What is the ‘best’ way to pay for a car

motorguy

facade wrote: »

It is about perception.


If you paid £5k cash for a car and 2 years later it needs £3k of work, you either stump up the £3k, get rid for whatever you can get and buy another, or just walk for a bit until you can sort it out.


If you are paying the monthlies, you wouldn't want to put another £3k into someone else's car, especially whilst you are possibly stretched paying the monthlies.

Yeah no prejudices or preconceptions in there. Nope, none at all.

A cash buyer who stumped up £5K to buy the car can readily stump up another £3K cash for a repair bill, or scrap the car. Not a problem.

Someone who has a car on finance clearly cant afford to repair it and is possibly stretched on the monthlies as is.

facade

motorguy wrote: »

A cash buyer who stumped up £5K to buy the car can readily stump up another £3K cash for a repair bill, or scrap the car. Not a problem.

Someone who has a car on finance clearly cant afford to repair it and is possibly stretched on the monthlies as is.

I doubt if there are many people who could just pay a 3k repair bill at the drop of a hat.


If it is your car, you have the choice.
If it is someone else's, you have to pay the 3k before you hand it back, or make it your car to have the same choice.


I couldn't bear the thought of stumping up 3k to fix someone else's car, if it were mine, I wouldn't be happy, but I'd keep it until the wheels wore off to try and get that £3k down to £150 a year.

DrEskimo

If you chose this option...

cyrilsneer wrote: »

If I ‘finance’ a car then I can go down the hire purchase route which is effectively a loan to buy the car. I borrow the money over a certain period and pay interest. At the end of the term I own the car - and it is worth significantly less than I paid. I can’t see any advantage in doing this since I’ve got savings and can pay cash.

...and then traded in the car for market value to the dealer at the end of the finance term, it would be identical to this option:

cyrilsneer wrote: »

Or there is the PCP route. I sign up for a payment plan over four years. During that time I make payments - including interest - which effectively cover the depreciation. After four years I hand the car back and start again - accepting that I will be paying £250pcm for the rest of my life in order to have the use of a car. OR, at this point, I can pay them a lump sum and the car is mine. I’m wondering if I do just ‘suck it up’ and pay a monthly payment and depersonalise ownership of a car although it is not what I am used to.

It's likely you can not only get a smaller APR on a personal loan, but the total interest payable will be less as you pay down the full balance of the amount owed, not just up to the 'balloon payment' amount.

If you have cash, the best option might be to opt for PCP to get best deal, but then settle next day to save on the thousands it charges in interest.

No sense in paying interest on top of the depreciation cost if you don't need it. The notion that you can invest the money elsewhere is flawed as it ignores the fact that your capital is at risk.

motorguy

facade wrote: »

I doubt if there are many people who could just pay a 3k repair bill at the drop of a hat.


If it is your car, you have the choice.
If it is someone else's, you have to pay the 3k before you hand it back, or make it your car to have the same choice.


I couldn't bear the thought of stumping up 3k to fix someone else's car, if it were mine, I wouldn't be happy, but I'd keep it until the wheels wore off to try and get that £3k down to £150 a year.

The clue is in the name though - Hire Purchase. You're making payments towards ownership. In your £5K example, you've never going to be handing it back anyway as its going to be an HP agreement not a PCP HP agreement.

You have the same choices whether you "own" the car or not - repair it or suffer financial consequences.

TBH it would be unlikely an HP agreement on a £5K car would be the cheapest option, so chances are someone is going to have it on a cheap(er) personal loan.

TELLIT01

If you have the cash, use that as a bargaining tool. You have the freedom to walk away and buy elsewhere, particularly with a popular make. The garage would rather make a smaller amount of profit than no profit at all. The only time finance would make sense is if it's 0%. You can then stash your money in an interest bearing instant access account, or part there and part in a fixed term and make a bit of interest on it.

Arklight

splishsplash wrote: »

My preference would be trade-in + cash.

I don't really understand how a PCP works though. It just seems like a crazy expensive way to rent a car you will never actually own.

It's the only way many people who care about owning a new car will be able to do so. On the other side of the coin, manufacturers make a decent wedge out of reselling 2 - 3 year old used approved cars through their dealers' networks (and a new load of extended warranties, paint protection etc). Therefore you can get some pretty good deals on PCP finance (sometimes 0% plus a contribution), whereas a car loan for £25k or whatever plus deposit would be out of a lot of buyers' reach.

The issue is more that the depreciation on new vehicles is painfully steep.

motorguy

TELLIT01 wrote: »

If you have the cash, use that as a bargaining tool. You have the freedom to walk away and buy elsewhere, particularly with a popular make. The garage would rather make a smaller amount of profit than no profit at all. The only time finance would make sense is if it's 0%. You can then stash your money in an interest bearing instant access account, or part there and part in a fixed term and make a bit of interest on it.

I genuinely dont agree with these two statements.

• Firstly, a cash payment is worse for the dealer. He wont be getting finance commission and if any part of it is physical "cash" he'll pay to lodge it in to his account. So waving cash isnt going to entice the dealer to do you a better deal.
• A dealer will make a decision on whether its viable to sell the car or wait on the next customer. Contrary to popular belief, getting good stock is harder than getting good customers, so if the deal isnt palatable for the dealer he'll let you walk. A dealer doesnt have to firesale every car out the door. In fact, he wont be in business long if he does.