New Car Finance Manufacturer contribution

TW1234

I am looking at a new car purchase and intended to simply pay cash ( with no part exchange.) However doing this produces a higher "price" than taking out a finance deal, in which the manufacturer contributes £1000 into a deposit and offers 0% interest.I suspect that there will be a final optional purchase payment that will need to be factored in.
Somewhere along the line, I have read that the key is to put a minimal deposit, take the finance deal BUT THEN cancel the finance deal within 14 days and pay off the full amount with cash.
I suspect that there must be some catch---can anybody explain what is going on, please?. Is this legal and morally sound?

[Deleted User]

It's fine.  

But if it's 0% interest, you might want to keep it running.

[Deleted User]

I've done it a couple of times and there is no catch or at least I haven't encountered one yet.  You're being offered a 0% finance deal though so it might be work keeping it running rather than paying it off with cash.

Narola1976

Deleted_User said:

It's fine.  

But if it's 0% interest, you might want to keep it running.

@Deleted_User could you please explain what you mean by this as I would like to understand why this is a problem? Thank you. My OH thinks this is a good thing and apart from the fact that I do not want to take on further finance, what are the hidden negatives with 0% interest?

[Deleted User]

It's not a problem.  As I said, it's fine.

There are no hidden negatives with 0% interest, which is why you may want to keep it running, so as to become very slightly richer.

DrEskimo

As above, no catch. I did this when I bought my used car last year. 

No need to put the minimum deposit. In fact I went the opposite and asked for the highest mileage (to reduce GFV) over the shortest term with the highest deposit. It didn't make any difference as I paid it off soon after....

However, at 0% you could keep it running and make around 1% on the money in a savings account.

Of course the MSE advice would also be...can you not a used one of the same car for substantially less? Would save you a lot in depreciation costs.

Narola1976

Deleted_User said:

It's not a problem.  As I said, it's fine.

There are no hidden negatives with 0% interest, which is why you may want to keep it running, so as to become very slightly richer.

Thanks, that will teach me to read better. I missed the word ‘it’ so all I saw was to keep running and interpreted this to mean stay far away LOL. 

TW1234

Thanks for the inputs, ( even from the thread hijacker Seems crazy to me that the overall amount is £1000 less by taking 3 years to pay than paying "cash" at purchase. What benefit does the manufacturer/dealer get from doing it this way? I can't believe that interest rates are going to become that badly "negative".!

[Deleted User]

TW1234 said:

Thanks for the inputs, ( even from the thread hijacker Seems crazy to me that the overall amount is £1000 less by taking 3 years to pay than paying "cash" at purchase. What benefit does the manufacturer/dealer get from doing it this way? I can't believe that interest rates are going to become that badly "negative".!

The person selling the car earns more commission selling you finance than the car.  The 0% finance deals allow people to buy cars they couldn't otherwise afford or perhaps spend more than they had originally saved.

Grumpy_chap

TW1234 said:

Seems crazy to me that the overall amount is £1000 less by taking 3 years to pay than paying "cash" at purchase. What benefit does the manufacturer/dealer get from doing it this way? 

I agree this seems crazy.
@Lover_of_Lycra has highlighted the benefits in commissions and people then buying a car they cannot afford.

I think also the manufacturer's like it as they can say the sale price was higher.  If they have a car with a list price of £20k but everyone knows the car can be had for £18k, then they will never sell a car for more than the £18k everyone knows they'll get it for.  These trick around finance allow the manufacturer to (truthfully) say they sold the car for more because the higher price will be on the invoice and the £1k incentive is hidden in the finance agreement somewhere.  So, it's a £20k car, you pay £18k, but that is a 'special' discount of £1k that you negotiated, then an invoice at £19k but you only have to pay back £18k because of the invoice deposit allowance.

It is all confusing and complicated on purpose as the car manufacturer's want us to pay over the odds and still think we got a good deal.

molerat

TW1234 said:

Thanks for the inputs, ( even from the thread hijacker Seems crazy to me that the overall amount is £1000 less by taking 3 years to pay than paying "cash" at purchase. What benefit does the manufacturer/dealer get from doing it this way? I can't believe that interest rates are going to become that badly "negative".!

The idea is that with PCP you have the balloon to pay at the end.  When you are "buying" your car that you can't afford on low monthly payments it is most unlikely you will be able to pay that balloon at the end.  Your local friendly car dealer will help you out by clearing that balloon payment and supplying you with another car that you can't afford for low monthly payments.  And we all live happily ever after ........... until in 3 years time......... the gift that keeps on giving.  Far more profit than you paying cash and keeping it for 10 years.

At the end of last year I was looking for a car.  Brand new  list price £30750 OTR, with 0% PCP - £3000 contribution, £27750.  Car Wow etc best price £26000 with PCP and contribution.  Pre Reg, 2 weeks old, built 2 months before reg, 10 miles on the clock, still all greasy and wrapped in plastic when I viewed it £20343 and the dealer chain had around 50 in stock. 

Now you can see why they can afford to knock so much off a new car when it is for their benefit.