Which car finance option?

Wingingit

Hi,

First time posting so please be gentle :rotfl:

I’m looking to buy a new (well probably used) family car. I have always taken a personal loan and owned the car, however, cars are getting so expensive that the last car I bought in 2007 was already 5 years old so with a 5 year loan I now own a car that is old and knackered and I’ve had the pleasure of paying £160 per month for it!

So, to set the scene I want a decent family car that is no more than 3 years old as I don’t want the hassle and cost of regular repairs. Do I take a 5 year loan meaning that it will probably need trading by the end of the loan anyway, or do I go for a new car on PCP and trade it in after 3 years (and keep doing that) or just lease one. I can’t afford huge monthly outgoings and with children I’m not sure leasing is a great idea because of spillages and damage. I’m leaning towards PCP so that I can afford monthly payments and still drive a relatively decent car. Or hire purchase? What is the best option in my situation? If I was using personal finance then I would be looking at spending £8-£10k so an SUV (my ideal car) would already be getting on a bit in age. I can afford monthly payments of around £170/£180 per month depending on running costs and insurance.

I’m going round in circles as to what is the lesser of evils! It seems like the only way it would be beneficial to own the car is if the finance can be paid off by the time it is 3-5 years old which would never be an option for me I don’t think so I am accepting that I will be throwing away money each month in any which way whether it by not owning the car or through depreciation. The question is, which way is best to throw my money away

Smellyonion

Buy a slightly older car will almost always be cheaper than going brand new.

The depreciation curve is steepest nearer to new. The logic is incorrect in thinking that a pcp is cheaper. Pcp will also still charge for not wear and tear. After 3 years of payments, you own nothing. Yes your second hand car has depreciated massively, but it is still worth something, no?

Wingingit

Sorry maybe I didn’t explain properly. The car I bought in 2007 is now worth about £1k but it needs about £400 worth of work and has zero mod cons so yes I could get £1k in trade in but after paying £168 per month for the last 5 years it doesn’t feel like I have much to show for it as I now need to buy another car.

So I am considering if this is still the best way to finance my next car.

The cars I am looking at are in the region of £10k, 3-4 years old. Due to the monthly repayments I can afford I would need a loan over 5 years, by which point the car would be around 9 years old and I could well find myself in the same situation where expensive work is needed and I would be looking at taking another loan to buy another car.

I guess the question I have is if I am going to be constantly forking out say £170 a month to pay off a loan would I be better to get a new car on PCP and just constantly trade in every 3 years (and not taking the balloon payment) or taking a 5 year loan and trading in an old car for another used car at the end of term? If that makes sense.

It seems that either option I have to pay roughly the same monthly costs so I am trying to figure out if I’m missing something that maybe other people have cottoned onto, hence the amount of shiny new cars on the road.

DrEskimo

Sorry I'm a bit confused about your current car and the loan on it...

You say you bought it in 2007 with a 5 yr loan, but have only just stop paying the loan...? It's been 12years since you bought it? Do you mean you bought a 2007 car in 2012, with a 5yr loan that ended in 2017...? If so presumably you've been driving it finance free for the last 2 yrs?

How much did you pay for the car, and what were the terms of the loan?

AnotherJoe

Wingingit wrote: »

Sorry maybe I didn’t explain properly. The car I bought in 2007 is now worth about £1k but it needs about £400 worth of work and has zero mod cons so yes I could get £1k in trade in but after paying £168 per month for the last 5 years it doesn’t feel like I have much to show for it as I now need to buy another car.

Thats not the best logic. What that is, is the actual cost of buying that car including interest.
If you want to have "something left to show for it" all that means is you'd have been paying more such as on a PCP but you are really just saving money in the same way you could have put £50 a month a side (say) to give you a lump sum to start with.

So I am considering if this is still the best way to finance my next car.

The cars I am looking at are in the region of £10k, 3-4 years old. Due to the monthly repayments I can afford I would need a loan over 5 years, by which point the car would be around 9 years old and I could well find myself in the same situation where expensive work is needed and I would be looking at taking another loan to buy another car.

So, thats simply the position you are in,as you cannot apparently build up savings whilst you are paying for a car, you are financing your cars and you will pay £x per month for them. SO, see below, perhaps you are better off paying the same amount for a much newer car.

I guess the question I have is if I am going to be constantly forking out say £170 a month to pay off a loan would I be better to get a new car on PCP and just constantly trade in every 3 years (and not taking the balloon payment) or taking a 5 year loan and trading in an old car for another used car at the end of term? If that makes sense.

You might well be if you can find a new or newish car for £170 month on PCP or lease, yes. There certainly is good choice available at that price. If you are resigned to having to get a loan at the same cost then PCP/lease might well give you better car for similar. Also interest rates tend to be much lower on PCP/lease than just getting a loan.

To an extent you can kid proof by getting decent (eg expensive, spend a couple hundred £) decent made for that car model, covers, that properly cover the seats)

It seems that either option I have to pay roughly the same monthly costs so I am trying to figure out if I’m missing something that maybe other people have cottoned onto, hence the amount of shiny new cars on the road.

I think you've come to a reasonable conclusion, partly it works that way because when you PCP/lease instead of getting a (say) £10k car for £10k you are getting a £20k car for the cost of £10k.

The downside is, you are locked in. If you cannot afford the repayments, lets say you get made redundant or whatever after a year, its much more difficult (expensive) to get out of a PCP or lease whereas with a car and separate loan you could sell it and settle the loan.

foxy-stoat

Just get another bank loan over 3 years not 5 for the car you can afford. Plenty out there that will suit your needs, you dont need to spend 10's of thousands of pounds on a safe and reliable family car.

PCP is putting you in a brand new car that you cant afford.

Our "family" car is 16 years old now and is not showing any signs of needing to be replaced. Its nice to have a nice newer car but not really if you don't have at least half of the purchase price in cash to buy one.

AnotherJoe

foxy-stoat wrote: »

Just get another bank loan over 3 years not 5 for the car you can afford. Plenty out there that will suit your needs, you dont need to spend 10's of thousands of pounds on a safe and reliable family car.

PCP is putting you in a brand new car that you cant afford.

Our "family" car is 16 years old now and is not showing any signs of needing to be replaced. Its nice to have a nice newer car but not really if you don't have at least half of the purchase price in cash to buy one.

If the OP can afford £168 a month for a 5 year old (going on ten) car then they can afford £168 a month for a newer one.
Regards your family car, do you have whatever it would cost to replace it ? If you do, that's been accumulated by saving, so the cost to you of your current car is whatever that saving was per month. Even if just general savings it was effectively saved for a replacement car

Smellyonion

I suppose we need more detail on the car that you are looking at.


Most of the time, going ever so slightly older (by just 1-2 years) will save you thousands and will win against any lease/ pcp.


For the sake of argument, a brand new Vauxhall Mokka can be had on a lease at 171 for 4 years + 1.5k deposit.


After four years you have spent 9.7k and own nothing. Net Cost = 9.7k + any damage + any over mileage.
Cost per year = 2.4k


You can attain a 17 plate for 11k second hand which after deposit will cost 210pm (including interest).


after 4 years you have spent 11.5 and have vehicle valued at 6k - repair costs.
cost per year = 1.4k


You are over 5k better off.

MEM62

Wingingit wrote: »

Hi,

First time posting so please be gentle :rotfl:

Always!

I’m looking to buy a new (well probably used) family car. I have always taken a personal loan and owned the car, however, cars are getting so expensive that the last car I bought in 2007 was already 5 years old so with a 5 year loan I now own a car that is old and knackered and I’ve had the pleasure of paying £160 per month for it!

That's only because of the length time over which you financed it. Had you paid cash you would have been paying nothing - and saved adding interest to your depreciation loss.

So, to set the scene I want a decent family car that is no more than 3 years old as I don’t want the hassle and cost of regular repairs.

Your assumption that cars over three years old require regular repairs or are less reliable that those less than three years old is flawed. Regular maintenance perhaps, but that will apply to any vehicle.

Do I take a 5 year loan meaning that it will probably need trading by the end of the loan anyway, or do I go for a new car on PCP and trade it in after 3 years (and keep doing that) or just lease one. I can’t afford huge monthly outgoings and with children I’m not sure leasing is a great idea because of spillages and damage. I’m leaning towards PCP so that I can afford monthly payments and still drive a relatively decent car.

Oh my, you really like paying those interest charges. Handing back a lease car or PCP car will be subject to the same wear & tear and damage clauses. With either option you never own the asset and your monthly payments never end. In respect of affording the monthly payments, how much do you currently regularly save every month? This is what you can afford in payments.

Or hire purchase? What is the best option in my situation?

The best option in your situation is to continue running the car that you have until it is no longer viable. At the same time save whatever sum you thought you could afford as payments. When your car expires you will at least have a larger deposit if you still want to go down the finance route. (Meaning that you will borrow less and ay less interest)

If I was using personal finance then I would be looking at spending £8-£10k so an SUV (my ideal car) would already be getting on a bit in age. I can afford monthly payments of around £170/£180 per month depending on running costs and insurance.

I’m going round in circles as to what is the lesser of evils! It seems like the only way it would be beneficial to own the car is if the finance can be paid off by the time it is 3-5 years old which would never be an option for me I don’t think so I am accepting that I will be throwing away money each month in any which way whether it by not owning the car or through depreciation. The question is, which way is best to throw my money away

That's easy to answer - avoiding any kind of finance is the best way of throwing money away.

The best way to buy a car is to stick with what you can afford to buy from your savings. The continue to save for the day that it needs replacing. Save faster than the car depreciates and you can upgrade your car each time you change it.

I have never understood the train of thought that only new cars are reliable or that it is a good idea to borrow money to buy and asset with a value that falls like a stone.

I have recently given up a company car as the taxation in it is onerous. I do around 24,000 miles per year and purchased a 7-year old BMW 320. It cost me £7.5k and I expect it to last me 4 years. I'm saving £200 per month towards it's replacement and will have the money at hand to do so when I need to. It really is a far more economical way of staying on the road.