Car Finance, what IS the best way?

Steve_GP220

I'm 60 now (Healthy, fit and still working) and been buying cars for literally 'decades'. I usually get a bank loan and do it that way. I can usually seal a reasonable APR around 7-8%. But I never feel I've chosen the best way. I bank with FD, and they mass advertise their 3.3% rate but they rarely if ever offer it. I've banked with them 20 odd years - never defaulted on payments, never been warned about anything, never had bad credit but I never get offered their lowest rate. They tell me I don't fit their criteria for that rate! I've always gone this way in buying a car because the vehicle is mine, its not owned by a finance company. Happy days!


But now, I'm older, and I'm thinking differently about cars. I pretty much always only keep my car for 3 to 4 years and then have the hassle of selling it privately which really can be a hassle, or part exchanging (which comes across as a rip off in most cases).


So, my attention is drawn to PCP. A deposit, regular payment and then either pay the balloon at the end or give the car back. Some say you can use the car as a deposit on another car and go through the same cycle but for the life of me I cant see how this works. That final payment is owed to the finance company so there is nothing left for the deposit, surely? But still, PCP appeals and main dealers like BMW have been known to play with their APRs (currently standing at 12.4%). But I get the impression that the dealers or the sales-person don't like these deals. Is that because they don't make much out of the deal? Or because at the end of the term they have the hassle of dealing with a car handed back?


Or is it still 'cash is king? Get a loan and go armed with cash to get the best deal? I'm on the cusp of getting another car. In fact, I've just sold my car today so need to shop around over the nest week or so.



Does anyone here have any thoughts as to the best way to go? Or at least an opinion, or advice.

EssexExile

I wanted to buy my last two new cars with cash but the dealers insisted I take their 0% finance, the last one gave me a £1000 discount for taking the deal. It seemed rude to argue.

Steve_GP220

Wow. So this would suggest they lap up the finance deals then?

motorguy

There is no definitive "best way". It varies on personal circumstance at the prevailing time.

Sometimes we use PCP deals, sometimes we buy with cash, sometimes we use a cheap loan.

Personally, i'd avoid a used car PCP deal because the interest rate is so high.

There are often heavily subsidised PCP deals with very low rate, zero rate and / or deposit contributions. Those are the ones to watch for.

Often a new car can work out cheaper than a PCP on a year old one because of that.

Cash is no longer king. A cash buyer with no trade in wanting only the car is the dealers worst type of customer.

Steve_GP220

Personally, i'd avoid a used car PCP deal because the interest rate is so high.

I agree with this largely - but dealers do seem to be able to play with rates even on used cars - we'll see.


There are often heavily subsidised PCP deals with very low rate, zero rate and / or deposit contributions. Those are the ones to watch for.


Absolutely!


Cash is no longer king. A cash buyer with no trade in wanting only the car is the dealers worst type of customer.



Yes, I had this impression for sure

bob_a_builder

Be aware that you can get the benefits of the finance deal, discounts and incentives etc and then pay off the finance early and keep the incentives
Of course this works best if you have the cash to hand, but still valid
if you have to take out a loan and can get a better rate than the dealers rate

daveyjp

Search brokers for the best price. See if local dealer will match the price, if not use the broker.

If the best price also includes an incentive to use dealer finance, such as deposit contribution, take it and pay it off within a few days, unless it is 0% apr.

Shedman

Unfortunately cash no longer seems to be king in the car buying world (well not directly anyway).

I've found the cheapest way to get a new car is to go through online brokers like Carwow or DrivetheDeal (others are available). The prices quoted are usually after significant manufacturer contributions but these "discounts" are dependent on taking out a manufacturers finance offer, whereas oddly paying cash requires you to add back the discounts so actually costs more.

I've have personally only done the HP finance options and then paid the HP off almost straightaway (as I know you are allowed to do this under consumer law re HP loans ..not sure what situation is say with PCP) so it only costs a few quid in interest and you get to keep the discounts. And of course unlike PCP or lease the car is yours so no having to worry about return conditions etc. Obviously you need the lump sum cash available to settle the HP.

However if you don't have the readies to hand (or a loan) then finance being offered on these deals often has a fairly low APR and even including the interest it can still work out very favourably because of the size of the manufacturers contributions.

noclaf

bob_a_builder wrote: »

Be aware that you can get the benefits of the finance deal, discounts and incentives etc and then pay off the finance early and keep the incentives
Of course this works best if you have the cash to hand, but still valid
if you have to take out a loan and can get a better rate than the dealers rate

This. My last car (used approved) was purchased with cash + old car as deposit. The overall price was reduced by the seller (main dealer) as I accepted the 'finance' option with the agreement that I could cancel it immediately at no extra cost and of course no interest incurred. This is quite common and I can't remember the exact reason why dealers do it but I think it's related to commission they get or making their month end figures look good to bosses

My first car was purchased with a small personal loan and like yourself this is my preferred option however I'm noticing some dealers are offering 0% finance for 'limited periods' usually with conditions such as minimum 30% deposit upfront and balance paid in 36 months and it might be applicable for certain models only. I would think given the struggles of the car industry we may see more of these types of offers.
FYI I am in my late 30's but wouldn't touch PCP with a bargepole due to the silly interest rates and leasing isn't my thing either as you never own the car, get hit with charges for any damage and penalities for excess miles.however I understand the benefits of leasing for certain circumstances and many people I know lease for various reasons.
Also agree that the small loans advertised at 2.8-3.3% is misleading as hardly anyone gets those 'headline' figures.

WaywardDriver

Went through similar thought process myself recently. In my case I'd have to withdraw the £k25 purchase price from my investment portfolio earning 4%. Compared to the 5% PCP rate with a £k5 deposit the difference was minimal. So I went with the PCP deal avoiding the hassle of negotiating future trade-in value and possible change in trends e.g. diesel trade-in values may plummet over next 3/4years.
Sadly I did detailed spreadsheet calculations into the future changing cars every 4 years and it was only with the last change due to stopping driving through ill-health or worse, that outright purchase was cheaper.

Steve_GP220

My thing with PCP is, I'd take it to keep the payment low, and then over the 36-42 mths period make random payments to the balloon so that by the time the PCP period was up, the final payment would already be paid. But then I'd have the hassle of selling the car instead of just handing it back. Where as I could put all those random payments to one side to get a decent deposit on my next car!

motorguy wrote: »

There is no definitive "best way". It varies on personal circumstance at the prevailing time.

Sometimes we use PCP deals, sometimes we buy with cash, sometimes we use a cheap loan.

Personally, i'd avoid a used car PCP deal because the interest rate is so high.

There are often heavily subsidised PCP deals with very low rate, zero rate and / or deposit contributions. Those are the ones to watch for.

Often a new car can work out cheaper than a PCP on a year old one because of that.

Cash is no longer king. A cash buyer with no trade in wanting only the car is the dealers worst type of customer.