Car buying finance options

[Phil-E30]

Hi everyone, hope you all had a great Christmas!

The Z4MC will be sold in the early part of 2019, as will the X3, and I will be treating myself to something else. Now, all the cars I own have previously been purchased with cash, outright. However, a number of people have started to tell me that there are smarter ways to do things.

Having absolutely no experience of the respective options to finance a car (i.e. whether you end up owning at the end of the finance term etc.) it would be great to get the opinion/experiences of people on here.

Thanks!

 

[Jembo]

Well... firstly I’ve always thought it a ruse to make the list price of a car much higher.

Obvious Upsides
- new car & warrantied motoring for a few years
- if you buy a Volvo or Merc, EU assist, recovery & cortersey car is covered for as long as you service them at a main dealer (priceless)

Downsides:
- their trick is to make the Balloon payment (outstanding capital at the end of the term) as big as possible, thereby making you pay more in interest & of course margin
- NEVER agree the finance on the day of pickup, ALWAYS before... or prepare to be violated
- they have a pa mileage limit, normally 8-10k which is very easy to exceed
- any damage on return will be at your cost to repair... & have heard some picky horror stories
- it is unlikely you will have any ‘equity’ in the car to put towards a new one, so it’s back to ground zero
- obviously after paying £4-6k per year, plus an upfront deposit... you have nothing to show for it at the end
- all finance is based on list prices... yes they offer ‘discounts’ but the purchase price is already heavily loaded

On a personal basis, I did it once, never again.

I’ve found the best deals are to be had in April/May, just after the new reg on pre-registered dealer cars with 200 odd miles... if you can upfront the cash as before. 40% savings are achievable more easily than you think.

 

[TitanTim]

Always difficult and whether you are looking to buy new or nearly new etc. If buying nearly new or second hand from a dealer then I would definitely go with a cheap rate bankloan, never a pcp or HP through the dealer as you're likely to be raped on interest charges, its how they make their money. If buying new and planning to swap out again within 3 to 4 years then a PCP can make sense and depending on dealer, APR rates can be better value than high street loans, I think dealers have had to be more competitive over the years. Also worth looking at end of line surplus stock models on a PCP where the dealer is willing to do a good deal, just to get rid of the car. I've had my last 3 or so new BMWs on a PCP and if planning to change regularly i.e. every 2 to 3 years then put down as little deposit as you can whilst keeping monthlies managable. Most of my PCP's have been on a 4 year term, however I've changed again at 2 years into the PCP and have just about broke even on the amount left owing on the finance. I.e. say at 24 months the remaining finance is 19K and the car is worth that at trade in, then just swap again, however you will need another deposit. Thats the downside as you won't see that again if you keep swapping into another PCP before the term is up. Think I've been luckily in this respect though as generally you will be owing money or have a shortfall. Personally this time around I'm planning on buying my M140i at the end of the PCP term which is 4 years. Plan was to buy a car and keep it mint and do a ridiculously low mileage and buy it off BMW at the agreed balloon payment some where around 13K, for me this works out quite well as I will know the history of the car at 4 years and happy to buy it. My other car a Hyundai i10 is also on a PCP, bought this as as a cheap run about, again over a 4 year PCP which is costing me a 100 quid a month which works out cheaper than using public transport over a month. I think this is where a PCP can make real sense, i.e. cheaper the car the less you lose, whereby a 40K car you're throwing money away in reality but thats the price you pay is you want the badge. I've learn't this lesson now. I think buying a new car outright with cash only makes sense if planning to keep it 10 years or more. I could only really do it if a cheapish new car, the thought of handing over 40k cash on a new car makes me You might also be struggling to get much discount if a cash buyer.

Tim.

 

[R60BBA]

Depends on what you’re buying, whether you’re buying new or used and how much it costs.

I’ll try and break this down into a short simple summary.

There are 3 ways of financing a car:

• PCP - Personal Contract Purchase

• HP - Higher Purchase

• Bank loan

PCP

You put a down a deposit, you pay £XX per month over a set period of time. However you do not own the car until the balloon payment is paid in full (see below).

As a result, you are usually given a maximum mileage limit for the course of the agreement (e.g. 10,000 miles per year). If mileage is exceeded then you pay £XX per mile. The balloon payment is also known as GVF (guaranteed future value), an agreed value on your car once the agreement has been completed (assuming you follow T&Cs - e.g haven’t remapped your ECU etc).

An example PCP deal on the new M2 Competition:

Deposit: £7,767
Monthly payment: £499
Term of contract: 48 months
Interest: 2.9%
Balloon payment: £22,284
List price: £49,805
Amount payable: £30,051
Total amount payable: £53,504
Mileage: 10,000 miles per annum

At the end of the agreement you have 3 options. A) you give the car back B) you buy the car outright by paying the balloon payment C) you trade in a for a new car [what most people do - as by then warranty has usually ran out, the effort of MOT etc]

PCP is usually best suited for new cars where you want to keep your options open and are also given lower interest rates.

HP

You put a deposit down and pay £XX per month over a set period of time. After the agreement is completed you own the car.

An example HP deal on the new M2 Competition:

Deposit: £7,767
Monthly payment: £963.25
Term of contract: 48 months
Interest: 2.9%
List price: £49,805
Total amount payable: £53,504

HP is usually best for new cars which aren’t very expensive / the amount you want to borrow is not significant (£10,000 or under), especially when the interest rate being offered is better than that of a PCP deal or a Bank loan.

Bank loan

An unsecured loan (with interest) of a certain amount over a period of time. Best used if you want to buy a car outright and can get a better interest rate than being offered on a PCP or HP deal by a car finance company.


The above sums up the basic principles of car finance.

It might also be worth noting that when buying a second hand car on PCP or HP, the interest is greatly increased (from 0% or 2.9% to 10% or 14%). In other words these products are better suited for brand new cars.

Good luck in your search

 

[Anonymous]

I got a loan with zopa for my car and it was 2.9%

 

[Phil-E30]

This is all very useful guys. For rough context, a possible consideration is a 2014 Porsche Cayman S, so not a new car. If the interest on the finance is ridiculous then I simply couldn't justify throwing away the money and a bank loan would probably be the way to go. I had wondered about the PCP option and then trading the car in for something different at the end (or choosing to buy it) but it seems that may not be suitable for a car of this age and the likelihood of increased interest rate on payments.

I suspect some further digging is required, starting with looking at a bank loan perhaps.

 

[R60BBA]

This is all very useful guys. For rough context, a possible consideration is a 2014 Porsche Cayman S, so not a new car. If the interest on the finance is ridiculous then I simply couldn't justify throwing away the money and a bank loan would probably be the way to go. I had wondered about the PCP option and then trading the car in for something different at the end (or choosing to buy it) but it seems that may not be suitable for a car of this age and the likelihood of increased interest rate on payments.

I suspect some further digging is required, starting with looking at a bank loan perhaps.

Yes that’s correct, don’t do PCP on a second hand car.

However, surely the money you get from selling your Z4MC and X3 would cover the cost of a 2014 Cayman S?

PS if I were you I’d hold onto that MC as it will be worth a lot more in the future as opposed to a Cayman S.

 

[Trav]

I don't mind PCP type deals if they have a low or no initial payment. But paying a big whack up front then renting is not good. But those type of deals tend to be when a manufacturer is trying to clear a car. Having to come up with that deposit again in a few years time to tread water can be daunting for some.

 

[Zedtastic]

If you have the cash, how can any form of finance be smarter than an outright purchase?

 

[TitanTim]

If you have the cash, how can any form of finance be smarter than an outright purchase?

Finance e.g. a PCP may be better especially on a newer car and if planning to change again as really you are only financing against part of the cars value hence balloon payment end of the agreement. A newer car also depreciates faster so you could weigh up by how much against interest on a PCP. Cash I reckon is only better if planning keeping a car long term I reckon.

Tim.

 

[R60BBA]

If you have the cash, how can any form of finance be smarter than an outright purchase?

When financing a new car, it’s easier to get discounts when you use a manufacturer’s finance company.

Also easier to get better deals on service pack, paint protect and tyre packages etc.

For this reason, even those who are wealthy and can afford to buy £50,000 cars outright, mostly choose to buy new cars on PCP as opposed to outright.

Obviously this doesn’t apply to second hand however.

 

[Phil-E30]

This is all very useful guys. For rough context, a possible consideration is a 2014 Porsche Cayman S, so not a new car. If the interest on the finance is ridiculous then I simply couldn't justify throwing away the money and a bank loan would probably be the way to go. I had wondered about the PCP option and then trading the car in for something different at the end (or choosing to buy it) but it seems that may not be suitable for a car of this age and the likelihood of increased interest rate on payments.

I suspect some further digging is required, starting with looking at a bank loan perhaps.

Yes that’s correct, don’t do PCP on a second hand car.

However, surely the money you get from selling your Z4MC and X3 would cover the cost of a 2014 Cayman S?

PS if I were you I’d hold onto that MC as it will be worth a lot more in the future as opposed to a Cayman S.

I actually intend to give the X3 as a gift to my parents, so "sell" was the wrong word to use for what I'm doing there! Also fully aware that in terms of appreciation/depreciation the Z4MC is a better car to own than the Porsche. But I've had the Z4MC for 4 years now, it's being used very infrequently and I just feel as though the time is right for something different.

 

[Phil-E30]

If you have the cash, how can any form of finance be smarter than an outright purchase?

This is essentially what I was trying to establish, I was also thinking of it in terms of keeping some liquid capital in the short term if any of the finance options made sense.

 

[un1eash]

You can always take the dealer and manufacturer discounts on the finance then pay off the finance after the first month.
There's always the 0% deals, I've just got a 420i GC on 0% with a big discount, why spend the cash if I had it when it could be in the bank earning interest. Unfortunately when buying new cars cash is not always king.

 

[Jembo]

You can always take the dealer and manufacturer discounts on the finance then pay off the finance after the first month.
There's always the 0% deals, I've just got a 420i GC on 0% with a big discount, why spend the cash if I had it when it could be in the bank earning interest. Unfortunately when buying new cars cash is not always king.

I beg to differ... Cash is King, it’s just how you apply it.

Obtaining finance then paying it off is testament to that ;@)

 

[ronk]

I beg to differ... Cash is King, it’s just how you apply it.

Obtaining finance then paying it off is testament to that ;@)

If you can do that and then put what your monthly payments would have been into a separate "car account / Slush fund"

 

[TitanTim]

You can always take the dealer and manufacturer discounts on the finance then pay off the finance after the first month

I know one or two people who have done it that way and have then received a tag/black mark put against their credit rating. Sounds crazy I know as I thought you had a cooling off period :?

Tim.

 

[IRD]

We bought a 330d Touring in 2017. We were offered a discount of £5000 on the rrp and a further £5000 if we took out some form of BMW finance. This we duly did, paying off the interest on the finance at the end of the first month. This amounted to about £600. So the total discount on the deal amounted to £9400, which I didn’t think was too bad. If you have the money cash is still a good way to pay.