How can finance be better than cash
- Thread starter pvr
- Start date
jamie_z4 said:srhutch said:
it seems every dealer is like this now, its like they are pre programmed just to ask whats your monthly budget, like a computer repair hotline saying 'have you turned it off n on again'
They are pre programmed!
Well nearly, they certainly trained to work to a script/sales process.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.
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.
too many variables to outright rule out finance sometimes.. very much depends on your negotiating on cash buy, your individual circumstances and overall strategy/financial plan.
the save and buy theory is often seen as unreasonably 'better'. if you wait a year, or finance a car for a year - have you not worked just as much for it and have the same satisfaction? Say it takes a year to save for the car in cash vs a 3.5 year finance deal. that's a year where I wouldnt be enjoying driving the car, a year putting cash into maintaining and depreciating another car (which in theory could potentially pair up to the interest paid) and a years cash wiped out in one hit when you eventually buy.
If you can afford the finance then it's still living within your means no less than getting a sensible rent deal on a house is and I'd sooner have cash saved rather than blow it all on a car personally. That's not to say I like finance, I won't take it out again but I've done it once to put me in the position of not having to moving forwards..
It can work out much better, you just have to think it through..
I bought my Z4M for approx $60k in finance albeit used, 70k all up over 3.5 years. In that first year, the 60k cash that would have gone towards the car went towards the business and investments which grew by approx 25%.
Say the Z4M Depreciated by 10k in the first year, If I sold the car for $50k I would be $10k out of pocket.
On finance after a year I was -17k through payments, +15k from the cash set aside which basically paid for said finance, with a 50k asset which had $50k owing. All things being equal if I sold up it would be a case of outright: $10k out of pocket. Finance: $2k out of pocket..
Say the same trend continued, and I sold the car in year 3.5 for 40k but made a similar return each year on the invested cash; buying the car this way I would have spent 70, sold for 40 (losing 30k on the purchase). But I would have also earned 52.5k from having the cash aside.
Outright - I would have simply spent 60, lost 20 and ended up with 40k in my hand.
I'm currently considering buying my next car in the same way to maintain accesible cash. I can afford to buy it outright - but I can afford to finance it, retain cash for emergencies, properties or investing too.
the save and buy theory is often seen as unreasonably 'better'. if you wait a year, or finance a car for a year - have you not worked just as much for it and have the same satisfaction? Say it takes a year to save for the car in cash vs a 3.5 year finance deal. that's a year where I wouldnt be enjoying driving the car, a year putting cash into maintaining and depreciating another car (which in theory could potentially pair up to the interest paid) and a years cash wiped out in one hit when you eventually buy.
If you can afford the finance then it's still living within your means no less than getting a sensible rent deal on a house is and I'd sooner have cash saved rather than blow it all on a car personally. That's not to say I like finance, I won't take it out again but I've done it once to put me in the position of not having to moving forwards..
It can work out much better, you just have to think it through..
I bought my Z4M for approx $60k in finance albeit used, 70k all up over 3.5 years. In that first year, the 60k cash that would have gone towards the car went towards the business and investments which grew by approx 25%.
Say the Z4M Depreciated by 10k in the first year, If I sold the car for $50k I would be $10k out of pocket.
On finance after a year I was -17k through payments, +15k from the cash set aside which basically paid for said finance, with a 50k asset which had $50k owing. All things being equal if I sold up it would be a case of outright: $10k out of pocket. Finance: $2k out of pocket..
Say the same trend continued, and I sold the car in year 3.5 for 40k but made a similar return each year on the invested cash; buying the car this way I would have spent 70, sold for 40 (losing 30k on the purchase). But I would have also earned 52.5k from having the cash aside.
Outright - I would have simply spent 60, lost 20 and ended up with 40k in my hand.
I'm currently considering buying my next car in the same way to maintain accesible cash. I can afford to buy it outright - but I can afford to finance it, retain cash for emergencies, properties or investing too.
pvr said:
Statistically those customers who buy their cars on finance, specifically on a PCP are more likely renew their car with that same manufacturer than those paying 'cash'. Ford pioneered this years ago with their 123 options scheme.
Knowing this the manufacturers own finance company are prepared to offer an upfront incentive to tempt savvy cash buyers to start a pcp, as the £500/£1000/£2000 additional discount or cash back makes some sense. So, the finance company gives this to the customer hoping that in another 2 to 3 years they will part exchange, giving the dealer nice quality used stock they can make money on and the customer drives away in a new car and so the cycle continues. In addition the dealership is set a target and bonus by the manufacturer to sell x number/percentage of pcp policies. A good number of customers won't cancel their monthly payment as they become used to the outgoing and may prefer to keep their savings.
For those genuine cash buyers it is worth taking advantage of these offers providing you can cancel the policy with minimum claw back.
PCP's are a useful way of buying/leasing a new car without having to stump up a large cash deposit, BUT some of the final values are hugely optimistic, resulting in a shortfall or having to stump up money to get into their next car.
Informative thread. 
Old fashioned cash buyer here. I like to know we have the spare monthly income and a few bob in the bank, for if things ever go pear shaped. I find it very hard to relate to borrowing money, unless it's to make more money with it and buying your average new car is certainly not that. I guess if someone can prove it's a way to save money then that would qualify too, but I have yet to read that here. :wink:
Old fashioned cash buyer here. I like to know we have the spare monthly income and a few bob in the bank, for if things ever go pear shaped. I find it very hard to relate to borrowing money, unless it's to make more money with it and buying your average new car is certainly not that. I guess if someone can prove it's a way to save money then that would qualify too, but I have yet to read that here. :wink:1000rr 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.
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.
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.
We went pcp for our new x3. I think as long as you know what you are getting in to then its fine.
I knew what the figures all were; as in purchase price, p/x, option to buy etc. I set the monthly figure to ensure we would not be out of pocket at the end of the term so was happy with what we got. 17% discount on a new car would have been the same as buying a 3yr old one so to me it made sense. It also allows me to be able to drive a more expensive car than i would usually be able to afford by a usual loan/hp payment method as I don't have 40k just sitting in the bank to buy outright.
I see our monthly payment on a car as a living expense as you would a mortgage, broadband, utilities etc. It is the price you pay for a brand new car rather than an older one and i am happy with it even if its not something everyone would do.
I knew what the figures all were; as in purchase price, p/x, option to buy etc. I set the monthly figure to ensure we would not be out of pocket at the end of the term so was happy with what we got. 17% discount on a new car would have been the same as buying a 3yr old one so to me it made sense. It also allows me to be able to drive a more expensive car than i would usually be able to afford by a usual loan/hp payment method as I don't have 40k just sitting in the bank to buy outright.
I see our monthly payment on a car as a living expense as you would a mortgage, broadband, utilities etc. It is the price you pay for a brand new car rather than an older one and i am happy with it even if its not something everyone would do.
Glyn said:
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.
1000rr said:
Not at all, what probably happened is that the lender saw one or more recent applications for credit, which changes your profile and therefore the loans & rates you would have been offered.
Mike
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.
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.
Ducklakeview said:
Mike, you're probably right. Any excuse to mess with ratings... no wonder it's hard for youngsters and first timers to get on the propert ladder. I've been self employed since 1990, and in the early days, was a nightmare with higher rates due to being a higher risk in the lenders eyes, bigger deposits etc... I employ staff and thankfully have assets now with equity that lowers my risk.... but it's still a right pain.
But on the other hand, surely everyone shops around for the right deal with lowest interest rates.... I know I do. What beggars belief, is that each time you do, that can (and does) have the potential for lenders to increase the rates with each application....wether successful or not. Best keep it under the mattress then....
