Buying a card for cash vs Finance

Finlayson

Can anyone point me towards any resources/advisors who can make sense of this?

Let's say I bought a car 5 years ago for 30k.

Depreciation now puts it at 15k so over the 5 years the car has cost average of 3k per year, + maintenence costs etc.

Of course now that the car is out of warranty and due to natural wear and tear some bigger mechanical bills start to come in.

In order to change the car, if I don't want to take the rock bottom price of part exchange I now have to spend the time and hassle of preparing the car for sale, making necessary minor repairs such as bringing alloy wheels up to standard, get the car listed on a portal, deal with the phone calls, viewings, etc....

I am wondering that if I had bought a car on one of these schemes where you can change the car at the end of the term - how much worse off would I be as opposed to buying for cash?

If the difference is only relatively nominal, quite frankly I would probably rather do that than deal with the hassle of selling etc

There must be some hot deals out there no?

born_again

Finlayson said:

Can anyone point me towards any resources/advisors who can make sense of this?

Let's say I bought a car 5 years ago for 30k.

Depreciation now puts it at 15k so over the 5 years the car has cost average of 3k per year, + maintenence costs etc.

Of course now that the car is out of warranty and due to natural wear and tear some bigger mechanical bills start to come in.

In order to change the car, if I don't want to take the rock bottom price of part exchange I now have to spend the time and hassle of preparing the car for sale, making necessary minor repairs such as bringing alloy wheels up to standard, get the car listed on a portal, deal with the phone calls, viewings, etc....

I am wondering that if I had bought a car on one of these schemes where you can change the car at the end of the term - how much worse off would I be as opposed to buying for cash?

If the difference is only relatively nominal, quite frankly I would probably rather do that than deal with the hassle of selling etc

There must be some hot deals out there no?

2 very different opinions this.
To me you have paid X amount & have nothing to show @ the end on PCP or Lease, when car goes back. So you have to start the process again.
Maintenance most likely be extra, so no saving there. Also remember that there are costs on the return of car for damage etc on lease.

With cash you have a asset, OK not worth what it was.



Just P/X my car got same as I paid for it 2 1/2 years ago. Damage to wheels as well. Other than wash, did nothing to car when taking it in.
No hassle at all. They valued it over phone, took car over & they honoured the price over phone.

If you are keeping a car for 5 years then you may not find a lease/pcp for that term. 

Deals all depend on what you want & what you are prepared to accept.


End of the day, It's down to you to look at the figures & think about it. I lean one way, other will lean the other. There is no right or wrong way. It's down to you.

Bigphil1474

Are you talking about PCP type deals? I think they can work sometimes, others not. I don't really know enough about them but there are huge variables. They are typically over 3 years as far as I know, so you'd have to compare the value of the car over that time, versus what you paid. They will be designed to make sure the company get their cut.

Your 30k car would probably cost more overall on a PCP, even if they did them for 5 years - £3k a year is only £250 a month which probably wouldn't get you much more than a basic car. Of course you save on repairs, sometimes tax, and some do insurance as well. 

The best way to save money is to buy something at a lower end, as the relative depreciation is less. Second hand is usually cheaper even if it is nearly new. There are some exceptions if you can get a great new car deal, but VAT at 20% on a new car is a big difference.

On trade in - it's not always the rock bottom price, sometimes you can get a good price even though it might be a bit less than what you can get private. I traded in a Fiesta in 2020 and the trade in came in higher than the price i was advised to sell it privately at as they didn't really care about some of the faults it had. Also sold a car last month on Motorway for a relative, and the final price was at a similar level to what they were going to sell it for. Depends on the car I think.

Goudy

I wouldn't call anything other than a high end classic car an asset.
It's a tool to move you about and you want a suitable one that costs you the least over the period you want to use it.

Once you know that and work out all the figures of the various ways to buy it, you'll have a better idea which suits.

Herzlos

Any car you can buy in a showroom will depreciate, and it'll depreciate as a percentage of current value so the drop off is the steepest in the first few years.

Any scheme that allows you to change car after a few years (lease, PCP, whatever) means you'll be paying that highest depreciation repeatedly. To complicate things though, lease companies can get much better deals than you can since they may be buying thousands of cars, so a lease MAY be cheaper than buying at the manufacturers list price and selling it after the equivalent time.

If you're more worried about the hassle of selling cars, then you can just trade in for a small penalty over selling privately, or with PCP/lease you can just  return the car and collect another one.

Used car prices are also bonkers at the moment; I sold my old car about a year ago for nearly what I paid for it 3 years before that, any the trade in value of my new car has barely changed in that time despite it being a year older with 10k more miles on the clock.

Answering your question though; there's no good answer, it'll depend on too many variables, but with a PCP you have the option at the end to return the car and start a new contract, or pay the balance and keep the car, so it may cost you slightly more but gives you the extra flexibility.

Goudy

I have just thought of something.

Lets say your £30k car loses 40% value over three years.

You could buy the car outright for £30k cash and expect is to be worth around 18k in three years but there is no guarantee of that, it could be worth more, it could be worth less.
It would cost you any interest that £30k could earn over three years. Today you can get around 6% on a fixed account, so around £5000.

You could take a PCP deal over 36 months.
It's not unusual to get a deposit contribution, often a grand or two.
That £18k would be guaranteed as a minimum, it could be worth more as a trade in but if it isn't you can hand the car back and walk away.
You would pay interest to borrow the £28k or £29k which would be likely be more than your £5000 if you couldn't find an interest free deal.

You could take the PCP and settle the finance once you take delivery, lots do it including myself.
That way you would benefit from the one or two grand contribution and only pay a max of 2 months interest on what you borrowed but lose out on most of the £5000 possible interest you could earn on the £30k as you have used most of it to settle.

What if you took the PCP with the deposit contribution, then paid off as close as you can to only leave the GFV in one lump?
The interest payments on the PCP are built into the monthly payments which you have settled and only paid minimum interest on (the two months).

You might not be able to pay up all the monthlies and just leave the GFV in one go,  but you can usually make sizable one off payments that will bring the monthlies and interest down, do it early in the contract and you will obviously pay less interest overall.

The GFV would still be guaranteed after three years and you still have a large pot of cash (up to £20K) to put in the bank and earn interest on.