Smart way to finance a car

robatwork

TrustyOven wrote: »

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.

My point being if there was a way we could all borrow at x% and invest that money to make a guaranteed x+3%, we'd all be doing it. Free cash!

But there isn't.

sdiprose

I'm in a similar position and have also been researching the best way around this.

Have you considered something like Halifax's car finance options? Basically they offer Hire Purchase/PCP deals at lesser interest rates by securing the loan against the car. You check eligibility for the loan, then once approved negotiate and agree the price and place the order with the dealer. Halifax then buy the car and you pay the finance to them.

For example, the APR is around the 3.5% mark for me looking for a 3 year PCP or 4 year hire purchase (approx £15k loan amount). However you have to bank with Halifax for this...

If anyone else has used this and can recommend or otherwise, any info would be appreciated.

andy1988

Hi all,

Thank you for your further responses. I have avoided disclosing intimate details of my purchase as I want this to be of potential assistance to new (or used!) car buyers, not a discussion about my purchase of my car. Much like evil credit cards have been turned to the advantage of savvy users by stoozing*, I hoped this method could provide similar savings to like-minded buyers.

Cars can be purchased from savings on many occasions, but in many cases more money can be made from savings than the interest incurred on finance. 1.5% mortgage and 3% ISA for example, 0% credit card and 1% easy access savings for another...petty returns but the result can be magnified.

Many cars do and always have retained greater than 50% of their value at the 3rd year and even later. Very popular examples of these include MINI's, Audi A1's, Audi RS and BMW M cars. But whether the future value is 30% or 60% my proposed model would save money where credit score allows. Also with insider knowledge, a lot of research and picking the right time of year, discounts well beyond what can be achieved by negotiating with one salesman at one dealership can be had, and Auto Trader is an easy reference to values of cars at 12-18 months of age.

I need to seek certified financial advice on this and am waiting to hear back from my accountant. Presuming this thread isn't trolled I will post back if my model works out in the short term.

Thanks!

Andy

P.S.
*To those who aren't aware of stoozing, it's a relatively straight forward method of spending daily on a 0% purchases credit card, then depositing the money that would have been spent into a savings account. In its prime (pre-2009) this returned many stoozers 5-8% net gains. Currently the returns are small but the net result is 'earning money by borrowing'. Discipline at the end of the 0% deal is key, either balance transfer or pay the credit card off in full.

Additionally my comment regarding not worrying about pennies all of the time was intended to carry the sentiment "there are no pockets in shrouds". Spending £100 where the product can be had for £90 makes me ill at the thought, but splashing out a bit extra now and then, when it will really be appreciated has positive effects on psychological health. A Caffe Nero visit on a Friday for coffee lovers, an expensive haircut once in a while...a pint? Serves no useful purpose but most of us buy them!

andy1988

sdiprose wrote: »

I'm in a similar position and have also been researching the best way around this.

Have you considered something like Halifax's car finance options? Basically they offer Hire Purchase/PCP deals at lesser interest rates by securing the loan against the car. You check eligibility for the loan, then once approved negotiate and agree the price and place the order with the dealer. Halifax then buy the car and you pay the finance to them.

For example, the APR is around the 3.5% mark for me looking for a 3 year PCP or 4 year hire purchase (approx £15k loan amount). However you have to bank with Halifax for this...

If anyone else has used this and can recommend or otherwise, any info would be appreciated.

Thank you, this is certainly worthy of investigation. Also, by increasing any deposit using 0% finance (such as credit cards), even the 3.5% interest can be minimised over the term.

Unfortunately because I have only used my Halifax for the £5/month bonus, they aren't interested! Ah well.

andy1988

k3lvc wrote: »

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

This is an interesting option, thank you. I will see if the NHS has such a deal!

AndyT678

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/

What a load of utter horse dung!

Suppose I finance a £50,000 BMW at 3% interest over 5 years. The repayments would be approximately £900 per month.

But that's OK I've put my £50,000 cash into a 6% bond (good luck finding one of those) which will cover it right? Oh no, wait the mythical bond only pays £250 per month where do I get the rest of the money?

I get the principle and it would make some money because 6 > 3 but the idea that after a few years I have both the car and the £50,000 without adding any more money is total garbage unless you can get a bond paying about 22%.

idkwhattosay

Paying £250/month less is garbage to you? Even if you offset your interest costs this way, you can't get a better deal than that.

TrustyOven

AndyT678 wrote: »

But that's OK I've put my £50,000 cash into a 6% bond (good luck finding one of those) which will cover it right? Oh no, wait the mythical bond only pays £250 per month where do I get the rest of the money?

On the face of it, I agree with you.

But after thinking about it, why would such a person be buying bonds of the same price as the car?

Why not 5 * the price of the car? Or however much is needed so that the bond payments meet the loan interest payments.

Nebulous2

I'm not convinced what you want to do is sensible. PCP was introduced to keep monthly payments down, but leaves a significant debt overhang, where paying a car gives the old one as a deposit next time.

Cars are emotional and not financial decisions often anyway, so enjoy.

You can get partway to what you want by taking out a personal loan over a longer period. Play with the times to get payments to suit, but it will reduce your monthly payment and get you to the end of your 4 years still owing money on the loan.

AndyT678

idkwhattosay wrote: »

Paying £250/month less is garbage to you? Even if you offset your interest costs this way, you can't get a better deal than that.

But that wasn't what post 11 and the article that it link to claimed though was it?

The suggestion was this:

"Let’s assume that a wealthy man wants to buy a new BMW. 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). The rule here is Never dip into the principal only spend the interest!"

When you actually read it and look at the numbers you'll see that it is complete garbage. You cannot take the capital required to buy a car, invest it at 6% then use the income to pay off a car loan at 3% without adding more money.

Yes you can reduce the total cost in the same way that stoozing a credit card can work but you cannot meet all the loan repayments without eroding the capital. So at the end you end up with a car and the difference between 6% and 3% in interest over that period. You don't end up with the car and your full initial starting capital.