views on car finance

[bassett]

Hi, ive recently bought a house which gobbled up my life savings and at the same time i downgraded my car to a complete shed of a £700 golf. I make reasonable money but saving is fairly slow to get back up the ladder of circa 10-20k car. Then this morning i passed a toyota dealer with a gt86 outside stickered up in only £299 finance deal info and it got me thinking as now feels like a good time for my first brand new car before my girlfriend gets grand ideas of weddings and children. I've never done it previously as since i got a better job the house was my only focus and didnt have the money afford new cars with the performance i wanted.

So my question if what are people views of car financing, from people who've done it are there any pitfall/things to make sure i consider?

Thanks
Adam

[Countdown]

I'm very old fashioned. I'd save up and then buy it.

However I'm also incredibly boring. Go for it

[anonymous-user]

6k up front, 12k balloon, doesn't look like a very good deal to me.

http://www.toyota.co.uk/cgi-bin/toyota/bv/generic_...

[skeeterm5]

It is a great way of having a car you couldn't afford to bu outright. Just treat the money as "rental" ie nothing at the end of it. If you can live with that then go for it.

S

[bassett]

Sorry the gt86 was only the one that got me thinking since then i might have accidently checked m3's But to be honest i havent overly thought about what car i want. My only real criteria is that it fits in the garage and is a coupe. I was currently aiming to save 10-12k for a 350z.

[Wacky Racer]

Never a good idea (imo) to borrow a LOT of money to buy a depreciating (asset/liability) like a car....

For example:-

Car price £25k.....put down 5k...Borrow say 20k over say four years.......

After two years you probably will still owe 21k (with interest) to the finance company

But the car may only be worth 14/15k by that time..........

Still, sometimes the heart rules the head....

[bogie]

PCP is like renting, generally the cost covers depreciation
in 2-3 years give it back and do the same again

thats what the motor industry needs you to do - get on a 3 year upgrade cycle of continuously renting new cars

if you have finance then at least buy what you can afford on personal loan, so in 2 or 3 years you own it outright and choose to keep it forever at that point

if you do the maths, usually you can buy a 3 year old car for the price of the balloon on PCP...what you have paid in 3 years in depreciation/interest would buy you the car if you just had patience to wait 3 years and save that money

[bassett]

Thanks for the responses, i guess if i can get nearly new but second hand car a personal loan makes more sense. New would be great but depreciation and at the end giving it back or paying 10-20k is the clincher. I should probably spend a bit longer weighing up the options.

[sidicks]

Wacky Racer said:

Never a good idea (imo) to borrow a LOT of money to buy a depreciating (asset/liability) like a car....

For example:-

Car price £25k.....put down 5k...Borrow say 20k over say four years.......

After two years you probably will still owe 21k (with interest) to the finance company

eh???

[Quietlybonkers]

Just try and get a good example of an older car, especially if you are doing a lot of miles.
Depreciation is the biggest single element of annual running costs, especially if you buy new or nearly new.

I'm an older geezer in the professions, but as I do 20-30k miles a year and like large omfortable cars, I buy 6 to 10 year old cars, get a lot of car for my money, keep them for 75000 miles and don't lose too much in depreciation. Choose well and unexpected repairs shouldn't be too bad either.

Ths is just an example - try your own examples.....

For example, new Audi A8 3.0 TDI, £57,000.
Three years old, 75,000 miles £19,000
Depreciation £38,000

2004 Audi A8 3.0 TDi, 80,000 miles £7700
Three years older, well it doesn't really matter, but say £3000
Depreciation £4700

And if I fancy a change after 18 months it's no big deal. No brainier?

[rfoster]

Wacky Racer said:

For example:-

Car price £25k.....put down 5k...Borrow say 20k over say four years.......

After two years you probably will still owe 21k (with interest) to the finance company

But the car may only be worth 14/15k by that time..........

Erm....no

If you borrowed £20k over 48 months at 5.0% flat rate = £500 per month x 48 payments
After 24 monthly payments are made, you'd have a balance outstanding of 24 x £500= £12,000 due to the finance company.

Assuming the deal is a regulated settlement figure, you'd get a rebate of interest charges totalling £922.40. So if you wanted to settle the agreement after 24 months, your settlement figure would be £11,077.60.

[Newc]

bassett said:

So my question if what are people views of car financing, from people who've done it are there any pitfall/things to make sure i consider?

Thanks
Adam

This comes up quite a lot, and always generates the same range of responses, much of which is irrelevant. There are three sets of fundamentalists:

- “The People’s Front of Judea” – They hold that car finance is an unmitigated evil, apparently because you should never ‘finance a depreciating asset’. A counterbalancing list of appreciating assets is never forthcoming, nor is a discussion on how businesses use debt finance and seemingly survive. A splinter group points out that in certain arrangements you never get to own your car, you’re just paying money for nothing.

- “The Judean People’s Front” – Here we observe that for the price of the new BMW 320d you have your eye on, you could get two second hand Ariel Atoms, and why on earth would anyone ever buy a new car when there will always be a supply of second hand vehicles to choose from.

- “The Judean Popular Front” – Naturally there are but few subscribers to this ideology, but it revolves around the idea that you should always finance everything because there are always other investment opportunities available which will simultaneously cover your finance cost, pay for your car, and buy you a packet of larks’ tongues.

Ironically each of these groups does hold a vague truth within their grasp, but the message gets drowned in all the forum fatwas. The key message is this

“owning a car will cost you money”.

You can work out the cost – add up an estimate of depreciation, maintenance, insurance, fuel, finance charges. Divide by the length of time you expect to own it. That’s your monthly cost. That’s it. Nothing fancier is needed.

You can of course alter the input costs by taking different approaches to ownership routes. Reduce the depreciation by buying used. Reduce finance charges by saving up. Reduce maintenance charges by buying brand new. Look for offers where the cost to rent is less than the cost to buy. Reduce fuel costs by buying a G-Whiz. Ok, maybe some things are a step too far.

None of these approaches is intrinsically better or worse than the others. Different things are suitable for different people at different stages of their lives. Some of the approaches involve more cash out of the door than others – this is not everyone’s highest priority, and is not the sole criteria to make a decision on.

Your finance decision is fairly simple – does that average monthly cost sit comfortably with your financial situation. If it’s too high, is there a way to get it down ?. If not, maybe you have to pass this time, save up a bit, and look again next year.

[subirg]

^^^ nice post. Not much to argue with there!

[Jimmy No Hands]

Can we frame that post somehow? Best summary I've seen in a while!

[bogie]

yeah, a spot on summary

many different ways of doing it, all with different costs to suit different circumstance/outlook on finance

no getting away from the fact, that if buying a property is considered the best investment you can make, then buying a car is the worst

[NorthDave]

Newc said:

This comes up quite a lot, and always generates the same range of responses, much of which is irrelevant. There are three sets of fundamentalists:

- “The People’s Front of Judea” – They hold that car finance is an unmitigated evil, apparently because you should never ‘finance a depreciating asset’. A counterbalancing list of appreciating assets is never forthcoming, nor is a discussion on how businesses use debt finance and seemingly survive. A splinter group points out that in certain arrangements you never get to own your car, you’re just paying money for nothing.

- “The Judean People’s Front” – Here we observe that for the price of the new BMW 320d you have your eye on, you could get two second hand Ariel Atoms, and why on earth would anyone ever buy a new car when there will always be a supply of second hand vehicles to choose from.

- “The Judean Popular Front” – Naturally there are but few subscribers to this ideology, but it revolves around the idea that you should always finance everything because there are always other investment opportunities available which will simultaneously cover your finance cost, pay for your car, and buy you a packet of larks’ tongues.

Ironically each of these groups does hold a vague truth within their grasp, but the message gets drowned in all the forum fatwas. The key message is this

“owning a car will cost you money”.

You can work out the cost – add up an estimate of depreciation, maintenance, insurance, fuel, finance charges. Divide by the length of time you expect to own it. That’s your monthly cost. That’s it. Nothing fancier is needed.

You can of course alter the input costs by taking different approaches to ownership routes. Reduce the depreciation by buying used. Reduce finance charges by saving up. Reduce maintenance charges by buying brand new. Look for offers where the cost to rent is less than the cost to buy. Reduce fuel costs by buying a G-Whiz. Ok, maybe some things are a step too far.

None of these approaches is intrinsically better or worse than the others. Different things are suitable for different people at different stages of their lives. Some of the approaches involve more cash out of the door than others – this is not everyone’s highest priority, and is not the sole criteria to make a decision on.

Your finance decision is fairly simple – does that average monthly cost sit comfortably with your financial situation. If it’s too high, is there a way to get it down ?. If not, maybe you have to pass this time, save up a bit, and look again next year.

That's half the traffic of Pistonheads killed in one blow. Cracking post!

[aceparts]

Best post of the decade

[walm]

Newc said:

You can work out the cost – add up an estimate of depreciation, maintenance, insurance, fuel, finance charges. Divide by the length of time you expect to own it. That’s your monthly cost. That’s it. Nothing fancier is needed.

Excellent post.
The only problem with the above suggestion is that people are very confused about how to calculate finance charges when they use savings rather than borrowing the money.

They all think that with £10k of savings they can turn it into £20k with a few months of day trading.
So it ALWAYS makes sense to use finance.

[SirSamuelBuca]

get a 10grand bank loan. Buy second hand sports car that will not depreciate too much and profit.

[Irrotational]

Newc said:

This comes up quite a lot, and always generates the same range of responses, much of which is irrelevant. There are three sets of fundamentalists:

- “The People’s Front of Judea” – They hold that car finance is an unmitigated evil, apparently because you should never ‘finance a depreciating asset’. A counterbalancing list of appreciating assets is never forthcoming, nor is a discussion on how businesses use debt finance and seemingly survive. A splinter group points out that in certain arrangements you never get to own your car, you’re just paying money for nothing.

- “The Judean People’s Front” – Here we observe that for the price of the new BMW 320d you have your eye on, you could get two second hand Ariel Atoms, and why on earth would anyone ever buy a new car when there will always be a supply of second hand vehicles to choose from.

- “The Judean Popular Front” – Naturally there are but few subscribers to this ideology, but it revolves around the idea that you should always finance everything because there are always other investment opportunities available which will simultaneously cover your finance cost, pay for your car, and buy you a packet of larks’ tongues.

Ironically each of these groups does hold a vague truth within their grasp, but the message gets drowned in all the forum fatwas. The key message is this

“owning a car will cost you money”.

You can work out the cost – add up an estimate of depreciation, maintenance, insurance, fuel, finance charges. Divide by the length of time you expect to own it. That’s your monthly cost. That’s it. Nothing fancier is needed.

You can of course alter the input costs by taking different approaches to ownership routes. Reduce the depreciation by buying used. Reduce finance charges by saving up. Reduce maintenance charges by buying brand new. Look for offers where the cost to rent is less than the cost to buy. Reduce fuel costs by buying a G-Whiz. Ok, maybe some things are a step too far.

None of these approaches is intrinsically better or worse than the others. Different things are suitable for different people at different stages of their lives. Some of the approaches involve more cash out of the door than others – this is not everyone’s highest priority, and is not the sole criteria to make a decision on.

Your finance decision is fairly simple – does that average monthly cost sit comfortably with your financial situation. If it’s too high, is there a way to get it down ?. If not, maybe you have to pass this time, save up a bit, and look again next year.

Woohoo - 100 internet points for you! good post!