when you go into a poor area, you see old cars, and not new ones, however, there becomes a point where you don't like the car enough to spend any more money on it, and you'd rather put the money towards a new one. I think that this is more subjective than simple economics.
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Mmmmmmm.
Ok, economics from the Third World...
The Astra (1995, 180i auto, bought December 1999) is bought, paid for a long time ago, and still going strong.
Bodywork fine - no salt/poor weather etc to worry about, so no rust.
Gets its every-10 000km service, plus belt change plus new shocks/tyres/CVs as a matter of course.
Total cost of such work since the car was paid off = ~one eighth of the cost of the equivalent installments while I was still paying for the car.
Book value (trade-in) now is about 65-70% rand value of what I paid for it in 1999.
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To my mind there are three factors to consider:
1) The cost of running the car (obviously) - when it starts to cost as much to keep repairing the car you have as it would to buy a newer one, its time for the old jalopy to go. So let my old Punto consider itself warned!
2) The opportunity cost of having the current car break down - it may be cheaper to put (say) a new clutch in aforementioned Punto than replace the car. But if you lose a day's income or a day's holiday each time its off the road, change at the first hint of trouble.
3) At what point does your car cease to have any value as a trade-in or private sale? The OP's Rover is still worth £1300. If there's likely to come a point where its worth much less (e.g. after a major breakdown or, say, if punters would be less keen after 100,000 miles) then maybe that's the ideal time to trade up.
So long as none of the above applies, stick with bbroomlea's sound advice: the cheapest car to own is the one you have got.
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You've also got to price in the cost of the capital to purchase a new car, and that cost is the highest rate of interest you are paying. If you have to up the borrowing on the plastic, because you've shelled out 5,000 on a car, then that capital could be costing you 20% or more - another 1,000 a year. If you've plenty of cash in the bank, then it's costing you 3% or so, as that's all you are getting after tax.
Look at a three-year view:
Banger - 1,000, + 500 pa repairs/service, cost 2,500 - value at end 500, total cost 2,000.
Newer car - 5,000 + 250 pa servicing, cost 5,750, value at end £2250, total cost £2,750 + cost of the additional 4,000 over three years, at 3%, 360, at 10%, 1,200, at 20%, 2,400.
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The only real banger I owned was a then 15 year old Mk1 Fiesta. In 18 months it had replaced - front brakes, tyres, clutch, exhaust, engine mountings and the CHG was on the way out before it failed it's MOT and was scrapped.
None of these jobs were expensive, but the inconvenience of having a car which constantly needed attention, having no car when I needed one and having to take days off when it did break down got to me in the end!
Newer cars are expensive, but you do buy a large peace of mind that the chances of it letting you down are remote.
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I have an aquaintance whose name is I. T. Quitson,
I think I called him a taxi once.
Incredible, isn't it?!
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Davidh has said he thinks its only worth £1300 and were all calling it a banger/jalopy! IMO 7 years old is not old, and 85k miles is not a high mileage, there are 3y.o. cars with more than that on them.
I would keep it and get your moneys worth out of the £500 you've recently spent on it. If its reliable, I would only get rid if you're bored of it.
You could buy a newer 2nd hand car for £12k, and still have a breakdown with a £1000 bill a month after the warranty runs out. And think of all that money down the drain as depreciation.
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Davidh has said he thinks its only worth £1300 and were all calling it a banger/jalopy! IMO 7 years old is not old, and 85k miles is not a high mileage, there are 3y.o. cars with more than that on them. I would keep it and get your moneys worth out of the £500 you've recently spent on it. If its reliable, I would only get rid if you're bored of it. You could buy a newer 2nd hand car for £12k, and still have a breakdown with a £1000 bill a month after the warranty runs out. And think of all that money down the drain as depreciation.
Agree 100%
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With a few exceptions everyone seems to harp on about finances and cost to own and depreciation etc. What about changing your car because you see another that you like more than the one you have?. What about buying a car because of how it makes you feel when driving it?.
Don't any of you actually enjoy motoring? Or is it an unpleasantry that you put up with out of necessity and therefore stress about every pound that you are forced to part with?.
What else in your daily lives do you apply this principle to?. Do you scrounge around used appliance shops for that £50 fridge freezer that you can squeeze another year or two out of?. If not, do you buy a new one and then fret about how much less it will be worth once you take it out of the box?.
Some people may not have the option of choosing the car they want and have to buy soley on price. I am not putting them down in any way as I have been there myself, but I get the impression that many of you could afford to drive much better cars than you currently do, but don't and I can only imagine its because you don't like cars...or motoring. How very odd that you would then visit and post on a motoring forum.
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I guess it's all a question of scale: A fridge freezer only costs a few hundred pounds whereas davidh's car new, or its new equivalent, would be nearer 20 thousand.
If he bought his car last year he might have got the same feeling from driving it as the chap did who bought it new and paid all that more money for it!
By the same token, we could say "trancer! stop messing about and get that Pagani Zonda bought!"
;-)
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Cars are normally the second most expensive purchase in people's lives, therefore you have to look at the broader picture of just how much one costs to run and maintain annually.
But some people do amaze me. I read a newspaper letter the other day when a 4x4 owner was stating that she would have to give the car up after the latest financial blow to her pocket.
The reason? The road tax had been raised to £215.
A somewhat bizarre reaction to an additional cost of less than £1 a week.
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What\'s for you won\'t pass you by
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With a few exceptions everyone seems to harp on about finances and cost to own and depreciation etc. What about changing your car because you see another that you like more than the one you have?. What about buying a car because of how it makes you feel when driving it?.
Fully agree with some of what you say trancer, but to be fair, davidh's original post seemed to ask for opinions from a financial point of view, so most people have looked at it from a financial point of view in their replies.
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With a few exceptions everyone seems to harp on about finances and cost to own and depreciation etc. What about changing your car because you see another that you like more than the one you have?. What about buying a car because of how it makes you feel when driving it?. Don't any of you actually enjoy motoring? Or is it an unpleasantry that you put up with out of necessity and therefore stress about every pound that you are forced to part with?.
Yes this is me down to a tee, I've always earned good money but "wasted" most of it on cars over the years, they have all brought me pleasure in one form or another... The old saying life's too short etc goes here i think
Point of note here off thread, my uncle died 2 years ago very suddenly, my aunt has been left shall we say very comfortable she went to see her bank manager who brought up the subject of inheritance tax. Her reply was don't worry i'm going to spend the lot! That would be only on cars
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>>With a few exceptions everyone seems to harp on about finances and cost to own and depreciation etc. What about changing your car because you see another that you like more than the one you have?. What about buying a car because of how it makes you feel when driving it?.
>>Don't any of you actually enjoy motoring?
I don't think that's the point. I don't need to throw money away on an expensive car as a status symbol or extension of my manhood. I have much better things to spend my money on. Better claret. Things that don't depreciate... Regency dining chairs, pictures.
I am quite happy to pootle about in an elderlyish car. I don't have to worry about people keying my car, about people slashing my soft top. If I get an expensive repair bill I can put the car on eBay and not lose much.
So why does somebody who is not car obsessed come to this website? For help on Technical matters. Because they do enjoy(ish) driving... carefully, sensibly, economically. They are interested in car mechanicals, discussing Optimax, learning about the new Baldock bypass. Chossing their next car economically, sensibly. Getting rid of their previous car economically, sensibly.
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Agree 100%
Again, I agree.
I'm now very glad I read this thread as I was starting to think that I had gone slightly mad. Its not the first time it?s been said to me that when I've graduated (and get a decent job) I should think about getting a new or newer car to replace my ageing Polo. No matter how hard I try, no one seems to understand that I?m currently happy with the car I?ve got and I don't want to change. At this point the same people will go on to say pretty much what is mentioned above, that it'll probably need some major repairs at some point which will be more than its worth (£500, at the most).
But, parts are cheap and it's simple to repair, so even major mechanical disasters could probably be sorted for considerably less than £500. Apart from the financial and economic factors outlined elsewhere in this thread, a new car isn't a guarantee against breakdowns and reliability niggles but could lessen the risk.
If you're happy with it, stick with it.
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