Car Finance advice

System

Human_Being wrote: »

4. Often it's better to borrow to purchase a high value item such as a car, even if you have the cash in the bank. For instance, I am looking for a used car, budget is £25k. I could afford to pay cash for this car, however, in my opinion, it's sensible to borrow the money required with a cheap loan (3%). This allows me to keep hold of my cash which brings security, but also allows me to invest my cash elsewhere where I can make a larger return on my investment than the interest that I'm paying on my loan.

16 million people in this country have less than £100 in savings. The average UK household debt is £13,000 excluding mortgages. I can guarantee that te majority of them are not getting car finance because they have the equivalent amount sat in a bank account or investment vehicle where it gets higher returns than the loan interest. They're getting them on finance because they're basically plastic millionaires and actually broke but have the ability to get more credit.

Human_Being

Tarambor wrote: »

16 million people in this country have less than £100 in savings. The average UK household debt is £13,000 excluding mortgages. I can guarantee that te majority of them are not getting car finance because they have the equivalent amount sat in a bank account or investment vehicle where it gets higher returns than the loan interest. They're getting them on finance because they're basically plastic millionaires and actually broke but have the ability to get more credit.

I'm sure you're right. I'm new to the forum and having looked around I'm shocked to see the levels of debt people manage to get themselves into - especially the young who've accrued thousands of pounds worth of debt simply by living beyond their means.

However, you've just selected a particular demographic. There are 51 million other people in the UK and for a large proportion of those people, my advice (or opinion on the matter) might be useful and applicable for them. Anyway, my approach, I believe, is still desirable for everyone - just because you're in a bad financial position, it does't mean that a similar mentality and financial position shouldn't be your goal.

Most people in my circles have a fair amount of disposable income and also have savings. We've had conversations in the past about how best to spend/save/invest our money - including car purchases. A friend purchased a used car with a PCP agreement over 3 years and final balloon payment, all with a high APR. In hindsight, he realised that it would have been cheaper and less risky to get a cheap loan to pay for the car over 5 years. Either way, he doesn't miss the money. He has approx. £20k savings, but preferred to keep hold of that for the security it brings and as he wishes to move house within a couple of years, it makes sense for him to keep the cash towards his deposit - which will also help him to secure a better rate on his mortgage.

enthusiasticsaver

These PCP deals that we see a lot over on the DFW forum seem to be really expensive, presumably because they only apply to new cars? Correct me if I am wrong but because of heavy depreciation does that not mean that the loan is always higher than the value of the car and once you start on this route you are never able to buy a car because you don't have a car to trade in as you would at the end of an unsecured loan?

My DH always had company cars and bought a 2 year old car in cash (£12k) from his pension lump sum when he retired a few years ago. He intends to hang on to it for another 4 or 5 years at least but we save £250 a month to go towards cars. My car was newer (1 year old) and cost a bit more at £13k but I traded in my old car at £6k and paid £7k cash from savings. If you are trading in an old vehicle it is perfectly possible to buy it without finance if you have 4 or 5 years notice it is going to need changing which presumably most of us know roughly how much mileage we will do and when we would want to replace it to keep a reliable car going.

The only finance we have ever used is I bought a brand new convertible on interest free credit which I kept for 7 years before needing to change it as no good for carrying grandchildren around. All the rest have been bought by trading in and adding savings.

enthusiasticsaver

becky701 wrote: »

Hi

I'm looking to get a new car, not brand new, second hand for about 10K. I've looked at bank loans, which are about 180 p/m - I know the best option is to save but is the best alternative a loan like this?

I also wondered how much you can haggle with car salesman, if it's going to 10.9K how much wiggle room do you usually have?

Thank you

I personally would tend to go for a car at about that value simply because the more expensive the car generally the more reliable it is and the less needs spending in maintenance. Are you trading in another vehicle as we have always managed to haggle with a car salesman either on the trade in part exchange of the old vehicle or bringing down the price of the new one. You can try saying you cannot go above a certain amount and see if they will move.

If you don't have savings or another car to part exchange then an unsecured loan would be the best option in my opinion. You can get quite cheap ones if you don't have lots of other debt and a good credit history. My advice would be work out how much you can afford each month and go for the shortest term possible. Once the term is up continue putting that money aside as savings for the replacement car.

henrik1971

Human_Being wrote: »

I'm sure you're right. I'm new to the forum and having looked around I'm shocked to see the levels of debt people manage to get themselves into - especially the young who've accrued thousands of pounds worth of debt simply by living beyond their means.

A friend purchased a used car with a PCP agreement over 3 years and final balloon payment, all with a high APR. In hindsight, he realised that it would have been cheaper and less risky to get a cheap loan to pay for the car over 5 years. Either way, he doesn't miss the money. He has approx. £20k savings, but preferred to keep hold of that for the security it brings and as he wishes to move house within a couple of years, it makes sense for him to keep the cash towards his deposit - which will also help him to secure a better rate on his mortgage.

Just on the above point - and the final paragraph in particular, which I find interesting, as I find myself doing this as well - getting out the credit card to pay for something, even though I have the money in the bank. For a lot of people taking on small-medium amounts of credit barely registers as having any significance at all. The main thing is my savings are sitting pretty and whilst that savings figure stays above a certain level, I'm feeling financially bullet-proof. If you think about that for five seconds, you realise that it is self-deluding behaviour.

I was over on another thread earlier about the huge impact unsecured borrowing can have when going for a mortgage. Sure, you friend will have the £20k cash for the deposit, but his affordability will be severly impacted. In the example on the mortgages forum, having £15k on credit can reduce how much you can borrow on a mortgage by £80-90k...

Also, these people who talk about getting £10k personal loans at 3% but keeping their money invested getting a higher return: that's fine, but if your capital really is earning you a worthwhile margin above 3% per annum, its most likely illiquid in something like equities or property. Those sorts of investments have their own risks and you can't always get at the cash quickly if an emergency arises.

Two final things to say:
1. I think we can agree that people are free to borrow or take out PCP, or whatever, and if they've really carefully considered all the benefits, costs and risks. Its for no one on here to say that is a right or wrong choice (for them)
2. Let's not forget this is moneysaving website. That means different things to different people. For a lot of people coming to this website they need help and advice on relatively basic budgeting and money management principles and the majority of advice is tailored to that audience. There are of course others on the site who (for example) want to know the cheapest way to do something extravagant, like buy an expensive car and can afford to do it without jeopdarising other areas of their life. In some ways, there should be a separate forum for those people and those types of requests. Then we could dispense with all the opinions on the merits of other people's finances and the quality of their spending decisions.

System

enthusiasticsaver wrote: »

These PCP deals that we see a lot over on the DFW forum seem to be really expensive, presumably because they only apply to new cars? Correct me if I am wrong but because of heavy depreciation does that not mean that the loan is always higher than the value of the car and once you start on this route you are never able to buy a car because you don't have a car to trade in as you would at the end of an unsecured loan?

That is exactly what happens, it is the PCP trap and its why it is pushed as much as it is. Car dealers get a guaranteed customer every 3 years, finance companies do, the car manufacturers do, the financially savvy of us do by there being a glut of 3/4 year old low mileage full service history vehicles coming onto the market every year. Basically every single person in the chain wins except the person who signs up for the deal.

Niv

Tarambor wrote: »

That is exactly what happens, it is the PCP trap and its why it is pushed as much as it is. Car dealers get a guaranteed customer every 3 years, finance companies do, the car manufacturers do, the financially savvy of us do by there being a glut of 3/4 year old low mileage full service history vehicles coming onto the market every year. Basically every single person in the chain wins except the person who signs up for the deal.

I am probably going to be told I did a terrible deal but here goes anyway.


I have a need for a reliable car as I do ~20k miles a year for work but I only had ~4k in cash. I did take a look at some second hand cars around that price and was not convinced they would last very long / was concerned about their current mileage / did not know how the car had been treated - all excuses some may say - fair enough I cba to argue the point.


I entered a PCP deal on a new car - sticker price 21500. Paid 4k deposit and over the 42month term will pay an additional 10.5k. I have the option to purchase the car at the end for a little under 6k. I had a £500 prepaid cc and three years full AA cover included.


If I buy the car in the end I will have paid £20k for the car and nothing for breakdown cover for three years. 1.5k less than had I bought it outright at sticker price (ok I guess if you buy outright you would also get a discount? so 1.5k may be optimistic?)


Do you guys think this is a bad deal?

Pixie5740

Niv wrote: »

I am probably going to be told I did a terrible deal but here goes anyway.


I have a need for a reliable car as I do ~20k miles a year for work but I only had ~4k in cash. I did take a look at some second hand cars around that price and was not convinced they would last very long / was concerned about their current mileage / did not know how the car had been treated - all excuses some may say - fair enough I cba to argue the point.


I entered a PCP deal on a new car - sticker price 21500. Paid 4k deposit and over the 42month term will pay an additional 10.5k. I have the option to purchase the car at the end for a little under 6k. I had a £500 prepaid cc and three years full AA cover included.


If I buy the car in the end I will have paid £20k for the car and nothing for breakdown cover for three years. 1.5k less than had I bought it outright at sticker price (ok I guess if you buy outright you would also get a discount? so 1.5k may be optimistic?)


Do you guys think this is a bad deal?

Are you happy with the car you chose? Are you happy with the amount you are paying for the car? If the answers to both those questions is "yes" then you got a good deal.

Generally you only get a discount, or a decent discount, if you take out finance with the dealership. That's not to say that someone couldn't take out the dealership's finance to get the discount and then pay the finance off.

If when you say "new car" you mean a new car as in brand spanking new rather than just new to you, check out Drive the Deal or Car Wow to get the largest discount you possibly can should you ever wish to buy a brand spanking new car.

Newness is no guarantee of reliability. Plenty of things can go wrong with brand new cars, my friend's steering stopped working on new car....whilst she was driving. :eek:

Niv

Pixie5740 wrote: »

Are you happy with the car you chose? Are you happy with the amount you are paying for the car? If the answers to both those questions is "yes" then you got a good deal.

Generally you only get a discount, or a decent discount, if you take out finance with the dealership. That's not to say that someone couldn't take out the dealership's finance to get the discount and then pay the finance off.

If when you say "new car" you mean a new car as in brand spanking new rather than just new to you, check out Drive the Deal or Car Wow to get the largest discount you possibly can should you ever wish to buy a brand spanking new car.

Newness is no guarantee of reliability. Plenty of things can go wrong with brand new cars, my friend's steering stopped working on new car....whilst she was driving. :eek:

Hi Pixie, Thanks for taking the time to respond. It is a brand new car, never had one before, or really seriously considered it, however after having company cars for the last 10years I guess I got used to them and was pleased with the reliability. I do accept that new does not guarantee reliable, but as it is new it is free (at least in the first 12 months cant recall if its longer) to get it fixed if anything 'non consumable' goes wrong so even if it does break down it doesn't cost me any more.


I am happy with the car, it is not top of the range or supercharged, but overall that's not really a complaint


I will check out those websites when the time comes, although current plan is to buy at end of deal and drive it until it dies.


Hope your friend was ok, I bet that was scary for her !

phillw

tonycottee wrote: »

What percentage of people do you think borrow money for a car? I know very few that have ever bought one outright.

I'm not sure where I fit into your statistics. I borrowed money for my first car, I paid for the next four out of savings.

A £10k car is too much of a luxury to borrow for. A mondeo estate heap will cost you much less.