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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

AIBU to buy a nearly new car outright?

188 replies

Aroaringfire · 18/10/2020 10:50

I know this might seem silly but I can't tell if I'm being 'old fashioned' or if people are mansplaining to me. It's not meant to be a goady thread about having money, more getting cold feet about big purchases.

Essentially, I have a job where I use my own car for work and it's part of the contract I have one. When I first got into this work a few years back I and DH went halves on a budget car to get me started. Since then I've been putting money aside each month for a new car. I'd anticipated that for a deposit, but budget car has lasted a lot longer than I expected, plus I got a promotion two years ago and I've been using the extra money to add to the pot. I'm lucky that I've now got 9k in my car fund.

My work miles mean high mileage, and it's variable mileage which I can't control. For that reason leasing is out, and PCP doesn't seem a good fit. PCP deals are aimed at people doing less than 12k a year. Mine is usually 15-20k and while I know some will finance, they charge a premium for doing so - definitely not eligible for the tempting advertised deals. Hire purchase seems pointless if I've got the funds as the deals aren't comparable (they're usually just list price plus interest, and interest for HP is usually 12-14%)

So the way I see it I could buy a budget brand car that's less than three years old. I could then keep putting money aside each month and in 5yrs time buy another car the same way. A bit like what I'd be doing with hire purchase but without the interest.

I've mentioned this to some male members of my family and pretty much been told I'm an idiot. That noone buys cars outright these days, they'll see my coming etc. Either I should get the latest popular brand on PCP or I should buy an old saloon workhorse that's already done 70k for a couple of grand.

I totally get that most people buy cars on finance, and if I buy outright im never going to get a big fancy car, but surely for my individual circs this way makes sense? I don't need a big car, nor can I risk a gas guzzling liability. Im not bothered about newish for the sake of it, just something i can be confident will be reliable and last me a good few years, and is efficient/ cheap to run (particularly important when work mileage isn't generous!)

I was brought up not to use credit so I'm aware that that influences my spending compared to some peers, but i think I'm being logical - please tell me if I'm wrong.

OP posts:
CharlieCoCo · 18/10/2020 17:05

I bought mine outright. I was going to do a pcp but I didnt like the monthly payments and if I lost my job it would be a big outgoing. Also I dinf nec want to give it up in a few years, so I decided to buy it outright.

MrsAvocet · 18/10/2020 17:10

We always buy our cars outright. Part of it is that I have an inbuilt fear of debt. My parents never took out loans of any kind except the mortgage, never had credit cards etc, and I was brought up to see it as bad. The other thing is that my FIL is a mechanic and my DH is very capable when it comes to car maintenance too, so between them they service and repair all the family cars. I dont want anything where I am obliged to waste money taking it to a main dealer for services which you tend to have to with a car that is still under warranty. So generally I look for a car that is a few years old, buy it outright and then its fully mine to do whatever I like with.

justanotherneighinparadise · 18/10/2020 17:13

We buy our cars outright as my DP is a trained mechanic from working alongside his dad as a youth and doesn’t want to be tied into the maintenance terms and conditions that come with lease cars.

It’s a very wise move OP. Also helps you to live within your means. So many people are living a fantasy life off the back of credit and debt.

Elizaaa · 18/10/2020 17:14

I would never get a car on finance. Never have, never will.

Elai1978 · 18/10/2020 17:29

Have you any sort of reasoning behind this statement? I can't quite work it out. It's absolutely fine to think about purchases and never having debt. It's what I do. If I can't afford to buy it i do not buy it. It's worked well for almost 30 years of being an adult.

You make debt work for you not the other way round. Typically over the last 3 years our ISAs have made 18-21% (who knows what will happen this year) so if something is available with 0% finance then it pays to use it. DW just bought a car on 0% so we will see but the previous one was £40k and also 0%. Had we bought the car outright and traded 3 years later we’d be £25k down on where we were. Only an idiot would’ve bought it outright.

JMG1234 · 18/10/2020 17:36

I'm sure PCP is a good option for some people so I wouldn't knock it.

I'm an accountant/tight fisted so also never buy new due to the first year depreciation cost. Unless you get a great discount from the dealer. We've always bought our cars outright then have free choice of when we choose to change them.

Completely understand the economics of taking low interest rate debt and investing in ISA funds etc with that money. We have equity funds to cover our interest only mortgage and, yes, they often make 20-30% a year with some active management and a bit of good fortune. But they can go down (UK funds being our main casualties this year) and, outside of equity funds, interest rates are only 1-2% at best if you want a risk free investment option.

Good luck with the car search!

MustWe · 18/10/2020 17:59

I think in terms of cost per year of ownership. I’ve always bought outright but am going for PCP this time as I want a better quality car than I can afford to buy outright.

My current car cost £9k and I’ve had it for 6 years. It’s now worth £2k so it’s cost me £1125 a year. This is undoubtedly the cheapest way to run a car.

The new car on PCP will cost me £2400 a year so significantly more BUT it’s a far nicer car and I’m willing to pay for a bit of comfort.

SnackSizeRaisin · 18/10/2020 19:09

You make debt work for you not the other way round. Typically over the last 3 years our ISAs have made 18-21% (who knows what will happen this year) so if something is available with 0% finance then it pays to use it. DW just bought a car on 0% so we will see but the previous one was £40k and also 0%. Had we bought the car outright and traded 3 years later we’d be £25k down on where we were. Only an idiot would’ve bought it outright.

That's all very well but an ISA that is making 18% will be fairly high risk. That's fine if you don't need the money for 10 years at least, but there is a risk it could lose 18% of its value (or more) overnight, and then you would still have a huge car loan to pay off. If you then lost your job you would be in trouble. For most people it is much safer to avoid debt and buy things you can afford outright.

grumpycivilservant · 18/10/2020 19:27

@Aroaringfire

Is there any obvious way to look for ex fleet cars btw?
Have a look at British Car Auctions. We always buy cars at auction, you generally get them for the price a dealer would pay for part exchange. They do good auctions of ex motability cars, all are three years old (as that's how often you are eligible for a new car on the scheme) and most have extremely low mileage. We've had some great, very reasonably priced cars over the years.
RandomLondoner · 18/10/2020 19:28

Had we bought the car outright and traded 3 years later we’d be £25k down on where we were. Only an idiot would’ve bought it outright.

Please read "Fooled by Randomness" to find out what's wrong with your reasoning. (Short version: what actually happened is irrelevant in deciding whether your approach was correct. What matters is the relative probabilities of all the different outcomes, and the payoffs under each. Even then, a strategy with a lower expected payoff can be better because it disproportionately reduces risk.)

Elai1978 · 18/10/2020 19:30

That's all very well but an ISA that is making 18% will be fairly high risk. That's fine if you don't need the money for 10 years at least, but there is a risk it could lose 18% of its value (or more) overnight, and then you would still have a huge car loan to pay off. If you then lost your job you would be in trouble. For most people it is much safer to avoid debt and buy things you can afford outright

Obviously all my eggs aren’t in one basket, however the joy of PCP over leasing is that it’s easy to get out of a PCP, your exposure is only the difference between the value of the car and the settlement figure and so highest at the beginning. I tend to find that once you reach half of the term there’s equity in the car. With leasing you’re screwed, it can cost something like 90% of the outstanding payments to get out of it.

decoraters · 18/10/2020 19:32

You make debt work for you not the other way round. Typically over the last 3 years our ISAs have made 18-21% (who knows what will happen this year) so if something is available with 0% finance then it pays to use it. DW just bought a car on 0% so we will see but the previous one was £40k and also 0%. Had we bought the car outright and traded 3 years later we’d be £25k down on where we were. Only an idiot would’ve bought it outright.

Are you the poster I asked and have name changed or are you incorrectly answering what I asked them?

I wasn't asking about making debt work for you I was asking why that poster said not wanting to have debt is never a good way to think about purchases.

Not wanting debt is an absolutely fine way to think about purchases. I am fully aware that savings can earn and 0% is available, but that wasn't what the discussion was about.

decoraters · 18/10/2020 19:33

Oh and just to add to this little gem

DW just bought a car on 0% so we will see but the previous one was £40k and also 0%. Had we bought the car outright and traded 3 years later we’d be £25k down on where we were.

Only an idiot would’ve bought it outright.

Only an idiot would spend £40k on a car 🤷🏻‍♀️

VinylDetective · 18/10/2020 19:36

Instead of being able to choose the repair garage and possible pay for it themselves, they had to go to the nominated body shop. It was very expensive, they had to pay the excess and it’s noted on their insurance

That’s exactly how most insurance companies operate, regardless of how you own your car.

Lougle · 18/10/2020 19:38

Why don't you spend around £5k on a car, so that you've got £4k for repairs, maintenance, or another car if it all goes wrong? I have to say that I only buy cheap cars (My current car was £800, an 05 plate that has just got through another MOT with just £20 of work to fix an engine management system warning).

If you do go for the £9k car, make sure that you're actually getting the trouble-free driving that you are hoping for.

BogRollBOGOF · 18/10/2020 20:00

We buy nearly new from the car supermarkets then hold on to them until they get to the niggly repairs stage (In my case, easily 10 years) or our needs change.

I'm a SAHM so it's reassuring that I do own my own car (and the current one is recent)

We did use a loan when DH's company car lapsed and ownership became better value because it was within months of moving house and putting savings in to reduce the mortgage and get a better rate. Otherwise we've saved up by the time it's ripe for a new car.

sst1234 · 18/10/2020 20:01

[quote decoraters]@sst1234

debt in itself is not a bad thing, not wanting to have debt is never a good way to think about purchases.

Have you any sort of reasoning behind this statement? I can't quite work it out. It's absolutely fine to think about purchases and never having debt. It's what I do. If I can't afford to buy it i do not buy it. It's worked well for almost 30 years of being an adult.

OP you are not wrong, I have never financed a car.[/quote]
The reasoning is simple: the cost of debt vs the appreciation in the value of asset your are buying both in monetary and psychological terms. For instance, if you get a personal loan at 3% (lower rates are available) and invest this in a fund paying 7% return, you win instantly. If you invest the same loan in a car which then saves you the cost of a season rail ticket in Greater London, you probably still win (depending on the cost of the car). And finally you can invest that loan to buy you a car which saves you the time, inconvenience of commuting on public transport, making your life easier. Finally, I could mention deflationary pressures on the economy which means there are are many assets you should buy with debt rather than wasting your own cash as the math is better, this applies to certain items which are not moving fast due to the slowdown.
Debt is designed in such a way that those who want it, benefit from it. But those who need it, don’t. Anyone using their own cash instead of taking advantage of low interest rates since 2008, is frankly turning down free money.

(PCP is still not a good idea though)

Original poster
Aroaringfire · 18/10/2020 20:12

@Lougle because if I spend 5k on a car I'll be getting one with 40-60k miles on the clock. And the rate that my mileage adds up I'll quickly be in niggly repairs territory. I've been looking at Skoda's and Kia's and similar makes and for 7k-9k I would be able to get something within warranty and hopefully with a good few years trouble free motoring ahead (and while the cars are quite basic spec it also means quite cheap at the garage)

To the PP who talked about 0% finance they're generally only available on expensive cars. I don't need a 4x4 or top range saloon when 90% of the time it's only me in it and I'm driving for work. However much of a good deal it might be, I'm just not interested in cars enough to spend 15k upwards on a car. I'd feel a bit silly in a fancy car tbh!

OP posts:
Original poster
Aroaringfire · 18/10/2020 20:15

I also don't trust the concept of 'free money'
I'd rather be sensible and not make lots of money than be worrying about investment returns! I know interest rates for debt repayments are low but savings rates (at least, the risk free ones) are v low too. I don't want to risk my credit rating by having loans in my name unnecessarily.

OP posts:
sst1234 · 18/10/2020 20:21

@Aroaringfire

I also don't trust the concept of 'free money' I'd rather be sensible and not make lots of money than be worrying about investment returns! I know interest rates for debt repayments are low but savings rates (at least, the risk free ones) are v low too. I don't want to risk my credit rating by having loans in my name unnecessarily.
In your case you should buy using cash, as I said before.

But you do know that having credit improves your credit rating? Debt is math, nothing more, nothing less. In some cases it makes you money, in others it costs you. In this case it will cost you, but that doesn’t mean that doesn’t mean that there’s no such thing as free money - like I said its math and you can always work it out.

decoraters · 18/10/2020 20:23

@sst1234

That's twice you have tried to explain something I was not asking the poster I was addressing, wrongly. Any particular reason?

decoraters · 18/10/2020 20:24

@sst1234

Also, please can you clarify as to whether or not you are the poster I was talking to? Have you name changed or are you just jumping in to answer in their behalf?

murmurgam · 18/10/2020 20:24

I've always bought my cars nearly new and then run them until they die. I tend to do lots of miles and don't treat my cars well so pcp would never be the right option. I bought an 18 month old car with 3.5 years warranty left, 8000 miles for 10k. Aim was to last 5 years and then everything beyond that is a bonus. Coming up to 6 years now, 105,000 miles, no issues at all.

sst1234 · 18/10/2020 20:29

[quote decoraters]@sst1234

Also, please can you clarify as to whether or not you are the poster I was talking to? Have you name changed or are you just jumping in to answer in their behalf?[/quote]
You addressed me directly at 17.00 today. So answering your question about ‘reasoning’ behind the statement. No name change.

HappyAsASandboy · 18/10/2020 20:31

We've always bought our cars outright, and always will. The thought of being tied to a £xxx payment every month for years scares me - what if I lost my job and couldn't pay it Confused

We tend to buy a second hand car that's about 2-3 years old, with about 30k mileage. Those tend to be the ones returned after the lease schemes! We trade in again about 4 years later when they've got 80k+ on the mileage.