How can finance be better than cash
- Thread starter pvr
- Start date
1000rr said:
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:
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!
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.
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:
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.
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.
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.
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.
jimmybell said:
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:
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:
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:
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.
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.
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:
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.
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.
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.
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.
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"
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"
