Finance or Outright payment?

unfocus

I'll start this by highlighting that I'm incredibly indecisive to an almost pathological extent! Having said that, I finally picked a (nearly) new car from Arnold Clark and, after lots of sums, decided that paying for it outright was the best way to go. I'm due to see the car after work today and hopefully buying it on the spot if all checks out. 

My partner has thrown a spanner in the works by sending a message saying his colleagues are urging us to not pay upfront 'because of the lack of strength as a consumer' and go for PCP or HP instead. I've tried a quick bit of research and it seems they may be referring to the extra protections through the finance company if anything goes wrong with the car. Is there something else I'm missing? Because, according to my sums, I'd be paying roughly 5k more over a 4/5 year period for the same car than if I bought it outright and my feeling is it's vanishingly unlikely that the 'protections' would be worth that much additional outlay. 

I understand there are other benefits to finance as the car may depreciate more than I anticipate if I choose to sell it after 4/5 years and with finance options I could potentially just not pay the final lump sum and move on to another car. The car is about 17k, 2025 reg Renault Clio Esprit and has about 10k miles on the clock. 

I'm a bit bamboozled now so any thoughts would be much appreciated. 

unfocus

I should also add that one of the considerations was the fact we're looking to move house in the next few months so putting the full 17k into a car would affect the deposit we can make on a new house but only to the extent that mortgage payments would be a bit higher (but then no monthly car payments) 

MyRealNameToo

unfocus said:

I'll start this by highlighting that I'm incredibly indecisive to an almost pathological extent! Having said that, I finally picked a (nearly) new car from Arnold Clark and, after lots of sums, decided that paying for it outright was the best way to go. I'm due to see the car after work today and hopefully buying it on the spot if all checks out. 

My partner has thrown a spanner in the works by sending a message saying his colleagues are urging us to not pay upfront 'because of the lack of strength as a consumer' and go for PCP or HP instead. I've tried a quick bit of research and it seems they may be referring to the extra protections through the finance company if anything goes wrong with the car. Is there something else I'm missing? Because, according to my sums, I'd be paying roughly 5k more over a 4/5 year period for the same car than if I bought it outright and my feeling is it's vanishingly unlikely that the 'protections' would be worth that much additional outlay. 

I understand there are other benefits to finance as the car may depreciate more than I anticipate if I choose to sell it after 4/5 years and with finance options I could potentially just not pay the final lump sum and move on to another car. The car is about 17k, 2025 reg Renault Clio Esprit and has about 10k miles on the clock. 

I'm a bit bamboozled now so any thoughts would be much appreciated. 

At £17k you could just pay the deposit on a credit card and you would get the exact same S75 protection as if you had paid by finance. 

Its theoretically possible that the value of a vehicle tanks so much that you are better off paying for a PCP and surrendering the vehicle rather than paying the balloon all the time leaving your money in your savings account partially offsetting the interest payments but its fairly unlikely unless you are getting a very low APR on the loan or a very high interest on your savings. In most cases you are likely to be worse off.

Are they offering any incentives for taking out finance? Sometimes you can double dip by getting some benefits for buying via finance then cancel the finance and pay off the debt whilst still retaining the free servicing or £2k deposit contribution or whatever the incentive was. 

born_again

Take the finance, pay it off within 14 days.

MyRealNameToo

born_again said:

Take the finance, pay it off within 14 days.

Pay it off or cancel it and pay it off? If the former you'll get the 2 months interest for early settlement penalty to pay normally. 

flaneurs_lobster

unfocus said:

 The car is about 17k, 2025 reg Renault Clio Esprit and has about 10k miles on the clock. 

I'm a bit bamboozled now so any thoughts would be much appreciated. 

I'm probably going to be looking at similar options in the not too distant, last three cars have been new, paid cash. Interested therefore in the arguments for/against finance.

Have to say that the car you've found sounds like a decent deal.

born_again said:

Take the finance, pay it off within 14 days.

Is this always an option?

Arunmor

The biggest argument is what is your interest rate on the loan versus what you would receive in a savings account.

Second hand cars tend to have expensive loan rates vs new cars.  How old is the car and have you priced up a new one (if car is relatively new).

If the car is an EV?  Used EVs are taking a pounding on residuals, which might be a benefit personally I wouldn't have one too many risks.

MyRealNameToo

flaneurs_lobster said:

born_again said:

Take the finance, pay it off within 14 days.

Is this always an option?

You can always pay it off early and early repayment penalties are capped by law (if a regulated agreement which at £17k it would be for a personal loan) at a 2 months interest if more than 12 months to run and 1 months interest if less than 12 months left on the loan. 

You also have a statutory cooling off period of 14 days where you can cancel without penalty but need to be careful as to when the 14 day clock starts ticking from 

ButterCheese

We've just done this, we had the money in savings but wanted to keep it there as it earns us a good 4%.  So we applied for four 0% interest credit cards, bought the car with those, and will pay them off monthly as much as we can out of our normal income.  If we fail to do that then we can dip into savings.  It might only save us £40 a month but we might as well borrow for free (even if only 28 months)

flaneurs_lobster

ButterCheese said:

We've just done this, we had the money in savings but wanted to keep it there as it earns us a good 4%.  So we applied for four 0% interest credit cards, bought the car with those, and will pay them off monthly as much as we can out of our normal income.  If we fail to do that then we can dip into savings.  It might only save us £40 a month but we might as well borrow for free (even if only 28 months)

No experience, but wisdom here is that it's hard to find a car seller who'll take 1 CC for payment, let alone 4... And shouldn't applying for 4 CCs simultaneously raise credit check alarms? How much was the car?

MyRealNameToo

ButterCheese said:

We've just done this, we had the money in savings but wanted to keep it there as it earns us a good 4%.  So we applied for four 0% interest credit cards, bought the car with those, and will pay them off monthly as much as we can out of our normal income.  If we fail to do that then we can dip into savings.  It might only save us £40 a month but we might as well borrow for free (even if only 28 months)

You'd struggle to find a car seller that will accept £17k on credit card(s), most will only take the initial deposit in CC because the fees are a percentage of the transaction and they can no longer pass the charge on directly.  There will always be exceptions but clearly as the amount goes up the chances go down.