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I'm 18 years old and I've always wanted an Audi Q5. Currently, I'm working full-time. I earn £28,800 annually and that will be due to go up soon. The car I've had eyes on costs £31,789. The monthly costs will be £632.02. It will be a hire purchase finance type with a contract length of 4 years. I have the deposit ready to go at the time of this post, 20% which is £6,400, and I am contributing more as I won't be buying the car until February. I've checked the insurance and it costs £2,500. With that I will be going halves with my brother as he will be using the car.

At the moment, I live with my brother and work for him. I am currently paying no bills but my phone. My role at work is stable and is unlikely to change any time soon.

Edit: I've asked around and a lot of people are telling me to get a cheaper car as I could crash it or could use the money elsewhere.

Should I buy a second-hand cheap car or go ahead with the deal?

  • 15
    Why not go for the slightly used option? Say a car that is 2-4 years old? Will be a lot cheaper! – ssn Dec 12 '19 at 13:42
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    Does this answer your question? By 18 years of age, I want a brand new car that's $43,668 – yoozer8 Dec 12 '19 at 15:11
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    @Rickss: You think of £2,500 (3,274.21 USD at today's exchange rate) as DIRT CHEAP? Both of my current vehicles cost less than that, and I make more than you, and live in the US where gas &c is a lot cheaper. Plus, unless things have changed a lot since I lived in Britain, if you're going to be living anywhere near London, a car is a liability. – jamesqf Dec 12 '19 at 18:30
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    Besides hire purchase and insurance did you consider all the other costs too? Maintainance, repairs, gas? – spickermann Dec 12 '19 at 21:02
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    What will you do if you lose your job the day after you buy the car? – Dawood ibn Kareem Dec 13 '19 at 2:15

14 Answers 14

113

You are talking about spending about a third of all your money on a car and committing to do so for the next 4 years.

As an 18 year-old you have a tidy disposable income and few expenses. But the one thing that is certain is that your circumstances will change, even over the next 4 years.

It is a terrible idea.

As a simple example, you could:

a) buy your new car.

OR

b) buy a second-hand Audi Q5 for £10,000; go on luxury tropical holidays once a year (£2500); and still have a £10,000 deposit left on a house.

You are in a very fortunate position where you could save thousands and thousands to give yourself a headstart to a life of ease. You will not have this level of disposable income again for decades if ever. Don't spend it all on a car that will be shiny for a fortnight.

EDIT: My advice

Buy a max £1000 car today. From next month, save £1000 per month into a new savings "Car Account". This time next year you will have enough for a second-hand Q5. If you wait a bit longer, then every month you will have enough for a newer one.

Then, if you still want to, take out your hard earned cash and go and buy your car outright.

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  • 8
    Financing a £15,000 car is better for sure. But do think about other claims on the money. You could buy your own house in the next 5-10 years (or even sooner if you wanted). Your brother isn't going to put you up rent/bill-free forever. Your bills and other expenses will go up. In the end it is your money, but every pound you spend on this car is money that you can't spend elsewhere, so make sure you make the most of it. – Mark Perryman Dec 12 '19 at 15:46
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    @Rickss "would it be a better idea to finance a £15,000 car then?" No (for most fairly sensible definitions of "better"). Use some of the money to live well; put most of the money into savings of some kind. However stable your job seems, it could vanish in two years time, or you or your brother could total the car next week. – TripeHound Dec 12 '19 at 16:21
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    @Rickss You're young and you think that money will be easy to come by. The thing is, not that anyone is telling you what to do since its your life, it's going to be a pain in the ass to live and maintain a luxuary lifestyle by starting with the luxuries and then trying to generate the money. You can generate cashflow from money and you can use that cashflow to buy whatever you want, but you won't be able to do that if you start off by not having any cashflow in the first place. Please use cheaper cars to begin with and figure out how you can later (a few years maybe) buy the car with cash. – Jonast92 Dec 12 '19 at 16:21
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    @TripeHound: A job could vanish in two years time? Try two hours: you walk into work one morning, see a bunch of strange faces at the front desk, and they say "Hi, we're from the venture caps. We're shutting the company down, so clean out your desk and pick up your final paycheck." – jamesqf Dec 12 '19 at 18:33
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    @jamesqf And even "pick up your final paycheck" might be optimistic. – chepner Dec 12 '19 at 19:17
54

Personal experience-

I did the math. I had enough. I bought the car. I LOVED that car. I had FUN. Nothing went wrong. I paid everything I had to as it was due. Luck was on my side. At the end of 5 years it was paid off. I had a 5 year old car.

My buddy had a similar job paying about 10% less. He didn't buy the car. Instead, he bought a cheap reliable car. He rode along with me, sharing in a lot of the fun. His car broke down. He bought another cheap car. At the end of 4 years he was able to pay down 40% on a good house. At the 5 year mark he only had about 50% of the house left to pay.

You have to decide which is more important.

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    I mean if the goal is to have a 5 year old car then sure – Emobe Dec 13 '19 at 12:08
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    Most UK car finance deals don't end up with you owning the car, just an option to buy it. – Ian Turton Dec 13 '19 at 18:36
  • @IanTurton, Are you saying that most UK cars are sold on what we would consider to be a "lease" here in the US? – JPhi1618 Dec 13 '19 at 19:15
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    @JPhi1618 yup - looks like a scam to me: "buyer" takes essentially all the risk, pays maintenance costs (and likely a penalty for exceeding a pre-agreed annual mileage) and still doesn't actually get to own an asset. They normally massively exaggerate the ratio between amount they'd value the car at 2nd hand at the end vs the amount you'd have to pay still to own it outright. – Flexo Dec 13 '19 at 20:59
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The answer, of course, is "no" to the Audi. But you already knew that.

I applaud your willingness to ask the question.

Here is a decent article: Opinion: The road to riches is this simple: Drive a crappy car

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    Hmm, he didn't ask how to become rich. He asked how to afford a Q5. This doesn't answer the question. – Thomas Weller Dec 12 '19 at 21:04
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    The question after the edit (and well before your comment) was "should I buy a second-hand cheap car?", so this answer seems sufficient to the OP. – NL - Apologize to Monica Dec 12 '19 at 21:39
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    "The road to riches is this simple: drive a crappy car". There are exceptions to this, like if you're a small business owner and you need to portray a certain image to your wealthy clients. – nick012000 Dec 13 '19 at 6:15
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    This says something about how fantastically successful the marketing of cars as status symbols has been – JollyJoker Dec 13 '19 at 8:50
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    If nothing else, the free market ensures that if there are cars selling for £30,000, there are some people in the market who have the means to spend £30,000 and would prefer spending it on that car to something else. So aside from not answering the question, that linked article begs the question like nothing I've seen before. I love my cheapo car but if I had £30k and nothing else to spend it on I would sooner buy a Q5 than "win the personal-finance game" whatever that's supposed to mean. – Will Dec 13 '19 at 10:27
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There is similar question By 18 years of age, I want a brand new car that's $43,668

But because of the deposit and young age I think it deserve new answer so more people can use it.

Your whole plan is based on two assumptions:

  1. you're not spending a lot of money on bills
  2. your work situation is stable.

So let's go through basic calculations. You're earning 2,4k a month. 632 goes toward monthly payment. Plus 210 for insurance each month (You need to take into account you pay ro the first year now and save for the next. And althought you're paying up front you need to calculate it into your monthly budget).

Now for additional costs you didn't mention:

  • Gas. You are splitting with your brother so you cannot assume how much you will pay. But you can guess that it will be 25% higher than what you would want to pay. And it's only if you are very frugal with your driving.
    Which I can tell you won't be. You're young, with Audi Q5, of course you will drive the thing around.
  • Service. I assume (by the price) that you want to buy somewhat new car. You migh get away from MOT (as you don't need one in first 3 years of car life) buy you need to calculate obligatory services that you need to have to keep warranty. And you cannot safely calculate when it will happen as you're sharing the car and mileage might come faster than anticipated.

You are looking at more than 1/3 of your monthly earnings on just having the car roadworthy. Not driving it. Just having it ready to be driven.

You shouldn't count on falling on having more income as your spendings will also rise (not only on car itself). It's normal to "adjust" how much we are spending with our income. You wil have car, you will go more often to cinema, eat at drive-thru. Just being an 18 year old lad.

Additional - hire purchase have sometimes an extra payments at the end of the contract. And by the end I mean also when you decide to terminate the deal earlier (you're 18, many things can happen in next 4 years).

You need to understand that the cost of having a car WILL rise. Insurance will go up, you will need to fix it (and for Audi Q5 parts are far more expensive than for Ford Focus).
Having that much money held in an item with very high diminishing value is very, well, stupid, at such young age. You are looking at tying 50% of your income for the next 4 years.
IMHO very risky.

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    @Rickss. You are young and naive. You are right, you can technically afford this car. You will not go bankrupt and you will not be homeless; BUT there are much better uses for your money - even if you REALLY want this car. – Mark Perryman Dec 12 '19 at 14:28
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    After reading everything i would be a idiot to not take anyone’s advice. But after all the calculations i made seemed to make sense for me, i know understand i need to invest and put my money else where and not on a depreciating asset. – Rickss Dec 12 '19 at 14:33
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    I think i wanted the car so badly i wanted to see if anyone could give me a way to make it make sense or give me justification for why i could get it – Rickss Dec 12 '19 at 14:39
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    @Rickss One of the "mistake" is that you calculated you already have money for the insurance. And as that is true it's better to calculate that amount in current year. That's why I wrote 210 a month on insurance. You calculated only the cost of car itself. We know it's beter to save money each month for insurance as throught the year there might be some additional expenses (not car related, just life) that might impact the amount of money you have. – SZCZERZO KŁY Dec 12 '19 at 14:41
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    "Insurance will go up" umm no, a drivers first few years are likely to have far far higher insurance costs than once the car is a bit older and the driver has proven themselves. – Peter Green Dec 14 '19 at 5:50
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For an objective answer, look at two things:

  • How much interest you'll be paying over the life of the loan
  • How much the car will be worth after 4 years when your contract expires (look at current 4-year-old Audis as examples).

My guess is that you will be paying much more in interest that you realize, and that you will be underwater after 4 years, which means that you'll have to overpay to keep the car, or give it up and have nothing to show for those 4 years except memories.

You are 18 and can do what you want, but my advice is that buying a car that's worth more than you make in a year is a bad financial decision.

One rule of thumb I've seen is to not own vehicles that in total add up to more than half of your annual income. Save up for a cheap used car, then save up for your next car. How nice a car you want will determine how much and how long you have to save.

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    Half of your annual gross income? Even that sounds like a lot. – GS - Apologise to Monica Dec 12 '19 at 13:38
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    @GS-ApologisetoMonica Sure - it's a maximum, and the other requirement is that they be owned outright (no car loans). If you have a family making $70k per year, owning two cars worth $35k in total is a stretch but manageable (if you're not making car payments). – D Stanley Dec 12 '19 at 13:40
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    Buying a car with cash is a bad financial move for most people. Unless your credit is very poor, a car loan will generally have an interest rate considerably lower than the roughly 10% nominal rate of return you will get typically from the stock market. Even if you can buy your car with cash, you're statistically far better off taking a loan and putting the money in an index fund. On top of this, additional revolving credit generally improves your credit score in the long run. When offered credit at a low interest rate, the smart move is to use it provided you can confidently pay. – Sarah G Dec 12 '19 at 22:43
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    @SarahG Welcome to PF&M.SO! I'd encourage you to search for "car loan" on this site and see some other points of view. I think you'll find that many (including myself) do not think borrowing money to invest it is a wise financial decision. – D Stanley Dec 13 '19 at 13:33
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From a personal perspective, learn from my mistakes.

I'm 26, I bought a new car 3 years ago, in a very, very similar situation to yours. But 3 years later I'm making almost twice the money, live several thousand miles away, and regret nothing more than this car payment.

My cost of living has more than tripled in the same time my income almost doubled. I can afford it, it's not bad. Generally life is great. But 3 years later it's the one(or at least most prominent) financial decision I wish I could take back.

Some advice I'm parroting - don't buy a new car unless you don't have to finance it. If you're financing it, get the cheapest option you can be safe and get where you're going in.

As others have said, save first, spend the money you make when you're money is generating it's own cash flow. I had people tell me that and I didn't listen. Again, hope you can learn from my mistake.

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    I'll echo this answer. I make plenty of money. Bought a 300k house, a 40k car, furnished it, etc. All financed. Two years later, I've completely downsized because it's just not worth it. The money in the bank is worth more to me than the big house and fancy stuff. Unfortunately I can't get rid of my car, so I'll just have to pay it off quickly, but do not use a long term financing deal as an experiment to discover whether you'd rather have the car or the money. Put the money aside, see how you feel living without it for a year or two, and then make a decision. – bvoyelr Dec 13 '19 at 14:50
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From a psychological point of view, the fact that the title of your question ends in an exclamation point tells me that you already know this is a bad idea...

From a financial point of view, as a very general rule of thumb you shouldn't spend more than a third of your annual salary on a vehicle. So without thinking about anything else, I'd advise you to keep your purchase under £10,000.

It's extremely rare for people to look back on their life and say, "I wish I spent more money on new cars." The less you can spend on a safe and reliable vehicle, the better.

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    Who on Earth came up with that "rule" of spending a third of your annual salary on a vehicle? Car salesmen, I bet. – jamesqf Dec 14 '19 at 3:17
  • @jamesqf the rule is simply "not more than", but says nothing about how much you should spend. The rule is quite ridiculous as it doesn't consider important factors such as current savings or future income. And as your salary increases the percentage should go way down, but that still doesn't violate the rule. 😀 – TTT Dec 14 '19 at 4:42
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You already got good answers, but I'll add mine as well to convince you that buying a new car is a bad idea, because you already suspect it. I understand you, I'm 23 and just recently bought an Audi TT mk2 and I'm loving it, but I bought it for £6k so it's a lot more manageable than let's say 30k.

My advice for you is: find a good used car that you would love for 6-10k, and don't buy it cash, even though you already have the money. Get a loan from your bank if you can and then pay it regularly and try to close it in a couple years, to not end up paying too much interests. Why? First, so that you can get the real feeling of what financing a car looks like, second to not "throw" away all your saved up money. Who knows what will happen and what you will need the money for (insurance, car repairs or other bureaucracy you're not accounting for).

I could've gone for a brand new TT by financing it, and even though I would be able to repay it fairly quickly cutting by some costs, that would represent too big of a liability. Plus let's be real, in 5 years time it would be worth half or less, why pay full price when you can enjoy a perfectly good car for a fraction of the starting price? I get it, the new ones have a lot of cool tech stuff that makes your rides comfortable, but you wouldn't even learn about them all, and anyway until you get used to them you can't miss them.

Keep looking for a good car, ask in car forums for suggestions if you need to, there might be some models you're not even aware about that you could fall in love with.

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  • Going into debt when you have cash available is a … strange … suggestion. (Of course you shouldn’t spend your last penny. Keep a few thousand as rainy day money) If you can’t afford a luxury item like a car, don’t enter debt for it. Unlike buying a home where you save on rent you don’t gain anything by buying a car now instead of when you can afford it. – Michael Dec 14 '19 at 18:12
  • I don't think it's bad getting a loan if you have the money set aside and you could repay it at any moment. I have thousands in debt but I could repay it all tomorrow if I wanted to (which I don't), it's mostly invested and part of it in a deposit fund. So I have a debt I can afford simply because I don't like seeing an "empty" account. – Marcus Dec 15 '19 at 1:48
  • Let's say you want to buy a 10k car and get a loan for it all, you would have to repay less than 11k in 4 years (from a quick Google search) which is not much difference, you could do a lot of things with 10k instead of tying it all to a car – Marcus Dec 15 '19 at 1:54
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I'm surprised nobody else has mentioned the open secret to buying a luxury car: certified pre-owned (US terminology) or approved used (UK/European). Audi UK has such a program.

Lots of people don't want to own a new luxury car, they merely want to drive a new luxury car, so they lease a brand new one for a year or two (I am not recommending you lease a car, since you're basically getting a long-term rental). Then they turn it in and get a newer one. Since these former lease cars have low mileage, they are ideal alternatives to buying new, especially since

  • The dealer fully rehabilitates the car to new specs
  • You still get a manufacturer's warranty
  • You don't pay full price for a relatively new vehicle

That having been said, most of the other advice still applies. These used cars still start at £27,000, which is nearly a full year's wage for you. That's a lot of debt to assume for a luxury car. Consider a smaller car for now and save up.

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A lot of answers already, but I think something is missing still:

  1. Total cost of ownership. Most of the posts go over this in some degree of detail but I would advise you to play around with different options and see for yourself what exactly you are looking at. You can find some helpful online-calculators like this one for the uk but keep in mind some costs may vary or are only estimated, like insurance premium or depreciation and maintenance.

  2. When should you finance. The conservative rule would be to only finance things that will earn their money back and that you absolutely could not afford otherwise. Things in this list would be a student loan, a house or maybe even a car - if you are a taxi-driver. If you fiance luxuries, you are living off your own future.

  3. Opportunity costs / Lifetime earnings. Every time you take a loan you pay interest. Assuming you will only earn a certain sum in your life, that interest is lost to you forever. The ~£5,000 you will pay as interest in your example is just £5,000 you will never spend for your own gain. Worse even, if you consider putting that kind of money to work, at the end of your working life it would have accrued a considerable amount of interest you lost out on. Saving £20,000 now can let your retire years early!

  4. Additional Risks In your post it sounds like you´d basically have to put all your savings towards the down payment and then, put most of your disposable income towards running costs. This is a risky situation. Should the car break down or anything else come up, you are bound to have a problem. You don´t have any more financial headroom and you can´t really plan for the next 4 years. General advice is to have an emergency fund of 3-6 month to live of, if push comes to shove.

  5. Lock-in Situation You live with your brother, you work for him and you want to share the car. So your financial fate is basically bound to your relationship with him. What if it gets difficult at work? What if he puts a dent in your precious car? What if you find a girl and want a place for your own? 4 Years is a long time and you may find yourself in a pretty uncomfortable situation that you are unable to change without ruining yourself financially.

If you considered all those things and are still conformable with the spending - go ahead. it´s your live and your only live once. But if you are not so sure maybe get a cheap used one now. You know the old saying: "If I knew I was going to live this long, I'd have taken better care of myself."

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You might want to talk to my grandson, who did buy an Audi for lots of money when he was quite young, and while the car itself was fast, it was a millstone round his neck for many years. He enjoyed it for six months and regretted it ever after.

If you want to buy in February, you can get a decent used Audi for say £10,000. Not a Q5, that will be more like £15,000. Let someone else buy it new for £20,000 and suffer £10,000 loss in value. For the difference between what you have and what it costs, take a bank loan, not a loan from the car dealer (because they will try to rip you off), and pay it back as quickly as you can.

One thing to think off: At 18, you don't know what lies ahead (nor at any other age really). You don't know what happens. Two years from now your girlfriend, whom you haven't even met yet, might give birth to twins and suddenly these £632.02 per month are a huge problem.

PS. £632.02 times 48, plus £6,400 deposit, that's £36,736. Not £31,789. I think someone forgot to add interest. (As I said, car dealers will do their best to rip you off).

PS. Quite near to where I live there is a racing track. Not an official one, just a bit of road with a shopping centre at one end, and therefore empty during the night. Lots of kids congregating in the night, with regular visits. Lots of fast cars. I suppose it's fun. I wouldn't go there with a brand new car. Especially when you know your insurance will try to wiggle out of the contract if you crash your car while racing.

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Pretty common budget advice involves the 50-30-20 rule, where only 50% of your post-tax take home pay is spent on needs, which once you've signed for a loan will become mandatory to pay on. Include insurance and fuel, and this leaves you not much for food/rent/bills.

(The other 30 is for wants, and 20 for savings.)

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0

I agree with the other posters that this is a bad idea and you know it. But one option that hasn't been pointed out if you are absolutely dead set on this car is to just lease it year to year? (new or preferably used)

your monthly payment will likely cost much less and you wont have to worry about long term upkeep once it inevitably needs additional work done on it. In addition you don't have to worry about selling it should you decide you want more flexibility with your money. You also won't be losing money due to the likely high interest rate on your excessive loan.

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  • Leasing is just another form of loan, and usually the most expensive form to get a car - It only ever makes sense as a financial product for companies that benefit from the direct deduction of leasing rates vs depreciation on a normal car. – Daniel Dec 14 '19 at 0:29
  • @Daniel untrue. if you are taking a car loan out for close to 50% of your annual take home pay and will almost certainly sell the car for a loss within a year or 2 because you cannot afford it, a lease makes more financial sense than buying and quickly selling the car – Hatman Dec 16 '19 at 15:24
  • Yep, see how that goes for you when you give back your leased car and discover that the final rate, that the salesman told you would be covered by the remaining value of the car, in fact is not. How do you think leasing works? Somebody is lending his money to make it happen. An they want a return on investment, just like with normal lending! – Daniel Dec 16 '19 at 18:16
  • @Daniel well I'm not looking to take a car loan out for 50% of my take home pay and then sell it after a year at a massive loss, so the bying and selling is not really as simple as you think:-D – Hatman Dec 16 '19 at 18:20
  • Point is, leasing is expensive because someone is earning interest just the same. So it would not make a difference for op. If the monthly payments are really lower for OP, he will probably be looking at a high final rate or have a unrealistic low mileage in the contract. I don´t know where you take the flexibility idea from, but that is not how it works. Remember: The Bank always wins ;) – Daniel Dec 16 '19 at 18:25
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I think you should go ahead and do it. If you buy something else, you will yearn for the car you didn't buy, and be waiting until the the car you do buy wears out so you can finally get the Q5 (and maybe be too old to enjoy it).

Paying a third to a half of your income on a car is a terrible idea, but if you're willing to pay it, maybe you should just go ahead.

But if you do, you'll have to make sacrifices in other areas. At your income level, you can't afford to buy luxury in every area of your life. But everybody should have something they can splurge on. But plan on keeping that Q5 for many years; you won't be able to keep buying new ones every 2 or 3 years or so.

But do make sure it's a true hire purchase, and not, as some people have said, a "lease" where you can finally make the last payment and still not own the car.

Make a written agreement with your brother about things like damage. And there should be an expiration on it; after a while you'll want to use your car more often and a "sharing" arrangement could become a problem.

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