How to buy a car

Jacka87

Ok sorry if this seems like a stupid question.

I have been fortunate enough to have my first car as a gift (my mothers old car), whilst my second car was bought from my savings from my father and as a result their was no need for any loans etc against my car.

I currently car pool with a guy who wishes to buy a new car and has decided that if he gets the car on "pcp", ie he loans it for 2 years he could then buy it at its knocked down price in two years and would in the long run mean he paid less for the car. His plan seems fine as he has crunched the numbers. What i dont understand is why more people dont do this opposed to buying the car with a loan which is how I beleive most peopel buy cars.

Personally, I feel that i could live with my own car for the forseeable future and have decided to start saving money each month (the amount I would pay in finance when buying a car) so that when I need another car i can use that pot of money. Would mean I earn interest whilst I save instead of paying interest whilst I repay the finance.

Chimpofdoom

I currently car pool with a guy who wishes to buy a new car and has decided that if he gets the car on "pcp", ie he loans it for 2 years he could then buy it at its knocked down price in two years and would in the long run mean he paid less for the car. His plan seems fine as he has crunched the numbers. What i dont understand is why more people dont do this opposed to buying the car with a loan which is how I beleive most peopel buy cars.

The problem with PCP is you need a:

• Pay a deposit (minimum usually 10% of the cars value)
• You Agree to a fixed yearly mileage in the term (if you break this then exceed mileage charge)
• Rate of interest is usually worse than a bank
• Final payment charge

If you shop around you can better deals on a bank loan, you don't have to worry about a deposit/excess mileage charge.

Also if you offer a dealer "cash" (supported by your loan) you can usually haggle for a better deal than taking it out on finance!

*Edit* You can sometimes save a few hundred to a grand if your good.. so far I've gotten a dealer down £1500 on a car, simply by saying I can get the same car for less somewhere else..

10JH

Chimpofdoom wrote: »

Also if you offer a dealer "cash" (supported by your loan) you can usually haggle for a better deal than taking it out on finance!

I'd disagree with this, as dealers make a lot of money from finance. Yes with cash they have the advantage of getting it all up-front, but they'd make more in the long term with a financed purchase.

Chimpofdoom

10JH wrote: »

I'd disagree with this, as dealers make a lot of money from finance. Yes with cash they have the advantage of getting it all up-front, but they'd make more in the long term with a financed purchase.

Well yes and no, it's true a dealer can stand to make a massive profit if someone takes a car out on their finance plan and at the end of the day that's what they want, however there's a limit to how far they will go on discounting.

I looked at an Auris, list price was £7750, on paper he took it down to £6180.05 (inc £500 trade in), finance was listed at £135 a month over 5 years.

135 x 12 = 1620 x 5 = £8100.

Now he hadn't broke that down, but luckily I'm good with figures and walked away, saying if he wants to talk turkey then to give me a call.

He called me Monday, asked what I was looking for, told him I could give him cash of £5500 and a trade in of my car at 750 (market value is £790). He said he would see what he could do.

Received a text message yesterday saying he had the exact same car to what I wanted, just a little bit older for £5995. I could take that car or hold out a little bit longer and get the one I test drove.

Jacka87

Chimpofdoom wrote: »

The problem with PCP is you need a:

• Pay a deposit (minimum usually 10% of the cars value)
• You Agree to a fixed yearly mileage in the term (if you break this then exceed mileage charge)
• Rate of interest is usually worse than a bank
• Final payment charge

If you shop around you can better deals on a bank loan, you don't have to worry about a deposit/excess mileage charge.

Also if you offer a dealer "cash" (supported by your loan) you can usually haggle for a better deal than taking it out on finance!

*Edit* You can sometimes save a few hundred to a grand if your good.. so far I've gotten a dealer down £1500 on a car, simply by saying I can get the same car for less somewhere else..

I havent really looked into the numbers on PCP myself as this was more a curiosity question, tho my car pooler reckons pcp is cheaper than finance, now I assume he means finance from the car dealer himself as opposed to a loan from the bank but seemed strange to me anyway.

The lump sum final payment does seem to be a big stumbling block as you need the find the cash from somewhere. The plan according to my carpooler is to simply borrow it on his credit card, 0% purchases and then sell teh car straight away. he reckons teh final payment value will be less than the cars actual value and thus he can sell for a "profit" leaving him a cash lump to do what he likes with, probably depost on next car. Again I was confused as to why the final payment value was so low, in that case the company would just be better trying to not sell you the car so they can sell it themselves!

The annual milage thing does strike a problem. The reason we car pool is we drive about 80miles to work each day and the same back. By car pooling we drive about 100miles but only every second day so saves about 150miles a week of driving. It may be that the annual milage we do, even with car pooling is quite high and effects the pcp agreement or worse still if we had to stop car pooling he would end up driving a lot more and thus would go right over the allowance.

I suppose it doesnt bother me what he does but seems like you need to really do the numbers on teh cost and the miles your expecting to do. As well as trying to work out what you will do to secure the car at teh end of pcp, maybe make regular payments to savins account or something.

I reckon my idea of saving for the car first is better if you can do it. So think thats what I am going to be trying to do for my next car. Gona start a standing order to a savings account just for my car, good old fashioned money in a jar for what your saving for with a slightly modern twist!

Chimpofdoom

Yeah, your best bet is to have most of the cash there so your not paying out every month and can afford repairs/tax/maintenance costs!

I'm planning on taking out a loan over 3 years to subsidise a good majority of my next car. When it gets into the final year i'll pay the balance off, take the hit with the charge and jobs a good 'un

The reason why I'm doing this, is because I can afford the repayments over 3 years instead of over 2.

fivetide

Remember that the car has to be returned in a condition they'll like too. The odd stonechip - ok but kerbed alloys = a bill before you get to buy the car.

Sometimes the option to buy the car can be more than buying a different one of the same age. Case in point, friend on motability. You can buy those after the three year deal. For the money wanted he got the same car but a year newer through a used dealer so as always, caveat emptor.

5t.

emmell

What makes him think he's going to make profit in 2 years time? He will pay interest on the whole amount borrowed, he is still borrowing the final value, he's just deferring the payment.
Some manufacturers do better % rate finance on pcp's as an incentive to take them.
ML.