What is the best way to buy a car (cash, finance, rental, etc..)

[Moist Von Lipwig]

I am looking at replacing a car and have always gone down the route of paying cash or using a straight finance agreement.  However it seems that many on here use car rental schemes (probably called something different though) and I am wondering what the best way is.  I know that it will depend on the specifics of the deal and what car I want but having no experience of alternative methods I am somewhat wary of them.

 

Can someone shed light on the pros and cons?

 

Thanks

[mdon]

It's always cash for me. No monthly payments, the car is yours outright, you can sell it with no complications from day 1.

Those PCP deals ends up with you not owning the car, you pay rent for three years (or however long) then with the option to buy it at the end.

[BossFox]

To be honest it completely depends on your own circumstances and opinion.

 

Cash means you own it, there is no monthly drain on your resources.

Loan/HP means you still technically own it and have a set plan to pay for the car so it's all yours.

PCP (and lease, which isn't that different) is generally on new cars.  You pay a monthly amount to cover depreciation over it's worse term (from new) and then hand it back after a set time period and start again.

 

I personally have always avoided PCP because I don't like the idea of just paying for the depreciation during it's heaviest period, plus an extra charge on top for the money it'll be worth at the end which you are not paying off, but are paying interest on.  Overall it works out to a high percentage of finance charges.

However... the Skoda 0% deals on PCPs blows that opinion out of the water.

 

There is also the possibility you'll get hooked on having a new car on a PCP with lower payments than you'd have trying to buy a slightly older car on HP and then just get new car after new car.

Effectively paying a decent sized monthly payment forever.

 

This is where your situation comes in.

If you can budget for that and not let it impact other areas of your life then why not?

 

Everyone has the choice how they spend thier money.

 

Fact is, the smart money is on an almost new car that's already had it's initial depreciation drop.

Then look after it and keep it for a good few years.

 

Not that I do that, but I know it is probably the best value way to a decent car.

[philbes]

"Fact is, the smart money is on an almost new car that's already had it's initial depreciation drop.

Then look after it and keep it for a good few years."

 

That has always been my method of purchasing cars.

 

My last car was bought at one year old for £10,500 (new price had been £15,200) and 10K miles with two years of warranty left.  Kept until 8 years old and traded in at 85K miles for £2,500 after spending less than £400 on repairs during its life.  So total cost was approx. £8,500 over 7 years, so £1,200/year = £100/month.  Of course I also had to pay for servicing and tyres, etc. 

[Manatee]

I used to do this stuff (financial services) for a living.

 

PCP is usually just HP with lower regular payment and a large final one ("balloon payment"), with a buy back guarantee at the end if the customer doesn't want to make the balloon payment.  The problem with just handing the car back is that you then have no car...

 

Dealers and manufacturers love PCP because it's easier to sell a car with a lower monthly payment, and unless the customer is going to budget for the balloon payment then it is very likely that he (or she) will be in the market for another new car in 3 years time, and captive to another new car on PCP.  If they are lucky, they will have enough equity in the car to pay the next deposit, and off they go again.

 

One of the other benefits for dealers of selling on any form of credit is that the customer who is focused on affordable monthly payments can take his eye off the ball, the total cost.  It's easier to sell an extra when it's only another tenner a month, not an extra £500 and a bit on the balloon payment that the customer has to part with.

 

If you can budget for the balloon payment, you could instead save money (interest) by using an ordinary loan, not PCP, other things (especially the interest rate, but possibly also discounts) being equal.

 

But...there are some bargains, simply because of the attraction to manufacturers of hooking people in to this form of new car addiction. They are looking at the "lifetime value" of a new customer.  

 

So when there is over-supply, old models to get rid of, or demand tails off,  rather than just trashing the prices it can make more sense to promote a discount to people buying on PCP.  That's usually dressed up as a deposit contribution, a boosted buyback guarantee (=lower monthly payment) or, as with the Skoda deal, a low or zero interest rate.

 

A pal of mine got a stupidly good PCP deal on a Mercedes ML when the price of gas guzzlers crashed a few years ago.  The monthly payments he made on a two year deal had covered about half the depreciation from the best discounted price he could have had when he just handed it back two years later.

 

Just look at the numbers carefully and see if it works for you. But the starting point should be to determine the best discounted price you can get, and keep checking back to that. 

Edited 11 July, 2014 by Manatee

[Aspman]

A 0% finance rate is best because your debt on the car reduce in real terms vs inflation.

 

Cash is usually next best if you can but it won't always get you the best deal in the show room since the dealer makes a lot of money form the finance deal.

 

After that it's about flexibility and cost.

 

I used to go for HP deals that after 3 or 4 year the car is yours and is paid off.

I've tried the PCP with the balloon payment but dealers just offer you bottom book for your car at the end of the term so you have to find more money or refinance.

 the rate was very

Now I just look for the best rate and what will cost the least over the term I'll be paying. My current car I took a personal loan because I cans ell the car anytime I want but more importantly the rate was low at 4.5%. Dealer was only offering 12% on HP.

 

I've bought new once, I doubt I'll do it again.

current car is 4yr old but I got a discounted 3yr manufacturer warranty with it. I suspect that'll be the way forward for me. 3yr old cars and buy 3yr warranties.

[Moist Von Lipwig]

Thanks for the info and advice.  I can see the attraction of the PCP deals in that you get a new car for what seems like a small sum but I always look at the bottom line and the final payments don't seem very attractive.  Had some friends who got stuck in this loop for many years, they couldn't afford the final payment so had to jump over to a new deal every 3 or so years which locked them in to the same manufacturer and dealership.

 

0% deals are great and have used them before, only paid them off early as they had a negative effect on my mortgage application.

 

My preference is to get a year or so old car and run it for several years (as BossFox advises), just got to make sure I get something I can live with and will last long term.

[dieselV6]

Getting a nearly-new car is the best option financially. However, every time I attempted this for Skodas, I found that it is really hard to get the required equipment level on the car. Main trouble were winter options incl heated seats, and up to several years ago also ESP (when VW marketed ESP on every car as a selling point, SUK did not sell ESP equipped cars at all, I had to import my Mk1 Octy from Ireland in 2002 for that very reason). Though winter options are more frequently found on UK registered cars nowadays, I might be tempted to find a nearly new one next time (hopefully still several years away).

 

So if you are after a basic spec (even in high trim level, e.g. Elegance), by all means get a nearly new car, still under manufacturer's warranty, as it is best value for money. However, if the car you are looking at is missing some extras that are essential for you, either factor in cost of retrofit (if retrofit is possible), or order a new car from factory with all options you want/need.

 

Factory new car orders are not so daunting financially if you have to run two or more cars in a household, with significant yearly mileage on at least one of them. E.g I gave a (used) Honda Civic to my wife after 2 years, then ran Mk1 Octy for 4 years mainly on trips abroad, then bought a Superb and gave the Octy to my wife to be used as a family shopping trolley for further 6 years, until it got written off.  I did not follow the "upgrade" with my Mk1 Superb, because there was nothing of comparable value/comfort to upgrade it to at the time, so there is a risk in this strategy (bought my wife a new Roomster on the "no VAT" offer instead).

But if you carry the "upgrade" through, each car is used for 12-15 years in progressively less glamorous roles (I guess the Mk1 Superb will be used when teaching my kids how to drive in 7-8 years time, will have ~200k-250k miles on the clock by then). Over 15 years, new car depreciation is small compared to fuel, insurance and servicing costs.

Edited 11 July, 2014 by dieselV6

[BossFox]

I've tried the PCP with the balloon payment but dealers just offer you bottom book for your car at the end of the term so you have to find more money or refinance.

 

This is something I wondered about.

Who is to say what the vehicle is worth at the end of the term?

I know the minimum value is set out in the deal, but that's worse case scenario. 

 

Effectively it's no different to trading in a car and having to get the best deal you can.

Only you are far more limited in who you can deal with, which would make me a bit nervous.

 

Can you go to any garage, only Skoda garages or just the supplying dealer?

[Manatee]

This is something I wondered about.

Who is to say what the vehicle is worth at the end of the term?

I know the minimum value is set out in the deal, but that's worse case scenario. 

 

Effectively it's no different to trading in a car and having to get the best deal you can.

Only you are far more limited in who you can deal with, which would make me a bit nervous.

 

Can you go to any garage, only Skoda garages or just the supplying dealer?

There's nothing to stop you going to any dealer or marque, and negotiating the value of your part-exchange in the normal way.  The dealer you are buying from will settle your old agreement, so any equity can go into the new deal, whether or not you are taking out a new PCP.

 

Basically it's a poor idea just to hand back the car if it is worth more than the "Guaranteed Minimum Future Value".

[kevberlin]

The cheapest car is the one you keep!

That is why the real smarty pants are those who buy and then run the car for say ten years. I just wish I could do it. This time though, I swear it will be different! Honest.

[threadbear]

My current Fabia is nearly paid for having purchased on the VAT free off that SUK were running a few years ago. I have been looking at other cars as you do and I feel that nearly new in the future will be the route for me.

 

The crazy thing is that there is absolutely nothing wrong with my car. In 43000 miles all that has been replaced is the boot lock which was done under warranty. It hasnt even blown a bulb. Apart from the routine servicing I have had the tyres and wiper blades replaced. So why would I want to get rid of it? Because we all fancy a change sometimes! However at the moment I do not know what I fancy which is a bonus in disguise!

 

A colleague at the work has a Mini Clubman on PCP who pays £250 a month for 4 years on a low mileage agreement and at the end of that period gives it back! Seems madness to me. I suppose it looks good on the drive!

 

I cannot see how PCP would work for me. You pay for it for a period of time and it still isnt yours!! Traditional HP still has it`s place in the marketplace.

[davrostavros]

Im waiting non delivery of a new rapid sport (hopefully in the next couple of days). I am getting it on PCP for 150/month 8kmiles allowance. I'm getting 3k trade on for my battered old fabia and putting another 1k deposit on top.

To me this seems like a good deal, services are included and its 0% so if I was to pay the balloon payment off with either savings or a 0% card I will have got a new car on 0%finance.