Finance (pcp etc. ) Vs. buying with Cash

PaulAm87

Hi Everyone, I hope you can help.  My wife and I are on our way with starting a small family and we are needing to upgrade our car from a mini to something with a bit more boot space. The dilemma other than choosing the car is how we pay for it.  Savings wise we are in a good place we have money set aside for a rainy day, Mat leave and a pot of money for the car the issue is my parents tell us handing over 10k+ for a car is mental but at the same time we feel owning the car outright is a sensible option but I'm getting a bit unsure.  Does the forum have any advice on the best thing to do?

tafelmoneysaver

Only mental thing is not working out the total cost of ownership and making peace with that number :-) Neither approach is "wrong", but one can be more appropriate for your circumstances than the other. The car dealer will be more interested in their commission that what is best for you. 
When you own the car, you have some resale value. But this can be a fraction of what you paid for it. 
When you PCP, you hand it back with nothing to show for your monthly payments. 

MinuteNoodles

What's more mental than handing over £10k is making the £10k car you're intending to buy even more expensive by paying for it using other people's money and the interest they're going to want to be paid for lending you it, what is even more mental is not only doing that but spending that money every month for 3-4 years to have nothing at the end of it as you would with a PCP or lease.

You're sensible, this is easily affordable, you've already saved towards the car, in effect you've bought it on monthly payments it's just you made them in advance and paid them into a car pot instead of a loan company.

This would be one of those times where the parents need politely reminding you're an adult and you weren't seeking their permission.

daveyjp

Using your own money will cost you a few quid lost interest a year.  Borrowing will generally cost more (especially PCP on a used car) so in MSE terms borrowing makes no financial sense.

Use yor own money and repay the 'loan' back to yourself every month, its how I have bought cars for close on 2 decades.

You also don't get dragged in to the dealer talking of deposits, GFV, APR, GAP and heaven knows what else.

Nothing easier than 'I like the car, I'd like it now, get it to a price which means I can't refuse it', agreeing a price and handing over your card to pay.

AdrianC

PaulAm87 said:

Hi Everyone, I hope you can help.  My wife and I are on our way with starting a small family and we are needing to upgrade our car from a mini to something with a bit more boot space. The dilemma other than choosing the car is how we pay for it.  Savings wise we are in a good place we have money set aside for a rainy day, Mat leave and a pot of money for the car the issue is my parents tell us handing over 10k+ for a car is mental but at the same time we feel owning the car outright is a sensible option but I'm getting a bit unsure.  Does the forum have any advice on the best thing to do?

You're handing £10k over for it whether it's your money or somebody else's that you're paying to borrow.

Dr_Crypto

You need to crunch the numbers for the total cost of ownership over the 3 to 4 years you plan to have the car. 

I actually think all routes land up within a few hundred at most thousand of each other. With ownership you have no restrictions on mileage etc. 

Sometimes (but less so on a used car) you’re better off taking finance and settling it as it unlocks various deposit contributions and deals. 

ComicGeek

Two separate issues.

The first thing is to be happy with the price of the car - for some it's £500, for others it's £50,000, only you know.

The second thing is to look at the payment options - no point paying 9.9% APR on interest payments (or whatever it is) if you have the cash sat in the bank doing nothing. On the other hand, I've just signed up to a 0% interest deal on a car I was originally going to pay cash on - no brainer in that particular case, as they also had a £3k contribution for taking the interest free finance. 

DrEskimo

As others have said, buying a car on finance is exactly the same as buying anything else in life on finance. I take it your parents don't think it's mad to buy car insurance annually, and don't recommend you take out finance and pay extra and pay monthly for it? No of course not. You have the money to pay annually and as a result you don't pay extra in interest. No different.

Now it is worth looking at whether a dealer may have a finance perks worth taking advantage of. As above, still make sure it's a good price, and this often means searching the market for a good few months. I was after a particular EV and it took me a good 6months of searching before one came up for a price I knew was good. It was from a main dealer and they had a finance deal on their used PCP that got me an extra £1,000 deposit contribution and 2 free services. I haggled the price down a little further, then used the PCP to get the additional discount through the deposit contribution. I then settled the finance soon after paying minimal interest.

daveoc22

Forgive me but I am new to PCP having always paid cash that I've saved up for whatever car I've bought in the past. The Hyundai I am interested in has a contribution of £2500 by Hyundai if I go down the PCP route. From what DrEskimo has said am I able to buy the car using PCP, and getting the £2500 Hyundai contribution, and then pay off whatever is owed within a month or so?.

DrEskimo

daveoc22 said:

Forgive me but I am new to PCP having always paid cash that I've saved up for whatever car I've bought in the past. The Hyundai I am interested in has a contribution of £2500 by Hyundai if I go down the PCP route. From what DrEskimo has said am I able to buy the car using PCP, and getting the £2500 Hyundai contribution, and then pay off whatever is owed within a month or so?.

Yes. You can settle the finance as soon as you like.

Some advocate paying down the finance to a small amount and then letting the finance run 3-6months, as allegedly the dealership only gets the kickback from the finance company if the agreement is active for a set period. I've never had confirmation on whether this is true or not.

Is the car used or new? Check websites like CarWow if new to see what the best price is. It's not unusual for the discounted cash to be lower than PCP, even with the deposit contribution.

Goudy

I'd be a bit wary of using Carwow quotes as comparisons for anything.
A lot of dealers quote silly cheap prices for your selected model/colour/spec when they can't supply it.
It's only after you chase the deal you find out they're trying to sell you a different spec and colour that they have in stock.
If you insist on the original car you want, it's a factory build at full price.

If you or your partner are public servants like NHS, Police, Teacher, Armed Forces etc you can often access PCP deals with larger deposits and other perks.
There are various schemes around and some specialist suppliers.
My other half got a deposit contribution of nearly £4500 and I got £4300 plus free metallic paint (worth another £600) on mine.
I always find it's worth negotiating the deal first so you have a good shot at a decent trade in value before hitting them with your discount, if you qualify that is.
We didn't care about the interest rates as we paid them both off as soon as we got them both home, I think it's about one months interest max they can charge you.