perils of car finance

frost500

My advice to people who are just about to buy a car on finance, it is just my personal experience based on years of car ownership in all it's forms. Believe me, I have learnt the hard way.

 

DO NOT DO IT. Do not, ever take out finance to buy a car. Whatever scheme you select, HP, PCP, PCH - avoid. As soon as you drive away from the showroom, the car has already lost £1000s. You will not get a  good deal, ever. The finance company always wins. Think about it, the finance companies are in control, without them, you could not afford the car - so why do it? The new car feeling will soon go away (month at the latest). If you are a regular person, the car will be used everyday, so it will get knocked in car parks, kids will stain the seats, the alloys will rub on curbs. This is normal, to expected, real life. The evil finance companies will call it "damage" and charge you at the end of the contract. You will end up in debt even when they have the car back. Think of what you could do with the money if you saved it over the 3 or 4 years?

 

Take a new (or nearly new) Golf (£20k), and a 2005 Golf (£1k). Both drive and stop, both do the same job. If you take the wings, doors and bonnet off both cars - could you tell them apart? If you bought the 2005 Golf for £1k, spent another £1k on "overhaul" - it will be as good as and "nearly new" Golf that will cost you £15k + interest + end of term fines. It will be totally yours, it won't matter if it gets a couple of knocks, you can leave it at the pub and walk home, it is just a tool to move you around, nothing else. Have not got £2k to spend on a second hand car, but have £200 a month to spend on a "nearly new" car for 48 months? It would be better to take a 0% card and spend £2k (£1k for the car, £1k for overhaul). Get to know a good mechanic you can trust, this will be invaluable. There are 100s of good cars available for next to nothing, why get in debt?

 

Just my thoughts....

[Deleted User]

You somehow managed to completely miss the point of finance for people who are savvy.
0% finance, dealer contributions and paying off the finance, buying the car at the end etc. If people are obsessed with having a new car every 3 years, sure that will cost them a lot, for people who understand finance, it's a great way to get a vehicle without giving the firms money up front (on 0%) or saving cash. 7 year warranty on some cars. Not everyone wants a money pit car because they understand the sunk cost fallacy. 

EssexExile

This seems to be more a rant about whether to buy new or used cars. Each to their own, I like to buy a new car every 10 years or so. I took out finance last time because it was cheaper than paying cash.

ace33

I agree on the most part, it's easy to get sucked in. I try to help people learn from my own mistakes but I think ultimately everyone has to go through these phases.

I think the main issue is when you're in your early adult life having a nice shiny car is about the only financial responsibilty you have. It quickly becomes a burden when you decide that you want to get a foot on the property ladder and now stuck with a car and paying 4/500 a month for it and it further strains your finances. 

On the otherhand, we bought a car 2 years ago for 7k and have just scrapped 2k scrap value from it after it had an electrical issue we couldnt solve. There is no straightforward solution.

We now have a cheap 1k car we are using for our day to day driving which was supposed to last us 6 months as a backup. It is now our primary vehicle and we need to decide whethere to spend 40-50k on a new car or risk another 5-10k on a used car. 

NBLondon

frost500 said:

Both drive and stop, both do the same job.

<snip>

it is just a tool to move you around, nothing else.

If that is your thinking - then absolutely.  Bangernomics is the way to go.

But if you want or need specific things from your car - that are present in the 2020 Golf and not in the 2005 Golf - and you don't have the money to buy outright up front then careful use of finance is not a bad thing.

Of course the finance company "wins" - if they didn't then they wouldn't be in business for long.  It's still possible for a savvy buyer to "win" because the "loss" is covered by the less savvy buyers.

General MSE principles apply - do I want it or do I need it?  Will I use it?  Can I afford it - now and in the future?

frost500

"I took out finance last time because it was cheaper than paying cash" How can this be? Was the interest charged negative?

molerat

frost500 said:

"I took out finance last time because it was cheaper than paying cash" How can this be? Was the interest charged negative?

There are often incentives for taking on finance which effectively make it cheaper than buying for cash.  £2.5K dealer contribution for taking out 0% finance, £0 for paying cash.  Of course the hope is that at the end of the 3 years you will not have enough cash to pay the balloon so the only easy way out is to buy another car. The problems only really hit those that buy a car on easy monthly payment finance that they can't really afford.

George_Michael

frost500 said:

"I took out finance last time because it was cheaper than paying cash" How can this be? Was the interest charged negative?

Just one of many examples available:
 https://www.vauxhall.co.uk/0-per-cent-apr.html
0% interest so your cash can stay in the bank/building society. 

frost500

 "But if you want or need specific things from your car - that are present in the 2020 Golf and not in the 2005 Golf". No disrespect, I can't think of any. Both will be similar to drive. The modern Golf will be more green. But it still converts 50 litres of fuel into pollution every couple of weeks the same as any other car. But it is surely more green to keep and old car going, than it is to produce a new one?

I just think after decades of car ownership, buying a new or used car on finance, is just so last century. The whole industry needs to change. People are obsessed with writing off £300-£400 a month just to have a new(ish) car to drive around in. Why? With car finance, you think you own the car, yet the finance company owns you. The punter just just manages the depreciation for the finance company, and you pay interest for doing this. Not for me anymore, hasn't been for a while.

RichardD1970

frost500 said:

 I just think after decades of car ownership, buying a new or used car on finance, is just so last century. The whole industry needs to change. 

So what do you propose?

frost500

"There are often incentives for taking on finance which effectively make it cheaper than buying for cash.  £2.5K dealer contribution for taking out 0% finance, £0 for paying cash. "
What that says to me is, the dealer is selling finance, the car is just the medium in which to do this. Cash sales are a hindrance to them. There used to be a time when you would get substantial discount at the dealer if buying cash.