Smart way to finance a car

andy1988

Hello,

I'm after some advice/feedback please, if anyone is able to help? Basically I'm trying to "beat the system" financing a car purchase...something my friends are calling "first world problems" :embarasse. But I find it an interesting challenge, and those that enjoy beating the system might find it interesting working through this one...

Disclaimer: I'm looking to buy a new car - ok, usually that's a bad idea in itself, however I've managed to negotiate a discount worth at least the first years depreciation, and it's a make/model that will hold its value very well.
I'm not financing in order to buy something I cannot afford, the monthly payments (if I can reach my goal) will be comfortable and partially offset by free servicing, lower fuel consumption, lower road tax, etc...and the net interest rate payable should be lower than my savings rates, hence the finance and not cash purchase. I've also recently come to think that life's too short to worry over pennies all the time.

The only part of the "deal" that is irking me is the finance APR. At 5.9% it isn't shocking compared to what many used cars, credit cards or other finance methods cost, however a car is the second biggest purchase we ever make and they are expensive! A saving of a few percent can equal thousands of pounds of savings over the term.
PCP finance is also secured which annoys me all the more when unsecured finance is available at 3.5%!

I've been considering taking the manufacturers finance as they are offering a hefty £1,250 discount for doing this, and then "considering my options" within the first 14 days of the policy. My problem is what other options I may have, 0% for 24 month credit card, 3.5% APR unsecured loan, a PCP finance with another provider at a lower rate, or something else I haven't thought of.

To get to a monthly payment that I am comfortable with I'd need to retain the future value of the car for future settlement, this is guaranteed at 45% after 4 years (I feel confident 50-55% is achievable on this model, giving a margin). If I wanted to pay off the whole sum over the term I'd have to make sacrifices. RTI GAP insurance will ensure that if the worst happens I'm not left in debt.

I feel I could combine a personal loan and my cash deposit (current car sold privately) to cover 55% of the cars value, but without a structured PCP deal how can I defer capital repayment of 45% of a cars value? I would likely have to get 2 0% credit cards to cover the 45% and that's very risky...also in 24 months I would be unlikely to find 2 more lenders to offer me the same limits for balance transfers.

The game plan at year 4, once the loan element is settled, is to either sell the car or re-loan the credit card balances. At this point the "debt" against the car should only be 70-80% of its value.

Basically I want to run my own PCP deal at a much lower rate than the manufacturer. I forecast if I get a 3.5% APR loan for 35% of the cars value, pay a cash deposit of 20% and then defer final repayment on 0% credit cards (1% p.a. balance transfer fee in years 3 and 4) I would have paid an average APR of just 1% (coincidentally this is below inflation).

A simpler but more costly alternative is to stick to the manufacturers 5.9% PCP deal but to deposit 40% (as is their maximum allowed) via combination of my car (20%) and 0% credit cards (20%). However this leaves me paying a 3.5% average APR over the term.

The first idea, although complex, could have significant implications for anyone wishing to save thousands on car finance. It should not matter what their credit scores are, as the car finance interest rate would increase just as loan rates would.

Thanks in advance for any feedback on this!
Andy

P.S. I realise that to some people spending a significant amount of money on a car is abhorrent, however it is my hobby and a keen interest for me. I work in a regular job, am not rich and do not take expensive foreign holidays every 6 months :A

pmd123

If you're purchasing new from a main dealership, have you investigated the possibility of a 0% HP deal? That's what I got when I bought new.

Obviously this has a couple of things to take into account, mainly how much you can negotiate off the purchase price, and what your credit file looks like.

Also if you have a clear mind which car you want, then you may not find a dealership that would offer you 0%, but it would be a lot simpler plan than the complex one you have outlined above.

Andycs1988

Thank you for your reply. I have interrogated many dealers, sales people and sales managers on the issue of APR and the absolute best I have come away with is 4.9%, however the manufacturer deposit support of £1,250 would then be withdrawn.

I'm facing £5,350 of interest costs alone at 5.9% or £4,435 of interest costs at 4.9% so I'm best off keeping the 5.9% deal for the £1,250 extra discount. Effective APR 4.5%.

With my complicated model I would only be liable for around £1,000 of interest.

A cynic would say that the cost of offering 0% finance is added onto the cost of any car in the first place, unless a deal was secured on a cash basis and then honoured when 0% finance is applied.

Thanks,
Andrew

poppasmurf_bewdley

andy1988 wrote: »

Hello,


Disclaimer: I'm looking to buy a new car - ok, usually that's a bad idea in itself, however I've managed to negotiate a discount worth at least the first years depreciation, and it's a make/model that will hold its value very well.

Please enlighten us to the make and model (and the price being asked) of this marvelous car which seems to defy all the laws of car sales physics by being able to hold its value very well and is available at a discount equal to the first year's depreciation.

MEM62

The smartest way to finance a car - savings!

Taking a loan or finance on an asset with a value that plummets as fast as a car is not sound financial thinking. Even as it exits the showroom you are paying interest of £1000's of equity that the car has already lost - crazy.

k3lvc

I achieve what you're looking for via a loan from my employer - 1.9% APR over 4 years which lets me immediately pay off any dealer/manufacturer finance whilst taking advantage of their discounts/service plans/freebies

Only downside is the loss of 'handback' protection at 50% paid on a PCP/HP deal

nomoneytoday

IMHO it sounds as though the finance is manufacturer supported.
The original discount will probably stick, if you flip the finance from the dealer to yourself, but the balloon payment of 45% after 4 years is a large gamble, and unlikely with most mainstream cars.
Usually by year 2-3, the cars have lost half of their new value already.

TrustyOven

The smartest way I ever heard of is:

"Does he just go out and buy one? Certainly not! He takes the money and buys a bond that will give him a 6% return. Then he goes out and borrows the money to buy his BMW at 3% or even 0% from the car company. Then he uses the interest from the bond to make his car payments. Once the car is paid off he has both his car and his initial principle (the bond)."

From: http://yourfamilyfinances.com/2009/12/03/the-wealthy-buy-assets/

robatwork

TrustyOven wrote: »

The smartest way I ever heard of is:

"Does he just go out and buy one? Certainly not! He takes the money and buys a bond that will give him a 6% return. Then he goes out and borrows the money to buy his BMW at 3% or even 0% from the car company. Then he uses the interest from the bond to make his car payments. Once the car is paid off he has both his car and his initial principle (the bond)."

From: http://yourfamilyfinances.com/2009/12/03/the-wealthy-buy-assets/

Where are these bonds that will give you 6%?

They don't exist - not guaranteed anyway.

Oh and to the OP - you do have to worry about the pennies all the time The alternative is you have a few weeks off worrying at all and rack up a huge debt. And then start your worrying only now it's much, much worse.

[Deleted User]

my best advice (with no offence intended its just the acronym)is KISS,as in keep it simple stupid

TrustyOven

robatwork wrote: »

Where are these bonds that will give you 6%?

They don't exist - not guaranteed anyway.

The article was from 2009, so perhaps some bonds gave 6%. Either way, I think the numbers were examples.

The point being, to find a bond that gives the same or more interest than the car loan interest.