How would you buy a used car for around 20k. PCP/Mortgage Finance?

IAMIAM

Contemplating buying a used car. For the last 20 years I have bought a used car and kept it for  6/7 years and then got rid - I drive a lot of miles circa 15k. This will be my 4th car as its time again after 170k miles on the clock, and repeat problem! I would probably get £1500 from we buy any car.

I don't have 20k, but could get 5k together as a deposit (to include the 1500). I am contemplating the following.

Option 1 
Get 15k mortgage finance at 4.5% currently and take it over 5 years to pay

Option 2
PCP, 5k deposit, 48 months, 15000 miles with a view of just going down this road and knowing car is being returned and option to keep it if needs be. I have always avoided this option but have always ended up paying the same in maintenance costs over the last 20 years, as I end up paying around 1.5k to 2k to sort problems out. Also, I feel its wise to do this option as I always know the car is returning and knowing the garage has to fix the problem as it will be theirs in 48 months anyway?

The thing I have noticed with PCP is that the rates are always either 9.9%, 11.9% or 13.9% from main dealers and when I have rang, they always say the rate will not change.

Any thoughts or advice for me please?

motorguy

Get the loan at the lowest rate possible - so that definately rules out the PCP option.

I'd run with the mortgage loan.

DrEskimo

I paid cash for mine by saving monthly until the time came. That’s the fundamental question I would ask yourself, why over the last 5-yrs running your current car have you not been able to save? Why would you suddenly be able to pay that in finance for the next 5yrs? If the answer is because you had other financial commitments then how will that affect you in the next 5yrs when you add a finance agreement obligation on top?

in any case neither of your options are particularly attractive. Securing finance on your house to buy a car comes with greater risk, and as you say the PCP options have ridiculous interest rates. 

As it’s used, unless the car comes with a warranty as well you will still be liable for the maintenance costs (in fact it will be a condition of the PCP), and any repair costs. They aren’t covered automatically by the finance. Also the way PCP loans are structured means the interest costs are much higher than a personal loan of comparative APR.

So my advice is either buy a £5k car cash or get a much smaller personal loan at a better competitive rate. 

facade

You have to maintain a PCP car! You can't hand it back with anything wrong with it either.

If it isn't in tip-top condition with the required services done the finance company will charge you £££££££.

There will also be a mileage limit on a PCP, or you get charged £ per extra mile.

None of this applies if you pay the balloon and keep it, but then surely you'd have maintained it as if it were your own- because it will be.

Brie

Option 1 - do you mean putting unsecured debt on to your mortgage?  Any debt adviser would tell you it's never a good idea.

Option 2 - must admit I know very little about car finance as having never used it.  Not because I'm rich or have a lot of cash hanging about but just that it's never made sense to me.  

Option 3 - my choice - use a credit card.  not all dealers will take a card so it might be a case of getting one with enough head room to do money transfers to get the money into your bank and then onwards to the dealer.  Obviously I would only do this if I've got an excellent 0% offer available.  If the dealer will take a card then it's one with a 0% purchase you want preferably.  The other choice is to pay on one card and do a 0% balance transfer to another.

All the usual rules about money, purchase or balance transfers apply.

IAMIAM

facade said:

You have to maintain a PCP car! You can't hand it back with anything wrong with it either.

If it isn't in tip-top condition with the required services done the finance company will charge you £££££££.

There will also be a mileage limit on a PCP, or you get charged £ per extra mile.

None of this applies if you pay the balloon and keep it, but then surely you'd have maintained it as if it were your own- because it will be.

How do I 'package' a pcp knowing I may end up keeping the car and avoid a personal loan/mortgage finance. 
Do I put the maximum deposit down and the lowest mileage? This may help with being undecided on whether to keep the car at the end or not, depending on value/condition in 4 years?.....

400ixl

Do you need a £20k car? Why not buy a £5k car and run that whilst you put the money to one side to replace that in a couple of years time?

Herzlos

PCP is a trick where you pay interest on the whole balance but only make repayments on about half, with a lump sum at the end. It brings the monthly payments down but you'll pay more interest especially if you need to finance the lump later to keep the car.

Unless you get a lease (which does have some occaisonal great deals especially on outgoing or unpopular models) you're still on the hook for maintaining the car as if you own it.

Given it's MSE and you're budget is £5k, why not look for a lot mileage £5k car? Or even £10k.

If you are borrowing anything for the car, an HP car loan from your own bank is probably the cheapest overall.

daveyjp

My go to was once option 1, but I had a flexible mortgage so was only borrowing overpayments and I then paid it back over a couple of years. Even if you think you will keep a car for many years, 5 years to pay for a car is a very long time.

Grumpy_chap

IAMIAM said:

Contemplating buying a used car. 
I don't have 20k, but could get 5k together as a deposit 
Any thoughts or advice for me please?

Buy a £5k car.
Save up and buy a £20k car in the future.
Either when the money is released from the house you plan to sell (if that is not your PPR) or after the house move (if the house you are selling is your PPR).  If the house to be sold is a second property, it will release the equity to buy the car.  If the house to be sold is your home, you would not want to miss out on the next dream home by being £20k short.

Link to the OP's other thread for those who don't know what I am referring to:
https://forums.moneysavingexpert.com/discussion/6589263/want-to-sell-property-in-a-year-or-2-is-it-worth-putting-a-new-kitchen-in/p1

facade

IAMIAM said:

facade said:

You have to maintain a PCP car! You can't hand it back with anything wrong with it either.

If it isn't in tip-top condition with the required services done the finance company will charge you £££££££.

There will also be a mileage limit on a PCP, or you get charged £ per extra mile.

None of this applies if you pay the balloon and keep it, but then surely you'd have maintained it as if it were your own- because it will be.

How do I 'package' a pcp knowing I may end up keeping the car and avoid a personal loan/mortgage finance. 
Do I put the maximum deposit down and the lowest mileage? This may help with being undecided on whether to keep the car at the end or not, depending on value/condition in 4 years?.....

With PCP they lend you the whole price of the car, and charge ££££ interest on the outstanding loan every month.

You only actually repay the difference between the purchase price and the GFV (Guaranteed Final Value, sometimes called "the balloon") BUT you pay interest on the GFV every single day because you never pay it back!

To own the car at the end of the agreement, you pay them the GFV.

To own at any other time, you "settle" the loan, by paying the GFV plus anything left of the difference.

So, if you are seriously thinking of keeping it, you want the maximum deposit and to tell them you want to do a really high mileage.

The high mileage makes the GFV low, and the maximum deposit reduces the difference between the purchase price and the GFV. (So when you reach the end the car is more affordable, and feels better value as it is "worth" more than the GFV)

Some people worry about "negative equity" when the car is worth less than the GFV, but that is irrelevant if you intend to hand it back as it isn't your car!

PCP is a bad way to buy to own with second hand, because the GFV isn't repaid until the end, so it is a millstone of interest around your neck. (With new, there can be "incentives" that make the overall purchase price less with PCP than any other finance or cash)

A bankloan is better if you can get a good rate, as it will work out cheaper.

"Proper" HP is good too as you can hand the car back (in tip-top condition) once you have repaid half the loan, called voluntary termination.

You can in theory do the same with PCP, but the GFV is near enough half the loan, so you don't get the VT option until the agreement is near enough over (or you have to cough up cash to get you to half the total loan)