The personal finance thread!

[Banzai-Tron]

That would actually be significantly less than the average unsecured loan in the US. Last time I checked, it was around 15%, and that was BEFORE our recent credit crunch.

[Grimlock]

But what's the long answer? Your "short answer" is cheating. The cows ARE perfectly healthy. If it helps, assume it's your next-pasture neighbor, and he wants to sell them to you as a "favor" before his ex-wife takes half of everything he owns

If that were the case, we would do a paper exercise, this means that we would change the name on the paperwork ( passport ) for each cow, therefore I would own them on paper. When his problems are done we do the same exercise the other way around.

Good luck finding someone to trade you that crucial tractor part for one third of a calf

I think, but I am unsure, that Derrick once did just that, if the price of the tractor part is somewhere near the same price, many machinery dealers are themselves farmers, so would probably go for such a deal, but again I am not sure.

If I were to buy a brand new tractor at a cost of £30,000 GBP ( that is somewhere near the average price in the UK ) and I used credit or finance I would actually be paying nearer £40,000 for that same tractor.

This is why we avoid finance. None of our five tracors were bought new because, aside from the cost, they also loose money very fast if you buy them new, whereas, if you buy a second hand tractor, it has already lost that money and its value will remain stable.
Just out of interest I will give you the figures for the three we bought together when we bought them and their value today :-

Ford / New Holland 7840 - 1995 model, four wheel drive, SLE. We paid £6150 GBP two years ago and it had an engine problem. Derrick fixed the problem at a cost of £350 GBP. It has worked for us with only a few minor problems, which cost very little ( lightbuls, fuses, bits and pieces of wireing etc ). Todays value is around about £8500 GBP

Case International 5150 - 1993 model, four wheel drive, hydrashift. I hate this tractor as it has cost us a lot of money. We bought this at the same time as the 7840 for a cost of £7600 GBP, supposedly in good condition. We ran it okay for the first eight months, then it developed a gearbox problem which cost us the price if a brand new gearbox at a cost of £1500 GBP. The current market value is about £8000 GBP

Zetor 7245 - 1989 model, four wheel drive, standard gearbox. The third of the three, and by far the cheapest. We bought this for £3000 GBP with a power loader and a front axle problem. Derrick replaced the axle with a reconditioned one at a cost of £250 GBP. The market value is now £ 4000 - £5000 GBP.

If we had used finance on this deal, we would not have got this deal. These three tractors were on a dealers forecourt and he wanted to sell them quickly so we paid him cash the next day. If we had used finance, we would have had to pay the market value and wait for two to three weeks while it was sorted out, loosing work in the process and with the interest they would never have paid for themselves if we had bought them at market value. Plus we could have sold them straight away for profit, while finance would not have allowed us to do that as they would have been the finance companys property for three years while we paid for them.

I do realise that finance or credit is most peoples way of doing things to be able to afford to live, buy a house, buy a car.. etc. But the way in which it is done can be dubious to say the least as most finance companys advertise a great rate, but in the small print it will say something like " actual rates may vary " and they are usually more than the advertised rate. Either that or you get a good rate for the first few months before they bump it up, then they refer you to the small print.

I will be honest here, we did look at finance to buy the three tractors, but we decided not to as we would be paying market value plus interest. I have the paper with the figures on it in front of me and I will copy it -

Ford / New Holland 7840 ------- £8250
Case International 5150 ------- £7900
Zetor 7245 ---------------------- £4000
Total --£20,150

VAT at 17.5% ----£3526 .25

Total cost inc VAT -------------- £23,676.25

Monthly payments over three years - £657.66

Interest per month @ 4% ---£26.30
Total montly payment ------£683.96

Total payable ------- £24,622.56

That is a cash total of £16,750 GBP if paid for in cash against a total of the above by finance.

[Rattrap]

Ford / New Holland 7840 ------- £8250
Case International 5150 ------- £7900
Zetor 7245 ---------------------- £4000
Total --£20,150

VAT at 17.5% ----£3526 .25

Total cost inc VAT -------------- £23,676.25

Monthly payments over three years - £657.66

Interest per month @ 4% ---£26.30
Total montly payment ------£683.96

Total payable ------- £24,622.56

That is a cash total of £16,750 GBP if paid for in cash against a total of the above by finance.

To be honest with you, that sounds like more a problem with ridiculous VAT taxes, instead of lending processes. Only about $950 was interest, the rest was due to government regulation and the fact that your cash transaction would've avoided it. If it was here, it would've gone more like this:
Ford/New Holland - £6150
Case International - £7600
Zetor - £3000
Total: £16740
"Use" Tax 6% (A Sales Tax by any other name, still stings your wallet) - £1004.4 (Some states lack this, but it would've been applied whether it was cash or not)
Making the purchase total: £17,744.40 (No matter if its cash or financed)
Monthly Payment for 4% (compounding monthly)- £523.89
Total Money Paid for 4% (end of 3 years) - £18,859.87
So that's £18,859.87 paid over 3 years or £17,744.40 paid all at once. I also realize that interest rates in the states are higher, but still, the primary cost in the UK financing on used goods sounds like Government over taxation.

[Grimlock]

You are correct in that the goverment of this country does over tax us, the point there is that, by using cash, we avoided the tax and the finance companys interest. We paid under market value,£16,740 for the three, rather than the finance companys price which would have had to be the correct market price at the time -

Ford / New holland 7840 ---- £8250
Case International 5150 ---- £8000
Zetor 7245 ------------------- £4500

Total --------------- £20,750

I am no good at tax and vat calculations, but even that is around £4000 more than we actually paid before we even started with the financing.

To my mind that makes more sense than paying good money for nothing i.e. interest, tax and vat.
All five tractors we have work for their keep ( we actually have six, but his restored David Brown is his toy, and only works in our own fields )

The Ford works as the hauling tractor, as it has the fastset road speed and the most power of the five. This tractor paid for itself in the first twelve months, by way of jobs for other people ( contracting )

The Case international works as the ploughing tractor as it has the most traction and torque. This piece of scrap has not paid for itself yet due to high mantainence and running costs and it will be getting sold as soon as it has to make way for another Ford.

The Zetor is the loader tractor and is used every day to fetch and carry around the farm. This tractor paid for itself in the first six months due to contracting. This tractor will also probably have to be sold, as it is getting a bit past it.

The other two, an International 454, two wheel drive and a David Brown 990, are used for the small jobs only as they lack the power to use todays equipment.

In actual fact, the Ford is the most used of all five of them.
Derrick works it like this when buying tractors -

Ford 7840 - cost £6150

Fuel over twelve months ( presuming that he pays for it all and the tractor works eight hours each day ) twelve gallons or one hundred and forty four litres each day, which comes to 4380 gallons at £3 per gallon equals £13,140 on fuel each year

Insurance - £150 per year

Tractors are MOT exempt and road tax exempt

We charge twenty five pounds per hour ( which is very cheap these days ) plus fuel. In other words the customer pays for the fuel used, we go to their farm with a full fuel tank and we come away with a full fuel tank. ( if anyone can do the calculations it would help )

Most of these farmers pay cash, unless it is a job lot which is just too much, then we allow them to pay as they can afford it as long as it is paid in full within six months.

[Rattrap]

Most farming states in the US have tax exemptions for farm equipment and machinery (given how much we already subsides farmers). 17.5% is really high for a regressive tax rate, especially since its a VAT.

I don't understand why the finance company would make you pay more for the products you're buying, can someone explain that to me? I get that it gets them more money, but how can they force you? I'm afraid UK finance has me baffled.

[Grimlock]

They force you because they know that many people have no alternative but to use finance.
Your farmers do well to get subsidy, our government scrapped three quaters of our subsidy.

I don't understand why the finance company would make you pay more for the products you're buying, can someone explain that to me?

Basically most finance companys in the UK are owned by either banks or the company which you buy the machine from. ( New holland have NH Finance, JCB have The JCB company, Valtra have AGCO finance etc )
Therefore, as far as I am aware they make as much money as possible out of you, which is why we refuse to use either credit cards or finance.

I am guessing that it works somewhat differently in the US.

[Rattrap]

I would assume any bank would be happy to give a £16,750 loan for £20,150 of collateral, but I'm neither a farmer nor a banker so I don't know. That's my understanding of it, you in to apply for a loan, ask for £16,750, and offer £20,150 in collateral. I don't see why they wouldn't do that, under the understanding that if you default, they get an extra £3400. In the US, you would get the money from the bank, then pay the dealer, and then repay the bank overtime.

[Grimlock]

You would be correct in that you would borrow from the bank / finance company to pay the dealer and then repay the bank over x number of years. However, the dealer then also gets a percentage of the final sale price in a lump sum from the finance company, for selling you the machine. The finance company then passes this cost to them on to the customer.

The problem is that in the UK there are a lot of farmers going bust because of the very low product price that the farmers get paid.For example milk, in the UK you will pay about sixty four pence for one litre of milk, only nineteen pence of that is paid to the farmer. So many banks consider farming a high risk, so they hammer farmers with these charges in order that if the farmer goes bust, they can recover their initial cost.

[Commander Megatron]

I think we should bring Ratbat in on this personal finance thread!

[Banzai-Tron]

My brain is starting to hurt, trying to wrap it around your wacky UK ways

You cheated again, Snarl . The farmer will never get the cows back. He's forced to sell the farm, due to the divorce. He wants to sell the cows to get some cash in his pocket. Also assume that you KNOW she's a conniving arsehat, and you KNOW that she's already screwed him over in ways to innumerable to count. (Can you I tell I *love* the "would you ever..." game?)

At this point, I've just skimmed... given that information, it looks like the only way financing would pay is if your available cash could purchase an income producing item that isn't available through financing. (For instance, if your bank will give you a loan on a tractor, but not on the purchase of cows, or if the financing terms were very significantly more favorable for the purchase of tractors vs. cows).

My general point is simply that one should never say never. Always look at things with an open, (yet appropriately critical) mind.

[Banzai-Tron]

Wait... my understanding of VAT, is that businesses are able to RECOVER the VAT on their purchases, if they are used to supply further services or product... or is the UK different in this respect too?

VAT - Yet another reason to hate the French

[Rattrap]

If all of their customers pay in cash, they don't get charged VAT. This means their farm can't claim VAT output and recoup the money. This apparently is the case in lots of small businesses in VAT countries, where they just use cash to avoid the ridiculous VAT rates.

I don't understand the advantages of the VAT tax, it costs a lot to administer versus a sales tax and the returns are "the same." There's a lot more tax avoidance. The only real advantage that I can think of is to exports, but surely the administration cost and headache far out weight the minor advantage.

[Banzai-Tron]

What? There's no VAT on a cash transaction? Legally, or do they just look the other way?

Either way, Now I'm *totally* confused. The whole *point* of VAT is that it's supposed to be a means to DIScourage avoidance.

[Elita-One]

i am just confused on all accounts eeeeeeep!

[Rattrap]

They just do transactions in cash and don't report. VAT administrators are probably too busy with regular VAT nonsense to track down the thousands of small business owners that do it.

[Grimlock]

In the UK you can recover the VAT, BUT you have to be VAT registered ( which we are not ) and you are correct in that the way in which many people avoid this is to pay cash. Also if I were to buy something off someone else who is not VAT registered then there would be no VAT to pay whichever method of payment I used.

Back to the cows, If such a case were to crop up i.e. she was going to take everything, the farm, cows, machinery, light fittings etc, then yes of course I would help him out. But I would not take credit or finance, I would do the above mentioned paper exercise then take them to the market under my own name and sell them for him. Then I would pay him the money I recived in cash, therefore it is not traceable by anyone looking in to his assets.

They just do transactions in cash and don't report. VAT administrators are probably too busy with regular VAT nonsense to track down the thousands of small business owners that do it.

That is exactly correct.[/quote]

[Bumblebee]

I have been lost for a week here lol all this finanace talk makes my head spin.

[Banzai-Tron]

Then you *definitely* fall into the "NEVER get a credit card!" category, Goldbug. As does 96.43% of the civilized world.

[Banzai-Tron]

But I would not take credit or finance, I would do the above mentioned paper exercise then take them to the market under my own name and sell them for him. Then I would pay him the money I recived in cash, therefore it is not traceable by anyone looking in to his assets.

So you'd purchase them on CREDIT from him, then!

Edit: And before you say it, 0% financing is STILL credit

[Grimlock]

You could call it that, but I would not be borrowing anything moneywise. But like you say, having read in to it a little more, that is him giving me credit and one hell of a lot of trust.