Cooling measures for cars!

Some readers might remember my blog post on getting a new car some two years ago. I might not have revealed then but I did not take a loan for that purchase. It was the first time that I bought a car without the help of a loan and this is the way I like it. So, my car is an asset, a depreciating asset but still an asset.

Some asked me why I did not take a loan since interest rates are so low and I could invest my money for higher returns? This is a dangerous way to think, in my opinion. The returns from my investments lack certainty but the required monthly repayments to the lender are dead certain.

Borrowing in order to finance personal consumption is not a good idea, is it? A car is for personal consumption, is it not? Well, sometimes, we really need a car for various reasons and what if we could not avoid borrowing to finance the purchase?

Prior to buying my current car, I would make sure to take a loan of no more than $20,000 to be repaid over 3 years. That worked out to a monthly repayment of some $600 per month which was comfortable for me. So, for example, if the price tag of a car was $80,000, I would make sure I had at least $60,000 which would be made up of the trade in value of my old car and cash.

I do know of people who would borrow 100% against the value of a car and some would take 10 years to repay the loan. I cannot imagine why anyone would want to do that.

So, to protect potential buyers lacking in financial prudence, I believe the government's new measures are in the right direction:

Singapore’s central bank said the tenures of motor vehicle loans will be capped at five years, with the maximum motor vehicle loan amount pegged to 50 or 60 per cent of the vehicle’s purchase price, depending on the Open Market Value.

Some banks here had offered financing of up to 100 per cent of the purchase price for new cars, with tenures lasting up to 10 years. (Source: TODAY online)

Think carefully. If we need to borrow heavily in order to buy a car, can we really afford it?

Earlier this morning, I read an article which reported that the lower and middle income groups may be priced out by the new measures. It is understandable that car dealers are upset as their business could be negatively affected.

Eddie Loo, managing director of CarTimes Automobile, said: "We have a mixture of customers —— those who come and buy (with) cash, but there are definitely people who want a hundred percent loan.

"So it’s almost like 50—50 kind of market that people come into. So to penalise those who need a car and have to fork out 50 per cent of the loan amount, I think, the timing is not very correct.

Do I sense some sympathy from Mr. Loo towards people who need a 100% car loan to buy a car? What do you think? Mr. Loo thinks that "the timing is not very correct". When is a correct time for encouraging financial prudence?

Why not hear what buyers have to say?

John Molina, a prospective car buyer, said: "I want to buy a car, but because of this, I mean it’s impossible for me, or it’s almost near—impossible."

Another prospective car buyer, Mark Lim, said: "For those people who are really very rich, to them there’s no effect —— today I want to buy a Ferrari, for example, I don’t even care about how much is the downpayment."

Mr. Molina wants to buy a car. Well, if he had the money to do so, he could satisfy the want. However, since he finds it "impossible" to do so with the new measures in place, he probably is and was a poor candidate for car ownership.

As for Mr. Lim, since it dawned upon him that he could buy a car without a care for how much is the downpayment if he was "really very rich", why not concentrate on getting rich first?

Read article:
Middle & lower—income groups may be priced out of car market: dealers

Related posts:
1. Bought a new car.
2. If we are not rich, don't act rich.
3. Good debt is always good?
4. Slaving to stay in a condominium.
5. The very first step to becoming richer.

From rich to broke?

Added (1 Feb 2017):


Over the best part of two decades, Johnny Depp has been spending US$2m a month, according to TMG, which is suing the star for an unpaid loan.

The actor is alleged to have forked out US$75 million on 14 homes, including a 45-acre (18-hectare) French castle, a chain of Bahaman islands, several Hollywood homes, penthouse lofts in downtown LA and a horse farm in Kentucky.

Since 2000, the actor has spent US$18 million on a yacht, bought 45 luxury cars and shelled out almost US$700,000 a month on wine, private planes and a staff of 40 people, according to the lawsuit.

TMG says Depp has accrued more than 200 artworks by Warhol, Klimt and other masters, 70 collectible guitars and a Hollywood memorabilia collection so extensive it is stored in 12 locations.

"... when Depp's bank demanded repayment of a multimillion-dollar loan and Depp didn't have the money, the company loaned it to him so that he would avoid a humiliating financial crisis." TMG attorney said in a statement.

Source: CNA





---------------------------------------------------
I have shared this story many times before but I might not have blogged about it and that is how someone I know who was making >$15k a month at work became broke.

This person was quite a few years younger than me but he was very successful in his career and by the time I got to know him a few years ago, I know he was definitely making >$15k a month. 

It could have been >$20k a month but he wouldn't say.

Home was a 3 bedroom condominium in D10 which he bought a few months before getting married. 

He had a Mercedes Benz S something. He was always well dressed and each of his watches (yes, he had more than one watch) would probably have cost me a few months' salary. 

He and his wife would go on annual holidays to Italy, France, Switzerland etc. 

Although he was making a very nice salary, to have been able to have all that he had, he must have been heavy on credit.




When the Global Financial Crisis happened, he lost his job and everything unravelled. 

Of course, at that time, it was hard to sell any piece of real estate for a good price. 

The car would definitely be sold at a hefty loss. 

Pre-owned big name watches would be worth very much less as well.


For him, it was a swift descend from heaven to hell. 

Everyone who knew about it was shocked because he always appeared so confident and so wealthy.

What can we take away from this?





1. Everyone needs to learn financial management skills. 

The younger we learn the importance of financial prudence, the better. 

At its simplest, everyone should learn how to save and grow our hard earned money.



2. Everyone wants a higher standard of living. 

So, often, people end up buying expensive cars, expensive homes and expensive everything. 

However, what this also means is that we have higher costs of living. 

Can we not have a higher standard of living without a much higher cost of living?






3. Everyone needs to think of all the bad things that could happen to them. 

I know it can be depressing but it is necessary. 

How long can we continue in our current lifestyle if we were to lose our jobs? 

What if we or our dependents were to need long term medical care?

Stress test our finances. 

If we cannot pass these tests, we better do something to set our houses in order.






Of course, a very good question to ask would be: "Was he ever rich?"

All of us might have friends or family members who are living beyond their means. 

Of course, sometimes, people need to suffer a fall before they are aware of their financial mortality but I feel that it is our responsibility to at least talk some sense into them, if we could. 

It is as much for their own good as it is for ours.




-------------------------------------------
Johnny Depp's story makes my friend's story sounds like a walk in the park? 

Sorry. 

To me, there is no difference. 

To me, broke is broke.

Related posts:
1. A common piece of advice on savings.
2. Wage slaves should be fearful.
3. "How to tell if you are rich" by Alexander Green.