car finance: dealer loan or self finance?

silvercar

Can someone advise me on which is the better deal?

car cost £25,000. part ex value 6,250.

option 1, pay difference (18,750) from savings account, so losing 6% fixed rate savings interest.

option 2, dealer finance offer: £1,000 deposit plus 47 monthly payments of £460 plus optional balloon payment of £10,000. plus they will give me a cheque for the trade in of £6,250.

Can end lease early after 2.5 years if I want and walk away without car.

Obviously with option 2 there is a crunch time after 4 years where I have to walk away and start again or pay the £10,000 and keep the car, whereas on option 1 I can change car when I want (though 4 years is my general rule for upgrading).

All opinions welcome:)

Kez100

Are you paying tax on your savings interest? If so, are you basic or higher rate tax payer?

silvercar

Thanks for your quick reply.

No tax on savings as they are mortgage offset.

APR is apparently 9% on the dealer package, though that includes the final payment and doesn't include the fact that the dealer is prepared to offer a cheque for the part exchange value.

geo555

What car is it? With the dealer finance, you will be effectivly paying £22620 plus £10,000 for the car.
Why can't they take the £6250 off the total. You are borrowing this amount and being charged a hefty interest payment on it.

vansboy

Quick answer would be to finance the deal yourself, using a cashback credit card - assuming the won't stuff a handling fee.


BUT, not that we know the make, 9% sounds high, so many low 0% offers around, have you asked another dealer to quote - they don't always need to use the makers finance plans, although most will!

Are you swapping brands - quite often there is an added dealer bonus to get, say a Jaguar driver into a Merc, ask - they might be keeping this for themselves (no reason not to!)

Have you had quotes from independent leasing companies directly - even £30/month in your pocket is worth keeping!!

& did you check This Weeks Best Deals in http://www.honestjohn.co.uk for REAL prices!!

VB

silvercar

Are you swapping brands - quite often there is an added dealer bonus to get, say a Jaguar driver into a Merc, ask - they might be keeping this for themselves (no reason not to!)

Spot on - swapping between 2 german marques.

Car is already signed for OH picking up next week.

I've joined the game, with my MSE hat on, too late!

Its really a straight choice between paying for it from the savings account so losing 6% (net and gross) interest or going with this finance deal.

I thought it was simple 6% vs 9% but the inclusion of a cheque for over £6k on day 1 muddies the waters.

As does the issue of what to do after 4 years.

deltic_2

Option 1.

4 years loss of interest at 6% = £1125 x 4 = £4500 (excl. compound interest)

4 years depreciation = £25,000 - £10,000 = £15,000

Result: You pay £19,500 and are left with a car worth £10,000

Option 2:

You walk away with cash = £6250 p/x - 1000 deposit = £5250

4 years interest earned on £5250 = £1260. Total cash accumulated = £6,510

4 years payments cost = 47 x £460 = £21620

Result: You pay £22,620 and are left with no car and £6,510 in cash

Conclusion:

By my reckoning, deal one costs £9,500 (19,500 - £10,000 final asset value)

and deal 2 costs £16,110 (22,620 - 6,510 final cash in hand)

deltic_2

Sorry, forgot to add the deposit back in the total for deal 2. Now corrected above.

silvercar

Thanks for all your advice.

He paid from savings in the end, some of which was resting in current account earning no interest!

anewman

Why get finance when if you look in the under £1000 section of autotrader you can get an entire car that gets you from a to b that you can buy outright without throwing money at a finance company.

Paying off debts with savings is nearly always the cheaper option than keeping savings to earn interest.