I recently had a very interesting conversation with two of my colleagues, Michael and Leonard. I am always amazed at the depth of knowledge my age mates have when it comes to certain issues. You will never know this without having such discussions. We discussed a varied number of topics ranging from investing to buying a house and more. Being boys the conversation naturally drifted to cars. It first started with the different cars available out there in the market and the different reasons why you would choose one over the other as your first car. I have always disliked Toyotas (Prado’s and VX’s don’t fall under this category for me) as I feel they focus on efficiency and completely neglect comfort. As a result my first car would never be a Toyota. They are pretty solid but they just don’t cut it for me. The conversation then drifted to how to obtain funding for your first car.
There is a time I swore I would never get a car loan. To me a car was a liability which I was going to be paying for a long time. Add the fact that bank interest rates are so high you feel you are being robbed in broad daylight. My plan then was to save money until I was able to acquire a vehicle with cold cash. My first car would be in the range of 650 to 900k at the most. Working with 900k I would need to save 75k a month to get the car in a year. This definitely is not possible for me at this point. If I was to spread this over two years I would need to save 37,500 a month. This is still a very tall order. Let us work with a cheaper car. With a car worth 700k I would need to save around 58k a month in order to get in a year and around 30k to get it in two years. I am not that patient; I can’t wait for that long. Keep in mind that I need to be investing in other things too so I would need some more money. Assuming I actually manage to save that money would I use it to buy a car? I don’t think so, at that point I would look into where I can invest it because that is a lot of money to give out at once and never see it again.
What is the compromise? Take a loan. Raise 60% of the money I need and top up the rest with a loan from a SACCO or family. For a car worth 900k I would need to raise 540k. This seems more manageable. Typical SACCO loan rates are 10%, that is workable too.
This is my theory, let me try it out. What are your thoughts? Please feel free to share them with me here or on twitter @kiruik