Hard cash or finance?

[Coolhurst]

When purchasing a car surely it's better to clear the debt and pay cash? Or so i thought. Worries about the 'remember it's a depreciateing asset' thing combined with 10 mins of a BMW finance manager's time and things take on a whole new twist. Salesmanship aside, it did get me thinking.

E.g. Car costs £30K, you put in £20k cash and take on a loan of £10K over 3 years @3.5% interest (c.£350 interest p.a.). Simply by sticking the same amount (£10K) into a high interest account could yield c.4.5% growth. Too obvious when put like that but I'm sure I'm missing something here!

Maths isn't a strong point of mine so all views welcome.

[JamieBeeston]

Thats fine, so long as you can find Finance at 3.5% APR


it makes selling the car a PITA, between now and clearence date, aside from that, its quite sensible,

again, if you can get the rates.

[ATG]

If you really can get positive carry, i.e. deposit rate higher than a borrowing rate, even after you factored in any additional expenses, then you should do it. Very rare you can do this, but if someone is doing a promotional offer or similar, then these opportunities do arise. (Mate borrowed on mortgage and deposited at a higher rate a few years back.)

[Coolhurst]

Having done some further research, including past threads on PH, it seems this is a question with no single answer. All in all I think cash is king unless you're happy to take some serious risks with your capital over the long term.

[JamieBeeston]

Coolhurst said:

Having done some further research, including past threads on PH, it seems this is a question with no single answer. All in all I think cash is king unless you're happy to take some serious risks with your capital over the long term.

Sure,

UNLESS, you get a better rate from a savings account that your fincance, in which case its a no brainer.

but like has been said, that doesnt happen often.

[Seesure]

The other choice is to use the 0% credit card offers, use a card that offers credit card cheques (e.g.MBNA who will charge upto £35 for the use of the cheque) to buy the car, then immediately transfer the balance to a 0% card for 6 months (e.g. MINT or EGG) paying what you want each month then transferring the balance to another card over at the end of the intro offer.

At least this way you've still got your capital earning you interest ..

[Zod]

JamieBeeston said:

Coolhurst said: Having done some further research, including past threads on PH, it seems this is a question with no single answer. All in all I think cash is king unless you're happy to take some serious risks with your capital over the long term. Sure, UNLESS, you get a better rate from a savings account that your fincance, in which case its a no brainer. but like has been said, that doesnt happen often.

If you can do this, then you are probably a bank.

[JamieBeeston]

Zod said:

If you can do this, then you are probably a bank.

I seem to recall audi doing a 3% Finance deal a while back, and there are always the seasonal 0% Deals (tho typically on hugely depreciating models)

still, the question was asked

[sidekick]

Just make sure they're quoting %APR (which is the figure that matters) and not % flat rate. I would think that 3.5% would be the flat rate, which works out at something around 7.9% APR, and you won't be able to invest your cash at that rate of return unless you play the markets (and win of course!).