Car Financing: What To Do...

Lost_Prophet

Hey,

I've had a scan through the forums and as expected the somewhat tailored advice from someone in a similar situation is not widely available (although some pretty close). I therefore created a thread...

I have had my Mini Cooper D (Chilli) since new in 2011 on the Mini Hire Purchase scheme. The agreement was 4 years with a balloon payment

Whilst in immediate need or rush, I want something bigger and better and pretty much like with my previous car I think I get that for a mere £30-40 a month more (£287 on the Mini). Therefore my eyes have been drawn by the Mercedes CLA

Being at the halfway point of my Mini I have ~£7,500 off of it with a Settlement figure being given of £12,500. The dealer yesterday, via the phone so only going off a rough value, stated I will be in negative equity

A quick comparison site valuation saw it valued between £8,000 - £10,000. Now this is astounding that the same car, same year, similar mileage is being sold by dealers on autotrader for £13,500! Whilst I understand they need to make a profit and will offer as little as possible for my vehicle, this difference is ridiculous especially given that I'd be plumping up funds for another vehicle with them

So, my questions
1. Any tips on the above part-exchange, sale, return?
2. Any tips on ways to approach the Mercedes dealer given that I really don't have to buy?
3. Any tips on methods of funding this purchase? I can't say that in 3 years time I won't get bored again but what I can say is that in three years time I expect my salary to be much much higher and so whilst the extra finance is very little problem now, it will be no problem then

Cheers
LP

Foxy-Stoat_3

The price that cars are advertised on autotrader should not be used to value another car, only give a guide. The Mini may of been for sale for months, overpriced and assuming its a main Mini dealer, they will charge a premium.

You need to look at private sale adverts and assume that the advertised price will be knocked down by a few hundred or even a thousand, also many people wont be spending 5 figures on a private sale, they will prefer to go to a dealer and the right buyer for the right car may not come along for weeks or months. Also the fact that you have £12,500 owing on it makes it harder to sell as this wont be a straight forward sale as most cars. The dealer knows this and will be reflected in his "valuation".

As for the settlement figure, you need to read up in your terms and conditions about cancelling the agreement that you signed. If you have a balloon payment at the end then you probably will be in negative equity until the balloon payment, depending on the mileage of your car.

Depending on the exact settlement figure (from the finance company directly) It would be better to settle the finance then sell privately then go an take out a new agreement with Mercedes. If its likely that you will change your mind before the end of the next agreement then it would be best to take out a loan and buy a car outright or you will have the same problems in a couple of years.

This way of buying cars only really works if you finish the full term and making sure the balloon payment is less than the market value or saving up the balloon payment while your paying back the finance.

Rather like buying a house apart from the asset is worth less than 50% of the purchase price in 4 years.

Lost_Prophet

Thanks,

Solid advice there and the time taken to write is much appreciated

I definitely understand the depreciate element which is part-and-parcel with a car. Even if I stumped £18,000 up front for the Mini I would of lost around 40% that already. The joys of the car industry!

Moving up from the Ford to the Mini has helped this somewhat (I bought my previous one year old, 07 Plate Mondeo for £10,000 with 4,000 miles on the clock which RRP was around £16,000!!) and moving on to the Mercedes will only presumably reduced this depreciation further but obviously not completely eradicate it!

Needless to say, I'm going to be strong with this and walk away from any deal whereby the value my Mini at £0 regardless if I'm in negative equity given that I've done plenty of research on...
1. Mercedes Operating Profit
2. Mercedes Dealer Kick-Backs (~6% on all vehicles from the manufacturer)
3. Mercedes Dealer Pre-Registered Vehicle Kick-Back (~3% due to pre-registrations)
4. Mercedes Finance (4.9% per year pure profit)

Foxy-Stoat_3

Mercedes profit margins or interest rates or the profit of the dealers makes no difference what so ever when buying a new car from them. Doesn't matter if they make -5% or +25% profit, if you want a Merc you will buy one.

The fact that your Mini is worth no money in your pocket at best, I would seriously think about approaching the finance company to see if you can hand it back and get a loan for a cheaper secondhand car, unless you can live with it until the end of the term.

Good luck!

Lost_Prophet

It does though as at the end of the day they are after making as big a profit as possible. Understanding how they do it is key to a successful negotiation as then you leverage that attempt to establish what their limits would be. In a dream world, my price would be 0% profit for Mercedes but to be realistic that will never ever happen and so negotiation is the middle ground

The point I'm making is that if they want a sale then I'm prepared to give them one. However, I am not about to be bullied into releasing my car for next to nothing and giving them bumper profit margins. Most people will see the figures and go for it with little problem and I'm fine with people doing that

Whilst accuracy may be not 100% here I checked out a website that looks into past sales of the same Mercedes vehicle I am after. It ranged from £27,000 to £36,000. Yes, there would be extra's on most of the upper price range and none on the lower but my point is that the base model price is £31,500 so someone, somewhere managed to knock around £4,500 off of the RRP for whatever reason

Pinch of salt and all but its all research that I have done to support my claim that I won't be pushed into anything and simply will walk away, likely leaving my card, so they can contact me when it comes to month/year-end and they want that extra sale to push the sales man/woman or the dealer into the next bracket of 'sales achieved' for their hefty bonus

It may not work, but I'm not desperate and it this which is key

TradePro

Lost_Prophet wrote: »

and moving on to the Mercedes will only presumably reduced this depreciation further but obviously not completely eradicate it!

Needless to say, I'm going to be strong with this and walk away from any deal whereby the value my Mini at £0 regardless if I'm in negative equity given that I've done plenty of research on...
1. Mercedes Operating Profit
2. Mercedes Dealer Kick-Backs (~6% on all vehicles from the manufacturer)
3. Mercedes Dealer Pre-Registered Vehicle Kick-Back (~3% due to pre-registrations)
4. Mercedes Finance (4.9% per year pure profit)

I'm sorry to say, but a lot of what you say makes it sound like you are on narcotics of some kind...

From what I read I would say you're 'nailed' into the Mini for a while yet, unless you pay a lump of cash to walk away from it. Also, don't believe the 'Merc's don't depreciate' myth too much, you will end up even deeper into a hole.

R_P_W

Lost_Prophet wrote: »

It does though as at the end of the day they are after making as big a profit as possible. Understanding how they do it is key to a successful negotiation as then you leverage that attempt to establish what their limits would be. In a dream world, my price would be 0% profit for Mercedes but to be realistic that will never ever happen and so negotiation is the middle ground

The point I'm making is that if they want a sale then I'm prepared to give them one. However, I am not about to be bullied into releasing my car for next to nothing and giving them bumper profit margins. Most people will see the figures and go for it with little problem and I'm fine with people doing that

Whilst accuracy may be not 100% here I checked out a website that looks into past sales of the same Mercedes vehicle I am after. It ranged from £27,000 to £36,000. Yes, there would be extra's on most of the upper price range and none on the lower but my point is that the base model price is £31,500 so someone, somewhere managed to knock around £4,500 off of the RRP for whatever reason

Pinch of salt and all but its all research that I have done to support my claim that I won't be pushed into anything and simply will walk away, likely leaving my card, so they can contact me when it comes to month/year-end and they want that extra sale to push the sales man/woman or the dealer into the next bracket of 'sales achieved' for their hefty bonus

It may not work, but I'm not desperate and it this which is key

Think you need a bit of a reality check to be honest!

GAZ237

From what you have put (which really does not make sense in the real world)

You will be driving your mini for a fair while yet.

Lost_Prophet

I don't understand how the above cannot be understood. All I'm saying is... I don't have to buy the car and so if the right deal isn't there I walk away

In any business deal, the art of negotiation is to understand the other parties position (profit margins etc) as best as possible to understand their limits

I'd be interested to hear how the four points noted in the mail are incorrect as well? It's being smart about it, doing research and further understanding the position of the company!

Did you all read the 'Dream World' comment? I assume not because the accusation of being on narcotics came out!!! I'm actually quite offended by that comment to be perfectly honest

Foxy-Stoat_3

Think what they are saying is, you CAN get deals on new cars, am sure the dealers have enough scope to knock a thousand or two off a £35,000 car sale at the right time. Doesn't matter how much profit they make or you think they make, they will sell cars year after year...But go for your life to get the best deal you can from the salesman.

I don't think that is the real point.....you are 2 years into a deal and are locked in for another 2 years in a car that more than likely be in negative equity in an agreement that will cost you additional money to exit early

If you have to pay (for example including cancellation fees) £12,500 to clear the finance to make the car yours and you can't sell or trade the car for anything more than £12,500 then the cost to get out of the Mini will be "added" to the cost of the next car.

Unless you can hand the car and keys back and terminate the agreement without paying anything more you will be down before you even buy another car, so best course is to rough it with the Mini for a couple more years, at which point you will probably hand back the car and go on to the next one.

Mr_Mink

I've used these finance types a few times, though usualy just for a 3 year term not 4 but what I found was that the best time to "cash in" and trade as 6 months before the end of the term (still in the plataeu that comes after the first year's freefall of depreciation but plenty of payments made).

Anyhow, from the figures you've given I'd say go with all the worst case scenarios, so, 12,500 left and a car with a trade in value of 8,000 (if you get more then wahey). So you need to clear at minimum 3,000 as the dealers can usually tack the extra 1,000 or so on top of the value of the car you are buying. now for ease of maths sake (and also to allow for further depreciation) say you're clearing 1,000 every 4 months, this means you're a good year from meeting even this early point.

Looking at it that way you've about 16 months from a rough break even on the finance to car value. Out of interest, what is the balloon payment? Because this could work in your favour if it's quite low compared to the car's value.