Best way to finance a car?

AdrianC

McCreary said:

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!

People just don't look past the monthly drip-feed payments.

They don't remember the upfront payment, let alone amortise it across the term of the finance.
They don't think about the fact that when the car goes back they have literally zero to show for the money.

All they think about is "Ooh, shiny, shiny, £300/mo" ... ignoring the minor detail that that £300/mo is actually £3,600/yr for three years = £10,800 + £2k upfront = the thick end of £13k to rent somebody else's car for three years...

And I bet they've only got 8-10k miles/year at best, so add on 10p/mile over that. And any scratches and dinks and kerbing marks...

motorguy

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!

If you're happy with your car and plan to run it long term, then i'd say stick with what you're doing / have done.  Rinse and repeat when your needs change (though the Qashqai is a very capable all rounder) or the car reaches end of life.

People who PCP tend to do so because its an easy way to wrap up their monthly motoring costs (depreciation, warranty and sometimes servicing) in one monthly amount.  They get paid monthly and they're not terribly concerned about ownership.  As peoples needs change - say with a growing family - then they havent a big commitment to the car so can change at the end of / near the end of the term for something that suits better at that point.

Is it more expensive?  Pretty much certainly, though very low interest rates through incentivised new car deals can offset that.

My impartial advice is stick to what you know works for you and continue to do what you're doing. 

motorguy

[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.

No, there are still some cracking new car deals about with very low / 0% / heavily incentivised offers.  

Haggling with cash?  Thats a 40 year old concept and dates back to when the dealer could avoid putting some of it through the books.  However these days the dealer will want / need you to take a finance deal to make up his profit margin as margins on new cars are waifer thin.  

motorguy

Brie said:

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.

They'll charge you for doing that these days, so not as compelling an option as it used to be.

livetoclimb

I think it depends on the interest rate, whether you get any kind of dealer/manufacturer contribution and whether you can get a discount on top. 

I consider myself very lucky to have bought a new vehicle on PCP at 0%, with a 19% discount and with a £2000 dealer contribution as well. This is on a vehicle that historically has a slow depreciation rate as well. I’m paying approximately 40% as a deposit which keeps the monthly payments fairly low. With annual manufacturer servicing it has a 10 year warranty, including free break down cover. 

I would never take PCP with any significant interest rate and appreciate that it’s unusual to get such a good deal - but they are out there.

Grumpy_chap

McCreary said:

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?

So, sometimes, there can be an incentive offered for taking finance, for example a deposit contribution, period of included services etc.  This is on top of whatever the best price was to buy the car.  The Dealer may not be able to match these additional incentives if you buy the car cash.  The Dealer is effectively gaining the commission from two sales by selling the finance - sell the car and sell the finance product.

If you have cash, you can take the finance (and secure the incentives) and then clear the finance early so avoiding the interest charges.

McCreary said:

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!

The big benefit of PCP is the lower monthly payments and some people only really look at that number.  How they ignore the deposit is beyond me.  Ignoring the final payment can also be a big shock, but I do understand how people ignore that as it is "in the future".
Take the headline for the Ford Focus on the Ford website today:

• Price £25k
• Deposit £6k
• Monthly £240 for three years = £240 x 35 = £8.4k
• Balloon £9.5k
• Max 9k miles per year

Do some simple maths, and assume the car is returned at the end of the term, the cost is £6k + £ 8.4k over 36 months = £400 per month averaged out.  Nearly double the headline figure and very clever marketing for the Dealer.

For simplicity, discount is ignored in the above example as I have simply taken the headline figures from the Ford website.

ratrace

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!

Your not missing a trick, brand new cars which most pcp's are, lose approx 50% of thier value in the first 3-4 years it does not matter how they are bought be in cash, loan, pcp, hp etc.... you still will lose that money you cant hide that fact

so the way i buy cars is or reccomend to people is to buy somthing 4 years old that has 40k 50k miles on the clock for 50% off its new price, keep it for a few years (while saving every month for when it will need replacing) then rinse and repeat, keep doing what you are doing and dont pay attention to what you work mates say, the day they start to pay your bills then that day listen to them untill then leave them to it, from what you say in your op it seems your work carpark is a sea of payments dont let it derail you from what yo have been doing

Ps: signature

DrEskimo

motorguy said:

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!

If you're happy with your car and plan to run it long term, then i'd say stick with what you're doing / have done.  Rinse and repeat when your needs change (though the Qashqai is a very capable all rounder) or the car reaches end of life.

People who PCP tend to do so because its an easy way to wrap up their monthly motoring costs (depreciation, warranty and sometimes servicing) in one monthly amount.  They get paid monthly and they're not terribly concerned about ownership.  As peoples needs change - say with a growing family - then they havent a big commitment to the car so can change at the end of / near the end of the term for something that suits better at that point.

Is it more expensive?  Pretty much certainly, though very low interest rates through incentivised new car deals can offset that.

My impartial advice is stick to what you know works for you and continue to do what you're doing. 

I would argue that owning a car ouright and not having a car on finance or through a lease deal is the most flexible way to run a car if you feel you have to change often.

You don't have to worry about availability of capital to settle outstanding finance, as you've ensured you've covered that upfront, and you don't have to worry about mileage limits or early termination fees on leasing.

With a car bought outright (usually settled finance after securing the best deal) you can chop and change whenever you like. 

Grumpy_chap

DrEskimo said:

I would argue that owning a car ouright and not having a car on finance or through a lease deal is the most flexible way to run a car if you feel you have to change often.

Indeed, if needs are changing frequently, then owning outright makes change far simpler.  In addition, unless you are made of money, that changing need can be better met through older cars where the majority of the depreciation has been paid for by another.

McCreary

DrEskimo said:

With a car bought outright (usually settled finance after securing the best deal) you can chop and change whenever you like. 

Can I just clarify what you mean by finance? I assume you don't mean a PCP as you never own the car that way?