Most Efficient Way of Financially Buying/Using a Car

NSE123

Hi All,

Im going to keep this brief and looking for some advice before I jump into anything, any help would be appreciated.

I'm just about to pay off my Hire Purchase deal for my Car which I have taken out over 5 years.
I would like an upgrade to a car around the 15k - 20k mark, with obviusly as low miles as possible for around. Rough idea of monthly payment (if i had to) £350 max
Im wondering what is the best way to do this.

Should I basically:
- borrow the money for the car from a bank and pay the car outright as I understand interest rates for borrowing from the bank rather than the dealership are more economical.
- simply take out another Hire Purchase deal from the dealership for the car and pay this as I have done with my current vehicle.
- Take on a PCP deal, as I understand the payments each month are lower however I do travel a lot of miles for work, easily 20k per year so I hear this is not the best option and I don't like the idea of a larger balloon payment at the end of the deal.
- Lease a car, this is something someone told me recently which sounds like an interesting option although I have no experience with this and hoping someone can help me out here with some advice regarding this. Although I do know there would be milage caps on this also, so lots to consider.

I basically just want to know the best way of having a car for around the price I mentioned above. If there are any other options I don't know about please let me know. Ps i know this post is very vague!

Thanks

NSG666

Travelling that sort of mileage are you employed or self employed/limited company?

PCP and PCH are both types of personal leasing along with lease purchase. It might be worth going on some leasing company websites to see what you can get for your money. Sometimes manufacturers put financial support behind certain models making them very attractive to lease.

Questions to ask yourself
Is your job secure - will you be able to keep up the payments
Will my mileage change? - if you take a 20kpa lease and suddenly your mileage drops to 8kpa you won't get any reduction in monthly payments

Ebe_Scrooge

You're going to get lots of differing opinions.  The first one being, buy a cheaper car for cash :-)

It depends on your priorities.  A lease/PCP will to a large extent remove the hassle of sorting out repairs.  But for the sort of mileage you're doing, they may come out quite expensive.

Personally I've always gone for the option of buying outright.  No mileage cap to worry about, no fretting if you get a few stone chips or supermarket car park dings.  Accept that maintenance and repairs are my own responsibility  There's pros and cons to all the options.  But then, I have no desire to impress the neighbours by driving a new car, I much prefer a reliable older workhorse that I can pretty much do any repairs that are required myself.

There's no "best" way of doing it really - what suits me might not suit you.  I guess the main thing is to look at the total cost - PCP deals have attractive monthly payments, but factor in the deposit and the balloon payment, they then begin to look expensive.  Unless you don't want to own the car, in which case the balloon payment isn't a factor.  At least getting a personal loan from the bank, you know what the cost is up-front, as it were, and you own the car from day one.  You're also free to sell it at any time if circumstances change.

DrEskimo

You just need to look at each cost separately then work out which works.

Broadly these are:

• Expected depreciation (although just purchase price if not planning on selling)
• Interest (if using finance)
• Servicing
• Maintenance
• VED
• Fuel
• Insurance

As above, you need to move away from looking at just the 'monthly' cost, and look at each cost over the period you expect to own the car.

Depreciation will be much higher on new cars, so PCP on new, or lease will be substantially higher than used. This will typically dwarf many of the other savings, such as maintenance or fuel/VED savings (if any).

If you can avoid finance (PCP, HP or loan) then interest is a cost you can avoid altogether.

Given your mileage, an EV may save you substantial sums on fuel/VED/servicing if you can accommodate one.

Once you look at everything altogether, buying used outright tends to minimise depreciation costs, incurs no interest costs, and maintenance is likely to only increase overall costs slightly. This is why it is typically the most cost effective option, not to mention it comes with no contractual agreements about exactly which day you have to think about getting a new deal/car, or additional charges for going out of scope of your agreement. Basically free to keep however long you like. If you like changing new cars every 2/3yrs, buying used and trading up after 2/3yrs is just as easy as PCP or lease, and a hell of a lot less expensive.

Used EVs in particular are holding their values well at the moment, which coupled with very low running costs is proving to be my most cost effective way to have private motoring.

Case in point, new leases for my car at the time would have cost around £280/month all in, and still included servicing and other costs. Instead, over the same period buying used and trading it would have cost me under £80/month. Exactly same car (slightly used), yet much cheaper and given I had no contractual obligations, I simply paid to extend the warranty (£259 for the year) and have kept it.

NSE123

Thanks for the reply

surely if I buy used and sell every 2/3 years my cars going to plummet in price so when I go to sell I have something which isn’t worth anywhere near what I have to pay off in order to clear it?

with pcp I can still do many miles and at the end of the term the car obviously wouldn’t be worth a lot however I would be returning it so it’s not exactly my problem ?

NSE123

Although yeah if I take a pcp and hammer miles my monthly payments will be ridiculous so I can’t really see how it would work. I want to talk to a sales assistant in a dealership and ask questions face 2 face but know I will just be hit with the answers which will accommodate a sale for them most easily..

NSE123

Ebe_Scrooge said:

You're going to get lots of differing opinions.  The first one being, buy a cheaper car for cash :-)

It depends on your priorities.  A lease/PCP will to a large extent remove the hassle of sorting out repairs.  But for the sort of mileage you're doing, they may come out quite expensive.

Personally I've always gone for the option of buying outright.  No mileage cap to worry about, no fretting if you get a few stone chips or supermarket car park dings.  Accept that maintenance and repairs are my own responsibility  There's pros and cons to all the options.  But then, I have no desire to impress the neighbours by driving a new car, I much prefer a reliable older workhorse that I can pretty much do any repairs that are required myself.

There's no "best" way of doing it really - what suits me might not suit you.  I guess the main thing is to look at the total cost - PCP deals have attractive monthly payments, but factor in the deposit and the balloon payment, they then begin to look expensive.  Unless you don't want to own the car, in which case the balloon payment isn't a factor.  At least getting a personal loan from the bank, you know what the cost is up-front, as it were, and you own the car from day one.  You're also free to sell it at any time if circumstances change.

Thanks for the reply! Yeah the only thing is about taking a personal loan from bank like I mentioned in the other comment just now - I take the loan decide I want to get rid of the car after 2 / 3 years and I can’t clear what I owe due to the value of the car decreasing significantly. That’s my worry

[Deleted User]

NSE123 said:

surely if I buy used and sell every 2/3 years my cars going to plummet in price so when I go to sell I have something which isn’t worth anywhere near what I have to pay off in order to clear it?

Used cars don't usually plummet in price, as the original owner kindly took the hit for you. They depreciate much more slowly.

You'd need to be paying very slowly or over a very long period for you not to get more than the outstanding balance.

And if you keep the car for more than a couple of years, you're going to do even better. Run something for 10 years or more and your bank account is going to be healthier than you could ever imagine.

NSE123

Deleted_User said:

NSE123 said:

surely if I buy used and sell every 2/3 years my cars going to plummet in price so when I go to sell I have something which isn’t worth anywhere near what I have to pay off in order to clear it?

Used cars don't usually plummet in price, as the original owner kindly took the hit for you. They depreciate much more slowly.

You'd need to be paying very slowly or over a very long period for you not to get more than the outstanding balance.

And if you keep the car for more than a couple of years, you're going to do even better. Run something for 10 years or more and your bank account is going to be healthier than you could ever imagine.

Thanks for the quick reply, yes I see where your coming from although I can understand that with someone who does a standard amount of miles however if I’m clocking an extra 60k on top of what it has already that’s where I’d be concerned about selling up for a decent price

DrEskimo

NSE123 said:

Deleted_User said:

NSE123 said:

surely if I buy used and sell every 2/3 years my cars going to plummet in price so when I go to sell I have something which isn’t worth anywhere near what I have to pay off in order to clear it?

Used cars don't usually plummet in price, as the original owner kindly took the hit for you. They depreciate much more slowly.

You'd need to be paying very slowly or over a very long period for you not to get more than the outstanding balance.

And if you keep the car for more than a couple of years, you're going to do even better. Run something for 10 years or more and your bank account is going to be healthier than you could ever imagine.

Thanks for the quick reply, yes I see where your coming from although I can understand that with someone who does a standard amount of miles however if I’m clocking an extra 60k on top of what it has already that’s where I’d be concerned about selling up for a decent price

Why would that change on a new car?

PCP is just a form of secured finance. You are buying a brand new car, clocking 60k miles on it, then trading it in (either to the dealership or to the finance company for the agreed price). The deposit + monthly payments reflect the depreciation and interest over that period.

Buying a used car will very likely be much cheaper as newer cars depreciate more than used cars. Plus the interest may be much lower (depending on the deal).

Leasing is where things are different, as you don't know the purchase or selling price, or the cost of any interest. You can only determine based on the deposit + monthlies. But this will still be on a new car, so likely much higher than buying and selling a used car. The increased mileage will be reflected in the increased cost on the lease.

BrassicWoman

NSE123 said:

Thanks for the quick reply, yes I see where your coming from although I can understand that with someone who does a standard amount of miles however if I’m clocking an extra 60k on top of what it has already that’s where I’d be concerned about selling up for a decent price

Which is why you tuck away mileage payments you get from work - they compensate for the depreciation, in part. If you're doing 60k not at work - well, that is the cost of your hobbies, and you need to budget for it? I mean.. cars cost. They just do. The only way to reduce the loss is to drive less?