PCP, Lease or Loan for 2nd hand car

PCP isn't a lease, you get a car at the end (provided you pay the balloon payment). If it's on 0% finance it's a good idea so long as you budget for the final payment. Don't do this option if you plan to trade in at the end unless you are prepared for another 3+ year payment cycle.



Cars losing value is only an issue if you intend to sell the car at the end or want a value for a trade in. If you take the money saving mindset of buying a car and running it until it's not economic to do it any more then depreciation is irrelevant.


11k should get you a very good second hand car so long as you aren't trying to get something silly.

gill_oneill wrote: »

However cars do lose value

Exactly! You have hit the nail on the head. Paying interest (on any kind of finance) to buy an asset with a value that drops like a stone makes no sense as you get the double hit of interest and depreciation.

Save and buy with cash.

MEM62 wrote: »

Exactly! You have hit the nail on the head. Paying interest (on any kind of finance) to buy an asset with a value that drops like a stone makes no sense as you get the double hit of interest and depreciation.

Save and buy with cash.

And once again, depreciation is only relevant if you need to sell the car or trade it in at the end i.e. you want the asset to have value for future use - for a PCP cycle for example

If you buy a car and use it for 10 years until it's time to scrap, the fact it cost £10,000 10 years ago and is worth £0 now is meaningless except in the minds of the "depreciation is the devil" crowd. You have had and enjoyed the value of the car for 10 years, using it for what it's intended for.

Paying interest on a loan is a fact of life (unless you get lucky with a 0% deal) so yes, buying cash is fine but either way you end up with depreciation, which, again, is irrelevant if you don't intend to sell the car

Ilona wrote: »

I was a bit confused there for a minute, you said you have a budget of 11,000. I took that to mean you have got the cash put aside to fund that. Couldn't understand why you need to borrow more.

A budget is what you can afford to pay for something. How do you arrive at the sum of 11,000 if you have to borrow for it? Your budget is the amount of money you have in savings to put towards it, the borrowings is extra.

Assuming you have some cash, can you not afford a car with that, and not borrow anything?

ilona

Naaa your barking up the wrong tree there...."budget" should of been crossed off and "limit of credit" should be inserted in its place.

Nasqueron wrote: »

And once again, depreciation is only relevant if you need to sell the car or trade it in at the end i.e. you want the asset to have value for future use - for a PCP cycle for example

If you buy a car and use it for 10 years until it's time to scrap, the fact it cost £10,000 10 years ago and is worth £0 now is meaningless except in the minds of the "depreciation is the devil" crowd. You have had and enjoyed the value of the car for 10 years, using it for what it's intended for.

Paying interest on a loan is a fact of life (unless you get lucky with a 0% deal) so yes, buying cash is fine but either way you end up with depreciation, which, again, is irrelevant if you don't intend to sell the car

Absolutely, the longer you keep it the less important depreciation is. It would also be the case that the older the car is when it comes into your hands the less impact it has. But it is still a cost that should be taken into consideration as the car will eventually need to be replaced. I do not subscribe to the 'depreciation is the devil' philosophy but it is prudent to consider it. IMO doing so is part of planning the replacement.

As for interest being a fact of life - yes and no. If you don't need to borrow to finance the car then you can avoid the interest. There are various ways to mitigate this cost. Buying a cheaper car that you can pay for from savings and upgrade as you have the cash available and saving the equivalent of the depreciation over your projected ownership of the car being two examples. When I was younger my friends and I all borrowed money to get the best car we could afford - expect one. He ran an old banger and saved for a better car. Several years and cars later we were all driving similar vehicles but wasn't making any payments on his. Effectively, all the money that we had paid in interest over the years he had put directly into the value of his car.

For many years I have had company cars but that will change when the lease on the current one expires in April. (I will run my own as the TAX on a company car is greater than the cost of running my own) At that point I will buy something two or three years old that has already taken the first hit of depreciation and keep it for a long time. This is a great was of lessening the impact of depreciation as you quite rightly allude to.