Financing a car (young)

Madden

I am toying with the idea of financing a new car but am unsure as to which is the best route for me. I am realistically looking at a sub £20k car and have a deposit of around £6,000; Insurance and running costs won't be an issue, as most cars I've looked at come in cheaper than my current vehicle and I'll have the added bonus of manufacturers warranty etc. I have also considered the depreciation.

I currently live at home (early 20s) and earn about £18,000 a year. I have a large amount of disposable income which is making the idea of getting a brand new car now quite appealing, before I move out and have to start paying for everything myself.

My first thought is to go for something that I would keep for years as it would be my first time buying new, so that rules out personal lease. PCP intrigues me but is hire purchase the best way to go if you can afford it and want to keep the car?

£500ish a month is probably the top end of what I could afford if I was playing it safe (whilst still saving a decent amount) and would see me paying the car off in about 2 years if I went down the hire purchase route. I have seen people mention getting a bank loan instead and using this to buy a car outright but from what I can see, you'd end up paying more for the car because the discounts offered are much less, negating the savings on interest.

Of course, all this is reliant on the fact that I would be accepted for car finance. How likely would it be, based on my income? And am I more likely to be accepted for PCP because the payments are much lower and the GMFV payment is optional? Noddle shows my credit report as 5/5 and all clear.

Also, would I be better off going for a 30/36 month deal than a 24 to bring the payments down a bit? I was always told the shorter the better when it comes to financing.

Basically I am looking for people's opinions on this as to whether or not it is a good idea. I have thought about just saving the money for a house etc but at the minute this isn't my priority. I have no prior experience of financing a car.


Thanks for reading/feedback

Stoke

Crazy... just crazy.

motorguy

Madden wrote: »

I am toying with the idea of financing a new car but am unsure as to which is the best route for me. I am realistically looking at a sub £20k car and have a deposit of around £6,000; Insurance and running costs won't be an issue, as most cars I've looked at come in cheaper than my current vehicle and I'll have the added bonus of manufacturers warranty etc. I have also considered the depreciation.

I currently live at home (early 20s) and earn about £18,000 a year. I have a large amount of disposable income which is making the idea of getting a brand new car now quite appealing, before I move out and have to start paying for everything myself.

My first thought is to go for something that I would keep for years as it would be my first time buying new, so that rules out personal lease. PCP intrigues me but is hire purchase the best way to go if you can afford it and want to keep the car?

£500ish a month is probably the top end of what I could afford if I was playing it safe (whilst still saving a decent amount) and would see me paying the car off in about 2 years if I went down the hire purchase route. I have seen people mention getting a bank loan instead and using this to buy a car outright but from what I can see, you'd end up paying more for the car because the discounts offered are much less, negating the savings on interest.

Of course, all this is reliant on the fact that I would be accepted for car finance. How likely would it be, based on my income? And am I more likely to be accepted for PCP because the payments are much lower and the GMFV payment is optional? Noddle shows my credit report as 5/5 and all clear.

Also, would I be better off going for a 30/36 month deal than a 24 to bring the payments down a bit? I was always told the shorter the better when it comes to financing.

Basically I am looking for people's opinions on this as to whether or not it is a good idea. I have thought about just saving the money for a house etc but at the minute this isn't my priority. I have no prior experience of financing a car.


Thanks for reading/feedback

A PCP deal will mean you put down your hard earned £6,000 and pay a monthly payment, and effectively end up with nothing at the end of it.

£6,000 down and £500 a month for three years is a HUGE commitment for somone on £18K a year. You've around £1200 a month home with you, of which you're proposing spending £500 on finance, say another £200 on fuel, another £100 on insurance and say set aside another £50 a month for maintenance - thats £850 of your wages gone!

To put that in perspective, in every month you're working 2 1/2 - 3 weeks of that JUST TO PAY FOR A CAR.

LandyAndy

On the off-chance this isn't a wind-up my advice would be divide the price of car you are looking at by 10 and pay cash for it.

hgotsparkle

Just because you have large amounts of disposable income now, doesn't mean you will do when you move into your own place.

I'm early 20s and a lot of my friends got cars on finance because they could, and are now stuck at home with parents because of it and regret it, I opted for a cheap but decent run around that never does me wrong and I moved out into my own place with no worries about running costs of my car.


I'd say, if you have the disposable income, save it and buy a decent, fairly new second outright.

Ultrasonic

Madden wrote: »

I am toying with the idea of financing a new car but am unsure as to which is the best route for me. I am realistically looking at a sub £20k car and have a deposit of around £6,000.

Then buy a car costing (up to) £6k. Getting some sort of finance to be able to 'afford' a £20k car would be mad.

If you are living at home then I would strongly suggest that either starting to save for a mortgage, or renting a place of your own (or both) should really be higher priorities. The chances of you regretting committing yourself to an expensive, long term car finance deal are high IMHO.

Madden

Stoke wrote: »

Crazy... just crazy.

Helpful post is helpful.

--

Thanks for your input guys, I appreciate you taking the time. The general consensus does seem to be avoid financing, I recognise this.

In regard to PCP, you're assuming that I wouldn't have saved the money by the end of the deal to buy the rest of the car? The payments would be so much less per month that the final payment of say 9k would be realistic, but if worst comes to worst I give the car back and the rest of the payments were simply to "rent" the car.

I realise it is a large commitment, however I am not proposing paying £500 a month for 36 months plus a £6k deposit, this is more like a £24k car. My fuel cost is less than £100 a month, insurance would also be way less than £1200 a year and surely (most) maintenance would be free due to manufacturer warranty, free servicing.

This suddenly frees up extra cash, of which isn't needed for anything other than saving. What would you consider to be a reasonable income to buy a £20k car on finance? Or is everyone of the opinion that finance is bad?

I understand some will prefer the route of saving for a house etc but I am looking at the car as a long term investment. Due to my current circumstances, moving out isn't on the horizon. You are also neglecting that the car can be sold afterwards?

Stoke

Madden wrote: »

Helpful post is helpful.

--

Thanks for your input guys, I appreciate you taking the time. The general consensus does seem to be avoid financing, I recognise this.

In regard to PCP, you're assuming that I wouldn't have saved the money by the end of the deal to buy the rest of the car? The payments would be so much less per month that the final payment of say 9k would be realistic, but if worst comes to worst I give the car back and the rest of the payments were simply to "rent" the car.

I realise it is a large commitment, however I am not proposing paying £500 a month for 36 months plus a £6k deposit, this is more like a £24k car. My fuel cost is less than £100 a month, insurance would also be way less than £1200 a year and surely (most) maintenance would be free due to manufacturer warranty, free servicing.

This suddenly frees up extra cash, of which isn't needed for anything other than saving. What would you consider to be a reasonable income to buy a £20k car on finance? Or is everyone of the opinion that finance is bad?

I understand some will prefer the route of saving for a house etc but I am looking at the car as a long term investment. Due to my current circumstances, moving out isn't on the horizon. You are also neglecting that the car can be sold afterwards?

Madden, apologies if you found my comment a little bit brash but I repeat, you're absolutely crazy in my opinion to be even thinking about buying a new car in your situation. It sounds to me like you're roughly the same age as me (give or take maybe a year or two) and, without being a c*nt, earn significantly less than me, yet I would NEVER consider buying a car on finance. Age alone isn't a factor, but you have to think that a car is a long-term purchase, unless you plan on trading it back in three years down the line and you'll eventually get in a rut where you're stuck in a financing deal you can't really get out of. You say you can sell the car later? Yes, for less...

Why not look second hand? Why not consider bangernomics? Do you travel long distances is that why you'd prefer something a bit more modern? I just can't see for the life of me why you want a new car. With all due respect, buying one now because you can't soon makes me think you want to show all your mates down the pub. Once the allure wears off, you'll be stuck with a new car and a regular bill which will eventually brass you off enough to regret it. Too many of my friends made the same mistake my friend.

Plenty of good second hand cars out there.

motorguy

Madden wrote: »

What would you consider to be a reasonable income to buy a £20k car on finance?

Very hard to say, but if i were to walk round the office car park here, where 80% of people are on between £30K & £50K, i'd say the average car value is less than £10K.

Madden wrote: »

Or is everyone of the opinion that finance is bad?

Finance is not bad per se.

But financing a £20K car on a PCP deal thats going to take up at least 50% of your take home pay every month is crazy.

Ultrasonic

Madden wrote: »

This suddenly frees up extra cash, of which isn't needed for anything other than saving.

You seem to view saving as pointless? Do you intend to live with your parents for ever?

What would you consider to be a reasonable income to buy a £20k car on finance? Or is everyone of the opinion that finance is bad?

Different people place higher priorities on their car, but as a comparison my car cost me about 17% of my gross annual salary when I bought it. You are proposing buying a car costing in the region of 100% of your salary. It's not finance per se that I at least and warning you against, it is the huge proportion of your income you are thinking of spending on a car.

I understand some will prefer the route of saving for a house etc but I am looking at the car as a long term investment.

A new car is NOT an investment. It will lose value (depreciate) as soon as you take ownership of it. New cars depreciate much more rapidly than older cars, which is why they generally work out more expensive even after resale value has been taken into account.

Have you started thinking about what sort of car you would like rather than what the maximum amount you think you can spend is? Second hand cars are not all heaps of junk you know.

TheMetalMan0

Madden wrote: »

but I am looking at the car as a long term investment.

Terrible, terrible way to view a car. A car is NEVER an investment. All it will do it depreciate and cost you money (classic cars possibly excluded).
If it was me I'd put the money into a savings account for when you do want to buy a house. If you were to save your £500 a month at the end of the 3 years you'd have £24,000! Not a small amount of money!

Madden wrote: »

but if worst comes to worst I give the car back and the rest of the payments were simply to "rent" the car.

Plus your 6k also gone...