Best way to finance a car....

[tjdixon911]

I am looking to buy a new car, but have got a little confused with financing.

In the past I have just taken out a personal loan for the amount of Finance, therefore the car is essentially paid for and can be sold at any time before settling the loan - is this a Safe option as a Home Owner, if for whatever reason I couldn't pay would they come after my house or the car? For the deposit and type of car I don't see me going into negative equity.

A lot of dealers are offering the PCP option - I kind of understand this now, BUT, there is a maximum mileage of 25k, in the last year I have covered 35k but this could change alot and reduce to 20k dependant on my work location - also if the car is only worth the GFV then I have lost any equity (deposit) in the car....

Straight forward HP - works out slightly more expensive than the personal loan but is it a safer option?

Looking to finance about 14-15k, and keep the car 4-5 years possibly longer......

Are there any decent indipendant finance companies I could try as opposed to the dealers?

Thanks

[V8NRG]

Best way to finance a car............ Cash !

If you do get a personal lone, it would be unsecured, so if you default on payment they wont be able to take your car or house (without taking you to court first).

Thats my understanding anyway.

[Eric Mc]

Are you an employee or do you run your own business?

[pgilc1]

plug in 'cheap loans' to google.

then use the cheapest rate to beat down your car dealer with.

I got 4% flat rate out of the main dealer on a new passat.

[pgilc1]

V8NRG said:

Best way to finance a car............ Cash !

Not necessarily...

(a) it depends what the money is otherwise doing for you. If its just in regular low interest bank account, then yes, but if its 'working' for you (as mine is as we're building a new house at the moment) then maybe not.

(b) often finance deals are heavily subsidised by the manufacturer - mercedes do this - often putting in maybe £7.5K into a PCP for you meaning its cheaper to PCP some of their cars over two years than take the hit at resale time if you bought with your own cash.

(c) with a PCP deal you have a guarantee as to the minimum the car will be worth - not so favourable now but lots of people handed back their BMWs at the end of their PCP deal as the market had crashed so much leaving BMW out millions.

(d) you have termination rights with a hire purchase agreement - if car values go due south again it may be worthwhile to hand a car back after 50% has been paid.

(e) the more expensive the car is the less palitable tying up your own cash is. Buying something at £2K is all well and good, but using up £50K of your cash reserves for a car doesnt make as much sense as budgeting for a monthly payment.

(f) in the words of someone rich and famous 'if it appreciates buy, if it depreciates lease (or finance it)', ie, your costs are controlled.

[pgilc1]

tjdixon911 said:

I am looking to buy a new car, but have got a little confused with financing.

In the past I have just taken out a personal loan for the amount of Finance, therefore the car is essentially paid for and can be sold at any time before settling the loan - is this a Safe option as a Home Owner, if for whatever reason I couldn't pay would they come after my house or the car? For the deposit and type of car I don't see me going into negative equity.

A lot of dealers are offering the PCP option - I kind of understand this now, BUT, there is a maximum mileage of 25k, in the last year I have covered 35k but this could change alot and reduce to 20k dependant on my work location - also if the car is only worth the GFV then I have lost any equity (deposit) in the car....

Straight forward HP - works out slightly more expensive than the personal loan but is it a safer option?

Looking to finance about 14-15k, and keep the car 4-5 years possibly longer......

Are there any decent indipendant finance companies I could try as opposed to the dealers?

Thanks

Dealers often have access to cheap rates, but they need to be prompted to do so.

Also, many manufacturers subsidise their deals with a cash injection so it can be an idea to check out what deal the manufacturer has on.

[Scooby72]

pgilc1 said:

V8NRG said:

Best way to finance a car............ Cash !

Not necessarily...

(a) it depends what the money is otherwise doing for you. If its just in regular low interest bank account, then yes, but if its 'working' for you (as mine is as we're building a new house at the moment) then maybe not.

(b) often finance deals are heavily subsidised by the manufacturer - mercedes do this - often putting in maybe £7.5K into a PCP for you meaning its cheaper to PCP some of their cars over two years than take the hit at resale time if you bought with your own cash.

(c) with a PCP deal you have a guarantee as to the minimum the car will be worth - not so favourable now but lots of people handed back their BMWs at the end of their PCP deal as the market had crashed so much leaving BMW out millions.

(d) you have termination rights with a hire purchase agreement - if car values go due south again it may be worthwhile to hand a car back after 50% has been paid.

(e) the more expensive the car is the less palitable tying up your own cash is. Buying something at £2K is all well and good, but using up £50K of your cash reserves for a car doesnt make as much sense as budgeting for a monthly payment.

(f) in the words of someone rich and famous 'if it appreciates buy, if it depreciates lease (or finance it)', ie, your costs are controlled.

Some good points, but i'm old fashioned.

I don't like debt, I don't like paying interest, especially on a depreciating asset.

I prefer to keep it simple and pay cash, as the chances of me earning a higher interest rate on my savings than I'm paying on a loan are virtually zero.

[ringram]

Plenty of manufacturers offer 0% interest, which is free money, so why not finance on that basis?

[Scooby72]

Yes but 0% will no doubt be in lieu of a discount.

They'll screw you one way or the other.

[BIGDAI]

Not necessarily - lots of 0% offers about (varying levels of deposit though) but since they are manufacturer backed there is no reason you shouldn't get a "cash" discount too - haggle hard, times are tough for the dealers & they need to hit their targets.

[pgilc1]

If you were otherwise buying cash, then you'd be silly to pass a 0% deal by. Often though they require 40-50% deposit which wont suit a lot of people who would otherwise be looking for straight finance.

0% seems to be more of a 'mainstream' deal. Often manufacturers like BMW & Mercedes will put cash amounts into the finance deal which is worth looking out for too.

[pgilc1]

Scooby72 said:

Some good points, but i'm old fashioned.

I don't like debt, I don't like paying interest, especially on a depreciating asset.

I prefer to keep it simple and pay cash, as the chances of me earning a higher interest rate on my savings than I'm paying on a loan are virtually zero.

Yes, fair comments too. I guess it depends on circumstances etc. I bought my last couple of cars cash (around £3000 each) but found i wasnt getting the reliability i needed for commuting to work each day (stupid things going wrong, suspension joints etc) so I've financed my next car and went for new.

Edited by pgilc1 on Sunday 20th December 11:33

[sidicks]

pgilc1 said:

I got 4% flat rate out of the main dealer on a new passat.

It's been discussed many times before, but the key points to remember are:
1) Typically paying cahs is best, as rarely is the financing cost cheaper than the 'risk-free' return that can be achieved on the funds retained
2) 0% APR / manufacturer-subsidised finance deals are the exception to 1), providing that these do not replace a discount that would otherwise be achieved for a cash purchase
3) Flat Rate is meaningless and APR is the appropriate basis on which to compare loans to see which the best value (and to compare against interest achieved on savings)
4) A PCP can produce a higher 'total cost of credit' in £ terms than a straight loan even if they have the same APR, due to the back-loaded timing of payments under a PCP

- Do some research on the best finance deals available on the net (remember, APR is key)
- Negotiate with the dealer on the basis of a cash purchase
- Then once you are happy with the price, only then discuss finance terms

Sidicks

Sidicks

[rfisher]

What kind of discount should you be able to screw out of a dealer if you buy 2 cars from them at the same time?

May need to do this soon as SWMBO's car and my daily commuter are essentially knackered.

[amir_j]

cash on a newish but used car for most, cash for new for the privelaged.

Finance is vanity.

[pgilc1]

sidicks said:

pgilc1 said:

I got 4% flat rate out of the main dealer on a new passat.

It's been discussed many times before, but the key points to remember are:
1) Typically paying cahs is best, as rarely is the financing cost cheaper than the 'risk-free' return that can be achieved on the funds retained
2) 0% APR / manufacturer-subsidised finance deals are the exception to 1), providing that these do not replace a discount that would otherwise be achieved for a cash purchase
3) Flat Rate is meaningless and APR is the appropriate basis on which to compare loans to see which the best value (and to compare against interest achieved on savings)
4) A PCP can produce a higher 'total cost of credit' in £ terms than a straight loan even if they have the same APR, due to the back-loaded timing of payments under a PCP

- Do some research on the best finance deals available on the net (remember, APR is key)
- Negotiate with the dealer on the basis of a cash purchase
- Then once you are happy with the price, only then discuss finance terms

Sidicks

Sidicks

Totally agree with everything except on the APR side of things. Flat rate makes sense to me in that the interest payable on a 4% loan would be calculated by multiplying 4% by the number of years, so say 5 years = 20% and then adding that 20% to the loan amount, and dividing by the number of months to work out your monthly payment. You cant easily work out how much the payments will be if you only have the APR figure.

The confusion normally arises when a dealer quotes 'flat' rate but the buyer is comparing that to an APR rate, so the buyer thinks they're getting a better deal.

For the record, i used www.moneysupermarket.com and found the cheapest deal on the loan i needed (7.9% APR, which translates to 4% flat) and then asked the main dealer to match that. They did come down to that figure which is worth bearing in mind - the dealers often *can* match the best deals out there if you squeeze them on it.

Also, i very much negotiated on the price first, then the finance. That way i ended up getting £3750 off a new Passat Bluemotion which has a list price of £19500. That 19% off which was way better than the brokers could do and ended up being less than some dealers were charging for a year old car. Also, they're keeping it in their showroom to register Jan 2010 and paying the 2.5% extra VAT for me. All that with the convenience of buying from my local VW dealer round the corner from where i work (ie, not a broker) AND getting the best finance rate too.

Its definitely worth working hard for the best deal and if you dont think you're getting it, go elsewhere.

Edited by pgilc1 on Wednesday 23 December 09:25

[pgilc1]

Paddy_N_Murphy said:

doesn't finance mean you can't afford it?

No, finance means you're budgetting an amount each month for the car. If you use a PCP deal on a new car, then you have a set monthly amount outgoing to cover all repairs (because its under warranty), breakdown cover (usually with new cars) and covers your depreciation as well.

There are merits in that, and it really shouldnt be sniffed at as 'cant afford it'.

[bogie]

isnt PCP just like renting a car, with the option to buy at the end...if youve saved up enough cash by then...as well as "affording" the payments ...thats what catches most people out I think

[Dr Jekyll]

pgilc1 said:

Paddy_N_Murphy said:

doesn't finance mean you can't afford it?

No, finance means you're budgetting an amount each month for the car. If you use a PCP deal on a new car, then you have a set monthly amount outgoing to cover all repairs (because its under warranty), breakdown cover (usually with new cars) and covers your depreciation as well.

There are merits in that, and it really shouldnt be sniffed at as 'cant afford it'.

If you buy a new car (or under some used approved schemes) you get the warranty and breakdown cover in any case. Nothing to do with whether you use finance.

[tjdixon911]

Thanks for all the replies on here, there are some good points, anyway I have purchased a Scirocco, its a 2nd hand one so should be picking up soon, currently in the hands of the DVLA with the reg transfer...

Anyway I went to the dealer with the best finance deal (personal loan rate) I could find and they matched it on a straight HP, I worked out the cost of the car on a PCP if I was to buy outright and I didn't like the figures!

This is essentially my company car, which I receive an allowance from work for, this is the main reason I buy on finance.

Cant wait to get the car now