How can finance be better than cash

Our local dealership is next to useless. I ended up at peter vardy in edinburgh 4.5hrs drive away. Frazer who i dealt with there was excellent, i'd certainly recommend them/him.
 
1000rr said:
Glyn said:
1000rr said:
Be careful about cancelling finance... it goes against you on your credit rating.

I bought a property 5 years ago at auction, got a loan for it over 5 years at 1.4%, and the sale fell through due to the receivers who where selling at auction made a mistake. I re-cindered the loan within the 14 days cooling off period, as i didnt need it anymore. 1 mth later, it went to auction again, so bought it, went to the bank as before for the loan over the same 5 year period, and interest went upto 12.8% as it affected my credit rating! It's classed as default apparently.

Sorry that's not true about a withdrawn finance agreement being classed as a default, a default is when you have missed a number of payments and the lender closes the account. A withdrawn agreement will not adversely affect your credit history but the lender may have risk scoring which treats you less favourably in the short term, hence the higher APR. HTH.


So the bank (lenders) told me..... I'm paying 12.8% now after recindering. Didn't miss a payment, paid the amount back in full over the phone. No interest incurred. Got hammered on the new loan. I'm talking about a loan, not finance, but was told that arranging finance and/or a loan, and not incurring interest by either cancelling ( which I did) or paying in full before the term agreed, goes against you. A bit like paying off a mortgage earlier than full term, you'll always encounter a fee some way or another.

A loan is a form of finance but I know what you mean, the key thing is that a default is a serious negative marker on your credit history which stays for 6 years and all lenders can see this when you apply for credit and may make obtaining credit harder or at a higher rate. Your bank won't have defaulted your cancelled loan, what will have probably happened is that your banks internal credit scoring took into account your recent loan cancellation as a negative factor and offered you the higher rate on the new loan. Typically banks like you to wait 6 months before a new loan application is made after an initial application or cancellation but in this case they allowed it but with the higher rate.
 
Glyn said:
1000rr said:
Glyn said:
Sorry that's not true about a withdrawn finance agreement being classed as a default, a default is when you have missed a number of payments and the lender closes the account. A withdrawn agreement will not adversely affect your credit history but the lender may have risk scoring which treats you less favourably in the short term, hence the higher APR. HTH.


So the bank (lenders) told me..... I'm paying 12.8% now after recindering. Didn't miss a payment, paid the amount back in full over the phone. No interest incurred. Got hammered on the new loan. I'm talking about a loan, not finance, but was told that arranging finance and/or a loan, and not incurring interest by either cancelling ( which I did) or paying in full before the term agreed, goes against you. A bit like paying off a mortgage earlier than full term, you'll always encounter a fee some way or another.

A loan is a form of finance but I know what you mean, the key thing is that a default is a serious negative marker on your credit history which stays for 6 years and all lenders can see this when you apply for credit and may make obtaining credit harder or at a higher rate. Your bank won't have defaulted your cancelled loan, what will have probably happened is that your banks internal credit scoring took into account your recent loan cancellation as a negative factor and offered you the higher rate on the new loan. Typically banks like you to wait 6 months before a new loan application is made after an initial application or cancellation but in this case they allowed it but with the higher rate.

Yes. In hindsight, and if I was a soothsayer and could see that we would get the property a month later, then I would have kept the funds released by the bank in my account. When the property failed to be purchased by me, the funds weren't needed, so they got paid back immediately..... temptation and all that...in full. Little did I know that after having another loan for the same amount with the same liabilities 28 days later, would cost me another 11%! I've already put it down to experience and certainly won't be making the same mistake again..... I've never defaulted on any loan or mortgage, missed payments or been overdrawn in 30 odd years since I've had a bank account. They never make money from me, that's for sure!

Take my example as experience, at least you know now... I wish I did.

Chin chin! :thumbsup:
 
Spot on with my mindset Tom. I didn't have the patience to write as articulately to get the same points down .. about ALL of that. I fall into the single (well financially anyway) , renting away from home in an expensive place without a lump of a house deposit at my disposal from any family members yet bringing in a very healthy income. It sucks.

It's a generational thing to a degree. We've been twatted with more things than I can be bothered to list financially , compared to my parents. Ranging from university fees, to the endless recession , to pension schemes changing for me, wages not going up , house prices having a laugh. It really is a very different world for us.

My Z is mine. My daily is on lease. If I had 30-38k sat in my bank to dispose of on a daily car, to get perhaps half of that back in 3 years after a head ache of selling it, i still wouldn't. Instead , spread the depreciation over a 2 year lease, drive a nice reliable (so I don't lose money by missing work through break downs, MOTs etc) car that cheers my day up after a whirlwind of crap at the office.






tomscott said:
I think its a bit mean insinuating nobody should buy a car without finance. It perfectly fine as long as you understand the costs.

Its a normal acceptable way now-a-days for people to have something they want and spread the cost, it doesn't mean you cant afford it but with everything a person needs and 26k being average wage in the UK, with statutory work place pensions and an average of 25k student loans for most you may bring home 16-1800 a month. Its not much, especially if you don't have a spouse.

Maybe it was different for you guys but as a 29yo whos just got on the ladder its not easy.

The UK average house cost is 272k. MOST lenders want 20% deposit off you so that's a 55k deposit (although some will still take 10%). Say you aren't living at home and renting and single, the uk average rent is 800 and you have no help from your family and with the average wage how does anybody afford to have anything but the essentials? Add on top of that bills, phone, insurance, tax, tv licence etc etc It does not leave a lot left at all!

That's without even adding a car, car insurance, tax and petrol into the equation.

How long would it take someone to get to that sort of deposit with the above? You would be broke for 5-10 years! Then an average mortgage of 30 years you will be in your 70s before its finished.

That's why many people now a days live with their parents for so long. In reality more than one in 10 adults are still living with their mother and father at the age of 40.

40!!!!! :|

Similarly, the average youth aspirations of earning more than £30,000 a year by the time they reached 31, but for 71% this dream has yet to become a reality.

The average cost in the UK of a brand new car is 18k. Which is why many cant afford to simply put 500 a month away and afford the car in 3 years time.

So I suppose what I'm trying to say is that most will accept that ye it will cost me more, but I can have what I want without having to either break into the fall back fund or wait 3-4 years to save to buy it outright.

Ive had 4 cars on finance which I'm not upset about. I ended up with good deals and without would have had to be much older to have the cars ive owned. Ive also had a couple of credit cards since I was 18 which I was advised to do to aid with credit history but used carefully. They were always paid on time and usually used for fuel etc

Credit is one of life's great Catch-22s. Especially for younger people that weren't gradually brought into the world of credit, with everyone throwing it at you left right and centre.

Let's say you're fresh out of school and want to get your first credit card. You fill out the forms and wait for the reply, only to find out a few weeks later that you've been rejected. Why? Because you DONT have a credit history. How do you establish a credit history? Well, you get a credit card, of course...

How is a bank loan granted, how is a mortgage granted, how is any finance granted? Credit history. Many of my friends have been denied simply because they don't have a credit history thinking they were smart not getting any credit at all.

The difference with car finance is that it is all in the vehicle, if people default the car is retrieved. If you take a bank loan then they will take the value of. Not specifically the car. Another reason people living on the edge take finance.

Before everyone flames me this is all hypothetical.

Obviously the absolute ends of extremes but when you break it down that's why people think - What can I afford per month.

What is bonkers is that these quoted figures are the AVERAGE costs in the UK and it is quite scary.

I suppose the amount of people who actually buy new cars over used is smaller because of the premiums you loose in the first 3 years. Many wont pay 800 for rent and will have a flat mate, not all average houses are 270k, not everyone has a student loan and many wouldn't push themselves to that extreme of financial collapse.

When you break it down similar to how a mortgage advisor does with your essential outgoings and whats left over is why many people see what can I afford per month. Obviously not everyone is in the same situation and as we are on a sports car forum that pretty much makes us all in the fortunate boat.

With my recent experience of buying a house and having to borrow nearly twice as much as my parents did 25 years ago is scary.

Anyway my post has no relevance to the thread just a reason why finance is an attractive option. To the point now where cash is not seen as positive because dealers will make money on the finance.

Whats more interesting is the trend of finance on appreciating older cars. Theres a reason Hexagon and others are buying up older Z4Ms and selling them for such a premium. They are appreciating, are nearly double what they were 3-5 years ago. They can charge a higher rate of interest as its a used vehicle, in 3 years they will not have depreciated and then will re-wrap them up in similar policies after giving poor trade in values because its an 'old car', Genius really.
 
On the finance question what I would like to add is a story from my father in law.
He had a friend he worked with and every so often he would let slip something that he had bought, a new TV , A new stereo, a new washing machine and they all thought he was mad because he would have it on credit and pay it off over a year or possible longer. The long story short was that after about 5 years my father in law and his mates didn't have much to show for themselves but this guys had a fully fitted out house. And yes it did cost him more, but it was a way of getting the items he wanted, so if you've got the cash to buy the TV or car or whatever then go for it, but if using the PCP , PERSONAL LEASE or whatever credit gets you item and YOU CAN AFFORD IT! . Then why not, after all you are a long time dead.

:thumbsup:
 
I'm sure I read somewhere that 9 out of 10
supercar purchases are arranged through finance.
So it's not always a case of someone not being able to afford it. I think sometimes if you have something else you can invest the capital in that will generate a decent return by financing you are getting either a free or very cheap loan.

Let's say I buy a new 991. Instead of forking out £100k cash to buy i choose to place a £30k deposit and do a PCP with balloon. The £70k initial saving in capital can be reinvested in something that will appreciate and provide an income to offset against the interest charges on the PCP I've just taken.

I can't remember who it was who said "if it depreciates lease it if it appreciates buy it". It's not a bad rule of thumb.
 
pvr said:
TitanTim said:
There is just no way I would have slapped 38K of my cash on the salesmans desk for my M140i.
PCPs are very useful so long you get the discount and make them work for you.

Tim.

But we paid 31k for the same car / spec though with cash - so in effect, you paid 7k for the loan?

I paid nowhere near 38k pvr, think it was 29 with discount and a little positive equity from the 135i, I put 4k in which was for the extras on the car. I would just baulk at handing over 29k in one go :o

Your still a loser as a cash buyer or using finance.

Tim.
 
jimmybell said:
Convenience, accessibility/impatience and avoid having tonnes of cash tied up in a heavily depreciating asset. Horses for courses, depends on your situation why you might find financing useful.

This topic is as old as time over on PH, and typically you get the 'finance is for poor people who cant afford the cars they buy' vs 'its a tool to enable people to do stuff' people arguing both sides, and those that have cash and hate that people with less cash/less flush can buy the same car as them.

My question was not regarding finance versus cash from an affordability point, but how finance could cost you less overall than paying for cash for the car. That is the bit I do not understand, i.e. who is taking the hit or is the finance company really getting the car much cheaper somehow.
 
pvr said:
jimmybell said:
Convenience, accessibility/impatience and avoid having tonnes of cash tied up in a heavily depreciating asset. Horses for courses, depends on your situation why you might find financing useful.

This topic is as old as time over on PH, and typically you get the 'finance is for poor people who cant afford the cars they buy' vs 'its a tool to enable people to do stuff' people arguing both sides, and those that have cash and hate that people with less cash/less flush can buy the same car as them.

My question was not regarding finance versus cash from an affordability point, but how finance could cost you less overall than paying for cash for the car. That is the bit I do not understand, i.e. who is taking the hit or is the finance company really getting the car much cheaper somehow.

It doesn't pvr as your not loaning the money so to speak but I don't think you would get as sweeter deal on a new motor when paying cash, it just isn't king anymore with dealers. I'm happy to pay the interest on a PCP as would rather use monies on other things than sinking it all into a freefall depreciating asset.

Tim.
 
original guvnor said:
I'm sure I read somewhere that 9 out of 10
supercar purchases are arranged through finance.
So it's not always a case of someone not being able to afford it. I think sometimes if you have something else you can invest the capital in that will generate a decent return by financing you are getting either a free or very cheap loan.

Let's say I buy a new 991. Instead of forking out £100k cash to buy i choose to place a £30k deposit and do a PCP with balloon. The £70k initial saving in capital can be reinvested in something that will appreciate and provide an income to offset against the interest charges on the PCP I've just taken.

I can't remember who it was who said "if it depreciates lease it if it appreciates buy it". It's not a bad rule of thumb.

Agreed guvnor, this is a sensible approach if you can afford to buy it outright but simply choose not to for that reason. When I bought Zedric I had the finances to buy it in cash but chose to pay half up front and was lucky enough to take a 0% loan from the Bank of Dad for the rest so that I didn't wipe myself out, enabling me to do as you have suggested. However most people don't have the savings to even have that choice, they crack on with the finance deal as soon as they have the deposit together and there is no initial saving in capital to reinvest.

Plenty of valid points for and against been mentioned already, it's all dependent on personal situations, requirements and desires. It does seem to me though that generally the population is swaying too far towards 'buying' things they can't yet afford though!
 
pvr said:
jimmybell said:
Convenience, accessibility/impatience and avoid having tonnes of cash tied up in a heavily depreciating asset. Horses for courses, depends on your situation why you might find financing useful.

This topic is as old as time over on PH, and typically you get the 'finance is for poor people who cant afford the cars they buy' vs 'its a tool to enable people to do stuff' people arguing both sides, and those that have cash and hate that people with less cash/less flush can buy the same car as them.

My question was not regarding finance versus cash from an affordability point, but how finance could cost you less overall than paying for cash for the car. That is the bit I do not understand, i.e. who is taking the hit or is the finance company really getting the car much cheaper somehow.

I did wonder after 4 pages of thread if this would rerun to your original question and not so much about personal preference and the merits or not of credit.
The bottom line is an entire industry is driven to get people onto an affordable monthly repayment, not the total cost of the car. Manufacturers offer big discounts to get people on their new car treadmill, dealers make big commission and few people settle out early as they become comfortable. They upspec cars end up returning to trade in early on pcp's or want a new car before they settle the full term of finance.
Dealers and manufacturers don't want cash sales as much as finance so discounts are way less.
The discounts will always outweigh the small amount of interest if you get the right deal or low APR or settle early.

Separately society has switched to how much per month can I afford not what is something costing. That's the way people buy almost everything these days from loans to holidays, houses and cars. I know as I was part of the lead to that switch in lending to affordability and payment, not need.
 
I guess it really depends on where you live.

I live in Malaysia which is the second most expensive country to own a car behind Singapore. Average wage for people under 25 is around RM 5k. Our cheapest new car is probably around RM 40k. There is almost no way for young people to own a car using their money out right. With 5k-1k we can probably get a 20 year old rubbish that barely works and isn't safe.

Compare that to the Brits where you can easily earn 5k GBP. Save for a few months and you can get 10k GBP which can really get you some decent cars. I was lucky enough to able to do my Masters in Leeds and get a Z4 and ship it over to Malaysia for cheap lol.

But yeah, I don't know why people need to resort to finance in the UK.
 
Maybe I didn't explain myself clearly enough. If we assume that a buyer has the financial means to either buy the car for cash or to finance it, the finance v cash argument is a simple case of investment appraisal. If you're familiar with a discounted cash flow (DCF) and Net Present Value (NPV) you can work it out on a fairly simple spreadsheet. For many finance users that isn't the case though - they don't have the means to buy the car outright and therefore there is no decision to make. In your case I would recommend you do the DCF.

In my example of buying a £100k 991 for cash over placing a £30k deposit and doing finance/PCP, what you have to consider is the opportunity cost of investing the extra £70k of capital upfront on the car. That £70k cannot earn you anything if you spend it on the car (assuming the car would depreciate as most cars do). So how much could the £70k earn you over the life of the finance agreement? The potential income you forego by using the £70k on the car is the opportunity cost of doing so. If you invest it, and make more return than the interest paid on the finance over the life of the agreement, it will be cheaper to finance than buy outright. That's before you factor in any additional discount or incentives that are only available if finance is taken.But it's easier said than done!

As I said in my first response that's why so many very wealthy supercar buyers take finance. It's not that they haven't got the money. They've just got somewhere to invest it that is better than a depreciating asset.
 
We've just ordered a new Mini on a PCP deal. We negotiated just over 3k off the 25k asking price.
When you add up all costs, deposit 2k ,repayments and balloon payment it will come to ,surprise surprise, 25k.

Buying a new car is a luxury and there is no way we could afford to, or want to buy it out right. If at the end of the agreement there is enough equity in the car to do the same thing again then great.
Also we have a few years of worry free driving, no MOT's or surprises costs if something goes pop.

Why would you save really hard for a few years then spend it all on something that will loose 35% of its value in one year when you can get what you want now?

It would take us 6 years to save up for this car at the rate we are paying for it, and during that time we would still have to run another car which would probably cost more to run than a new one so that's money down drain too.

It's a no brainier for us.

The Cooper S 5 door arrives at then end of this month, can't wait! :driving:
 
I guess if you have the money to buy outright then that's always a good thing. Unless you don't have the money and like the idea of a new car every 4 years.

For example px my smart car £1k plus £3k cash for my Z. I'm paying £216 per month for 4 years which comes to £10,368. The car was nearly £19k You can usually haggle for 2 years free serving and if it's new enough it's under warranty.

They value the Z at around 7k in 4 years time if I do 8k miles a year. I usually do half that so my Z should be worth more. If it's worth more they take that amount off the remainder and I pay that, or I can give the car back and get the value of the car off a new car and start the payments again.

I don't think I could buy a Z outright. If I had that money then I'd get a mortgage. This way it's more like an expensive phone contract with upgrade every 4 years.
 
The wife has just done a deal on a new 1-series and its was my first experience of finance. I was quite suprised by a few things:

1) A £1k deposit would make you worse off than a £3k deposit, over the 4 years.
2) A new car is cheaper than nearly-new (up to 1yr old).

It really is a case of forgetting what would be common sense and looking at the figures in plain sight. It mostly seems to revolve around the manufacturers wanting to shift units - especially at this time of year. BMW had 5 units of our exact model (colour, spec, options) gathering dust in sheds in the UK.
 
So, to ignite this older thread, I'm considering chucking in my Q5 7 months shy of the 49 month finance. (yes I have paid £410 per month for the last 42 months! - but I get a £700 per month CA from work - someone's going to mention tax...)
I have two questions

1: I assume the question about cancelling early/defaulting wouldn't negatively affect my credit rating - that seems to have been closed, but want to check?
2: I understand that you can cancel finance packages once you've passed the halfway point, with that being true has anyone ever handed it back and then tracked it through auction to buy it back again - in theory at a lower price?

I called Audi back at the 36 month mark and they told me my car was worth £22,980 - I had £22,900 outstanding!! :rofl:
"Where should I spend that £80?", I immediately thought :lol:

Not wanting to go back into the finance cycle again, I was wondering about this clever option.

Knowing that ex-finance cars going through auction (this one especially as Audi Finance have told me the process is contacting BCA by email to collect) I've had some success in the past and have won three of my cars e90 M Sport, Vaux Astra, and my Z this summer. All excellent purchases and no horror stories - so I wondered if anyone has ever bought their car back? Surely no car is a dead-cert quite like buying your own car back!! :rofl:

In theory the car should be cheaper than the finance left on it - or that's what I'm seeing on Autotrader.
I'm sure someone must have done this, would be interesting to hear any stories.
 
-Tom- said:
I'm pretty sure that they get a healthy commission on the finance product that they've sold too, so can feed that back in with incentives.

My Daughter sells cars and the man is right, the sales person gets a kick back and the company as well so they don't like cash buyers, gone are the old days :)
 
So, one of my best mates runs the local mid range german marque dealership. Here's how it works for a typical sales exec there...

1- sell a car and get £50 commission (regardless of whether a £60k top end car or £8k starter)
2 - sell it on finance and get £50 commission
3 - sell gap insurance and get £50 commission
4 - sell paint protection and get £50 commission
5 - get a 90% customer satisfaction score and get £250

The dealer earns very little in selling a new car, they actually make more 'profit' in selling a used one. A dealership will get bonus payments from the manufacturer on shifting product volume and finance packages.

So, a car dealership is all a total front for selling finance packages. The statistics will show once people sign up for the initial car they'll 'on average' buy 3 more cars from the same dealer...all on increasing finance deals. People sign up to 3/4 years deals but on average want to change their car after just 13 months, so head back into the dealer to sign up to a fresh finance agreement, but with way less bargaining power. The reason they promote a better price on the 'new' car is to sell long term finance and get you hooked into 15 years plus relationship in providing the finance house with that monthly payment.

People like 'us' are the worst deal for a dealer, buying a used car with no finance and no obligation to go back to them to take a new finance deal. It's funny when people on here moan about a dealer making £3k mark up profit on a used car.....who in their right mind thinks they can make money running a huge expensive dealership making such little money on selling a car???

Jay Z said it well...."If you can't afford to buy it twice, you can't afford it"
 
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