Best way to finance a car?

McCreary

Hi all,

Looking for some different views and opinions about buying cars. I was brought up to save up and buy things outright. My parents always saved up a for second hand car then kept them until they became too expensive to repair.

I started to do this too as and haven’t ever owned a new car. Last year I bought a 1 year old Nissan Qashqui outright using savings. My wife’s car (which we also own) is going to need replacing in a couple of years so we’re in the process of saving for that.

The thing I have been pondering recently is that I only know one of my friends who actually buys cars outright like I do. Everyone else I know has PCPs, hire cars or hire purchases. I don’t have any experience with these and wondered if I am missing a trick? Are these actually better than what I am doing? Everyone I speak to tells me that I should do what they do so I’m looking for a bit of impartial advice if possible?

Thanks in advance!

Petriix

PCP seems to be a way for people to drive a car they can't really afford. It's definitely not the lowest overall cost, although you can sometimes get a decent discount by signing up for PCP then settling straight away.

PCH (lease) can sometimes work out cheapest overall because the manufacturers sometimes release a batch of cars to the market that they need to shift so can be heavily discounted. It helps if you are flexible about the car you want and are ready to act fast when a good deal shows up.

In practice, if you don't have the money up front, borrowing it as cheaply as possible via a loan or mortgage is typically cheaper than using any kind of car finance. '0%' deals always attract a higher purchase price so aren't the great deal they appear.

Whatever you do, always look at the total cost of ownership over your intended period of use. 

Grumpy_chap

McCreary said:

Hi all,

Looking for some different views and opinions about buying cars. I was brought up to save up and buy things outright. My parents always saved up a for second hand car then kept them until they became too expensive to repair.

I started to do this too as and haven’t ever owned a new car. Last year I bought a 1 year old Nissan Qashqui outright using savings. My wife’s car (which we also own) is going to need replacing in a couple of years so we’re in the process of saving for that.

The thing I have been pondering recently is that I only know one of my friends who actually buys cars outright like I do. Everyone else I know has PCPs, hire cars or hire purchases. I don’t have any experience with these and wondered if I am missing a trick? Are these actually better than what I am doing? Everyone I speak to tells me that I should do what they do so I’m looking for a bit of impartial advice if possible?

Thanks in advance!

Your approach to save and then buy the best car you can afford is very sound and prudent.

When you come to buy, that then gives you choices to acquire a car in the best (cheapest overall cost) at that time.  Cash is not always king, but having the cash means you can take finance (and associated incentives) and then pay off the debt swiftly so avoiding the interest charges if that is the method to acquire the vehicle at the lowest cost.  

Within that choice, if you find yourself looking at nearly new cars, then always check the online brokers for the same car brand new as it can sometimes be very close on price (or even cheaper for brand new).

If your choice is to take a car on finance, but you had the savings anyway, then keeping the savings gives you security should  there be any disruption to your income flows and / or gives the choice when the next car needs to be purchased.

Martin_the_Unjust

If you buy a car using savings you are basically giving yourself a very low interest rate loan.

If you treat it like a loan and pay your savings account back every month you will struggle to find a cheaper way to fund a car (or any large purchase)

AdrianC

PCP etc involve borrowing the entire purchase price of the car, then repaying the depreciation (plus interest on the entire sum) over the term.

[Deleted User]

At the moment there are not many good deals about because of high demand. Taking out any kind of PCP or PCH now will probably be a bad deal overall.

With a bank loan you might have better luck finding something in stock and haggling with cash.

ratrace

Op, Keep doing what your doing save, buy, repeat

oh and stop listening to your broke friends they are not the ones paying your bills

Grumpy_chap

[Deleted User] said:

At the moment there are not many good deals about because of high demand. Taking out any kind of PCP or PCH now will probably be a bad deal overall.

With a bank loan you might have better luck finding something in stock and haggling with cash.

That comment about PCP etc is not necessarily the case - there remain some good deals on new cars and PCP is rarely as attractive on used.  Obviously, the OP needs to see what deals and incentives are available in a couple of years when they come to buy - anything could change between now and then.

The idea of a bank loan ignores the OP's position of currently saving and the fact they will have cash available if that yields the best deal when they come to buy - a bank loan will not be cheaper than cash.

Cash is no longer always king but finance can be cleared early so the OP will have the best of both worlds.

Brie

We always get second hand and listen to all the hard sell so that the price goes down down.  And buy with a credit card.  And then transfer any balance we can't immediately clear to a 0% card.

Advocado

I bought my most recent car with proceeds from sale of previous car, some savings and a £20,000 loan.  

I took the loan out over three years but I'll pay off early so it'll be paid off in less than two.

The total cost of the loan was about £1,000, which I decided is a fair price to pay to get a brand new, £60k car.  In reality I think it'll actually cost me around £400-500.

Of course, that doesn't take into account the depreciation of a new car which is by far the biggest cost.  Although, at the moment, I think mine has actually gone up in value by around £7k because of the current issues with production.

I would never do PCP.  I don't understand why people do.  When you work out the actual cost, it's crazy expensive.

McCreary

Thanks for the replies - really helpful!

Petriix said:

PCP seems to be a way for people to drive a car they can't really afford. It's definitely not the lowest overall cost, although you can sometimes get a decent discount by signing up for PCP then settling straight away.

I think that matches up with a lot of what I have seen. I just assumed I was doing something wrong but I imagine they are paying through the odds and haven't got a great deal to show for it.

ratrace said:

Op, Keep doing what your doing save, buy, repeat

oh and stop listening to your broke friends they are not the ones paying your bills 

Thanks, a few people have really made me feel like I am missing a trick and stupid for not having a PCP! Seemed to imply they were better value for a better car. (Really like the quote in your signature by the way!

Grumpy_chap said:

Cash is no longer always king but finance can be cleared early so the OP will have the best of both worlds.

When you say "best of both worlds" - what would you say are the benefits of getting a car on finance and then paying it off?

Advocado said:

I would never do PCP.  I don't understand why people do.  When you work out the actual cost, it's crazy expensive.

I've found it hard to get my head around them but conventional wisdom/world view seems to be different!