New / used car, lease, PCP or HP?

jarv81178

Obviously it’s best to buy a car with cash in full if you have sufficient funds in the bank. In my case, I don’t, so I’m thinking should I lease or PCP or HP? What are the pros and cons etc? It’s all very confusing 

Grumpy_chap

The first thing to do is set out what budget you have available, which really just means how much you are able / willing to spend, either the total outlay or the monthly outlay.  What level of deposit do you have?

Then choose the type of car to buy.  Consider what you need and what you want, the annual mileage you will do and the type of mileage that will be.  Shortlist the favoured choices of car.

MSE will normally say to go for a used car with the bulk of the scariest depreciation already gone.  That is, typically, sound but ignores the level of "incentives" that can be available with new but not necessarily with used.  These "incentives" can distort both the new / used decision and also the cash / finance decision.

Part of the decision in choosing types of finance is whether you must own a car, or see it as something to use for a period, and also what you would want to do at the end of a 3 or 4 year term.

There is a lot here to think about and your question is possibly too broad for people to give any specific advice, but maybe that is not what you want or need anyway (at least not yet).

One thing I sometimes do is not think about the cost in terms of "£££" but in terms of "days" as in "how many days do I need to work to pay this expense?".  For example, on £30k per year salary, take home is around £2k/month.  Typically 20 working days in a month (for easy maths), so take-home pay is £100/day.  So a car payment of £300 means I have to work for 3 days per month to make that payment.  If you put everything else into "days to work in the month" then you can easily see if there's enough days to afford what you want and / or assess what you'd be willing to swap to have what you want.

Hope that helps, and I am sure this thread will grow legs, go round some loops, but hopefully bring you to a constructive outcome.

Swoosh84

HP is where you pay each month and then own the vehicle outright at the end of the period. PCP is where, again, you pay each month but at the end you have to pay whats called a balloon payment if you want to own the car. Otherwise you can hand back (not  reccomended) or trade in for a new deal.

What you need is something only you really know. If you are looking for a decent budget car on finance, check out the Dacia range. If you can strech further, look for a make/model you like

jarv81178

A friend said take a bank loan for home improvements (less APR) and then buy the car cash and pay the bank loan back. This kind of makes more sense cos if I lost my job, I could sell the car and pay the loan off

Swoosh84

jarv81178 said:

A friend said take a bank loan for home improvements (less APR) and then buy the car cash and pay the bank loan back. This kind of makes more sense cos if I lost my job, I could sell the car and pay the loan off

Would work, but would be fraud and not really much point in taking this approach. Many car companies offer interest free finance on their cars and some companies offer less APR than banks. If you lost your job on these deals you could still sell the car, you would just have to use the amount received to settle the finance.

Also worth pointing out, as soon as you drive off the forecourt your shiney new car loses thousands on value and as such you cant just sell and pay off as you won't cover the financed amount. Finance due v Value of the car generally speaking catches up towards the end of your agreement.

J

Grumpy_chap

jarv81178 said:

A friend said take a bank loan for home improvements (less APR) and then buy the car cash and pay the bank loan back. This kind of makes more sense cos if I lost my job, I could sell the car and pay the loan off

This may not necessarily be the best as car finance is rather complex and involves various marketing incentives and such like that can distort "conventional" thinking.  Irrespective of where the finance comes from you can sell the car and pay the loan off early, assuming the finance is a loan (bank loan, HP, PCP) and not a lease.

Really, before thinking about how to finance a car, you need to do the decisions about the type of car, how much you are going to pay (total or monthly) and what you will do after the 3 or 4 year term runs out.

Is your comment about risk of losing your job a "what if - worst case" scenario, or something that is a higher probability of happening?  If the latter, then it may not be the best time to acquire a car.

motorguy

jarv81178 said:

A friend said take a bank loan for home improvements (less APR) and then buy the car cash and pay the bank loan back. This kind of makes more sense cos if I lost my job, I could sell the car and pay the loan off

This has come up before, however -

• I wouldnt think lying about the purpose of the loan to the bank is a good idea.
• You can likely get a loan for a car as cheap as a loan for home improvements.
• Its a personal loan either way so you'll get the money in to your account and then buy the car with cash anyway
• As its a personal loan you can sell the car and pay the loan off just as easily as if you lie to them about the purpose.
• Even if its HP you can still sell the car and pay the HP loan off.