What would you do - Cash for Car or Pension

Kay55_2

Hi,
my husband and I currently have £16k saved towards buying a new car this year. I have recently been looking instead at car finance deals which on the whole don't seem as expensive as I thought (have always had company cars previously) and its got me thinking about contributing to a pension instead. My husband is a HR taxpayer with a SIPP which he has not contributed to for 3 years or so and he could get HR tax relief on the full £16k. So I believe that's £24k into his pension (if he paid in the extra £4k he'll get back through tax relief).


We both have good secure jobs - should we just go for car finance and put the £16k into a pension? Seems a bit of a no brainer but I just wondered what others would do?

kidmugsy

Usually young secondhand cars are much better value than new: you could always shop around for cheap finance deals on one. We bought ours at 18 months, and it's still going strong after 19 years, without major expenditure.

As for the SIPP: if he contributes £16k he gets credited with £4k tax relief in the pension. He claims another £4k relief for himself. Whether it's worth his contributing more to the pension depends on whether he's still got some income taxed at 40% after he's subtracted £20k from his earnings.

kangoora

Well, you could get a good 1 year old car, 14 plate (price around £16k new) with low mileage from a good (proper) car supermarket for £10-£12k (max) and put £4 -£6k into the pension getting the tax relief now.

Then you can drip feed what you would be paying on any loan/lease into a pension for 5 years

Personally, no offence intended, I've never understood the fascination for buying a new car - you're throwing 20%+ of it's value down the drain as soon as you drive it out of the showroom and the depreciation is horrific over the first few years, especially year one.

ExMugPunter

Spend £6k on a car. Shove the rest in the pension.

Southend1

ExMugPunter wrote: »

Spend £6k on a car. Shove the rest in the pension.

That's what I'd do too

jackyann

Whilst I agree that you should shop around for the best value car, and maybe a finance deal, I think that how much you spend on the car depends on how much you need it & for what.

If it is the only realistic way of getting to work, a necessity for work, a life-line because you live in a remote area, or in any other way vital to your life (or anyone dependent on you), then you need as reliable a car as you can possibly get. This in my experience, is cheaper in the long run (and pay especially attention to service deals & length of warranty etc.)

If it is a nice run-around but you can manage without it, you can afford to have something a bit less reliable. This only applies up to a point, as you don't want to throw money at a failing car.

You are most likely in-between, but maybe doing some calculations will help you focus on the kind of car you need. Having done that, I would look at a regular pension payment, but others can advise you better on that.

regprentice

Finance deals are historically very cheap. Its quite likely that when you come out of this deal the next one available to you might not be nearly so appealing (assuming interest rates are finally going to rise. ) a lot of people find it difficult to break out of leasing once they start.

Ensure you refer to websites such as hotdeals uk, drive the deal, the motoring forum here and there is a 'cheapest lease deals' thread on a forum called pistonheads where people post the best current offers. If you just walk into your local dealership for a lease you will be mugged but if you can be flexible about the car you want you can get some incredibly cheap deals in the current market.

Happier_Me

Hi

We bought our last car new on a finance lease in 2013. It's a bit of a luxury for us but reliability is also essential in that it is our only car and this gets me to work in a large City Centre from a semi-rural location and also does all the school drop offs and pick ups. Having bought a three year old 'luxury' car before this that proved very unreliable we just needed a few years of hassle free motoring... and it's great!

Would I do again though? Not really. It isn't very MSE. Our next plan is to buy nearly new (up to 12 months old), be a little more flexible on the spec and finance this through our savings or a cheaper bank loan to keep costs down. I would prefer not to be tied into a lease agreement. Neither of us pay 40% tax so Pension top up isn't something I would consider.

So if you can afford it, I would consider funding your car via a lease or loan - it's up to you how much you spend on the car itself - and throwing your savings into a pension to gain the tax relief, assuming you have no other need for the savings.

If you do decide to buy new you can often benefit from dealer discount for buying the car on their finance, cancel the finance itself within the 14 day cooling off period at minimal cost (usually interest) and then refinance elsewhere - they rarely reclaim the discount back. (but obviously you will need to check this out).

zagfles

kangoora wrote: »

Well, you could get a good 1 year old car, 14 plate (price around £16k new) with low mileage from a good (proper) car supermarket for £10-£12k (max) and put £4 -£6k into the pension getting the tax relief now.

Then you can drip feed what you would be paying on any loan/lease into a pension for 5 years

Personally, no offence intended, I've never understood the fascination for buying a new car - you're throwing 20%+ of it's value down the drain as soon as you drive it out of the showroom and the depreciation is horrific over the first few years, especially year one.

Well for a start it's quite possible to get around 20% off the list price by using a broker. Last car I bought new was list price £15k, got it for £12k though a broker.

I've always bought new and kept for a long time (10+ years). There is no way I'd buy a 1 year old car unless I can be sure it wasn't originally bought with the intention of selling after a year.

Ask yourself why anyone would buy new and sell after a year. Would an owner who intends selling after a year really look after the car properly? How will they have treated the car? Taken it easy over speed bumps? Checked the oil? Not crunched the gears or ridden the clutch? Not driven boy-racer style? Not mounted the kerb at speed? Not been used as a hire car or a taxi?

Few years ago I was comparing notes with a friend who reckons buying new is a mugs game, he always buys cars about a year old and sells them after about 3 years. He couldn't believe how little I'd paid in maintenance compared to him over the years (we are both sad enough to keep records!). Even though the average age of my car was older than his. Even taking depreciation into account, I spent far less than him overall.

regprentice

zagfles wrote: »

Ask yourself why anyone would buy new and sell after a year.

The vast majority of 1 yo cars on the forecourts have come from car hire companies. They know exactly what the car is worth at one year with 10k on the clock and price their business accordingly.

i paid 35 quid to hire a ford ka for a long weekend and put 1200 miles on it. (Aberdeen to oxford rtn and some local travelling). The car had a big sticker on the glovebox door - ' this car must not exceed 9000 miles. If you reach this milage pull over and call this number and we will send someone with a replacement car'. No idea how they made money there. They could potentially have only 7 customers like me and make less than £250 yet suffer at least a grand in depreciation on the car.

chucknorris

I always buy cars around 1 year old (current one was 8 months old) and drive them until they become hassle (circa 9-11 years so far). I would much rather put my money into property than buying new or expensive cars (although I am done with property now too, so it tends to now be shares, as I already max out on ISA's and SIPP), which is why I only drive a Zafira. As far as I am concerned cars get me for A to B, and that's it, I don't see them as status symbols.