Car finance vs purchasing outright(5 Posts)
I need to buy a new car and I don't understand any of the financing deals at all. I have the money saved to buy something outright, but I put in for some quotes at Carwow, and the finance deals seem to be over £1k cheaper than paying cash? How can that be? Are they not telling me something?
I am scared of finance deals as I hate debt and I don't really understand what happens if I crash the car. But I don't want to pay an extra £1.3k to pay cash?!
Conventional wisdom is that buying outright is cheapest because any finance offer has interest built in, which means that in the long term it will be more expensive than buying outright. The headline features of finance deals are attractive - £1000 dealer contribution to your deposit, for example - but look at what it costs over the term of the arrangement. The other point about buying outright is that if you're buying brand new, you can negotiate a discount of anything from 5 to 15%, depending on the car you're interested in and how much the dealer needs to seal the deal.
Often the deal includes a low rate of mileage and they get you that way. ie of you do more than 9k miles in it they charge per extra mile. Also the finance means you need to pay a wedge at the end, which you will feel by then is too high [as you have already paid X] and will probably do a deal for a new car instead.
Car dealerships make big money out of finance, the business manager makes commission on the finance - where does that money come from? You!
Essentially there's 2 types of finance
Hp - where you borrow the entire amount of the vehicle (less deposit) and pay it all off over a term.
More expensive monthly but you own it at the end.
PCP - this one has a deposit at the front and a balloon payment at the end, so your financing the middle but. You don't always have the option to own your car at the end, if you do it's a big chunk you need to find. This sort of finance is cheap monthly payments but you are tied in with main dealer maintenance & mileage. You also need to return the vehicle in a good condition (bumps, scratches etc they will charge you).
If you have the money to buy outright without it being an issue I would do that. Gives you more room for haggling on the metal price. It's yours to service how you want (block exemption means your warranty will be maintained as long as original parts used. So you can use a lovely local garage not tied to main dealer), it's yours to sell, change whatever whenever you want.
If your buying new there's a company called drivethedeal who have negotiated excellent discounts with U.K. Dealers.
But with a new reg out next month you will be able to get a good price on an ex demonstrator vehicle as the dealer changes its fleet.
We always buy outright, well under our own steam at least. Am just looking for a new car, trade in is worth £8k, we will take £12k from savings and get a loan from the bank for £10k over four years. Total interest payable is £400. If rates were higher I would take more from savings or buy a cheaper car.
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