AIBU to buy a nearly new car outright?

[Aroaringfire]

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.

@sst1234

Sorry my mistake

I have never had any debt because I just save and buy. I have no interest in playing the save/debt game, especially now as high risk is the only way to, possibly, see a good return. There is nothing wrong with that way of thinking though, just as there is nothing wrong with they way you choose to manage money.

If finance isn't for you don't do it if your not comfortable if your buying second hand a few years old always buy just after the new plate comes out as dealers will want to get rid off old stock for the new models out or ask if they have any ex disability cars available these are normally 3years old and have low mileage

Your sound normal, they sound odd. We've never bought any car on any kind of finance, why would you if you have the cash saved? Weird.

[quote Aroaringfire]@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![/quote]
You say that, but I'm 136,000 miles in to a 16 year old car and very little in the way of repairs. I've just looked back over my MOTs and apart from tyres, brakes, etc., the only thing that has needed attention is the driver's seat fixing, which was simply bolting it down more tightly.

I always buy second hand outright , about 3 years old run it for 2 or 3 years then trade in for another , again like you I am driving a lot of miles so want something reliable

I’ve only ever bought cars outright, usually 1-2 years old. As long as you hold on for a few years it saves £££. Most people I know who have PCP just like the whole “having a new car every 3 years” thing. It’s a bloody environmental nightmare. If I’m happy with the car I have I have no reason to change it. We don’t really like debt either and are working hard to pay off our mortgage ASAP but to some degree I think it’s personal preference, don’t necessary think that debt is bad.

car loan rates are, y'know, higher than mortgage loan rates, lower than overdraft loan rates, somewhere in the middle. obviously far higher than savings rates

if you have a car-sized amount of cash sitting around, then your main choices are:

a) invest it and buy a car on finance;
b) use it to pay down on your mortgage (assuming you have one and can do this) and buy a car on finance;
c) leave it in a savings account and buy a car on finance;
d) buy a car with cash.

IMO:

b) and c) are fairly terrible ideas since savings/mortgage rates are so low compared to car finance rates;

a) MIGHT be a good idea if your ISA limit isn't used up, but it's riskier than plain old;

d), the safe and not obviously bad option.

all of the above obviously assumes you're more or less neutral about the type of car you get. if you spend loads of time on the road with work then maybe having something really plush, perhaps only affordable through finance, might be a good idea.

the best age of car to buy is a whole other topic. crudely speaking I'd say that 3 or 4 years old, with say 30-40k miles on the clock, is the sweet spot in terms of cheapness and reliability. if you're a bit of a worrier, say 18 months old isn't a bad option because there'll typically be another 18 months' worth of manufacturer's warranty remaining.

It's what we've always done. We often end up with ex fleet cars, about 18 months old and negligible mileage for about half of the price new.

I bought a car for slightly less than your budget in cash. It’s a fabulous car and I love it and I also love owning it outright knowing I’ve paid what I can afford and don’t have a long-term on-going commitment, especially given the uncertain times we live. I also would never want to pay the high interest rates on car finance if I could afford not to.

We did similar on a family car. Saved up £10k and bought 4 year old car for
£9k with w great spec and in great condition
Was ex company car with high
Mileage but had no issues in last 3 years and can sell it tomorrow for 5-6k so it’s only cost us £1k a year and less than £1k overall on expenses and reapairs

Go for it! Your money, your saving and your decision

I always buy my cars outright, it always annoys the dealer but it's not really up to them how I pay.

Don't do s PCP deal, buy a nearly new car outright, it is much better.

PCP expensive in the long run, I know someone I got a PCP BMW with a low mileage allowance, they now can't just drive the car when they want!!

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.

This is complete rubbish. For a start it's obviously not instant as you have to wait for the interest to accrue. Then of course there is no way of investing money to get a guaranteed 7%. But if there was, just think it through. Say you take out a loan for £10,000 and pay nothing for a year. You then owe £10,300. You put the money in a stocks and shares ISA for a year, at 7% interest. At the end of the year you have £10,700, pay off your loan and keep £400. Minus the charges for fund management, and for buying and selling funds. Plus there may be an arrangement fee for the loan. You will not have made much profit.
Then of course, the stock market can go down as well as up (and it often does go down in the short term). You would have to hope it went up in the year before your loan was due!
Those types of ISA s are for longer term investment - if you need the money within 10 years you are better off putting it somewhere safer (at a much lower interest rate though) - of course you could leave the money in for say 10 years - but are there loans where you would pay nothing at all for 10 years?

The same applies to car loans really. You generally start paying back immediately so can't leave the money to earn interest
for 10 years. Also there's no such thing as 0% interest. The price will have been increased to take account of the cost of the 0% interest. That's why cash buyers can negotiate better deals!

0% interest is to tempt people to buy things they can't afford. It's not a genuine good deal.

There's no such thing as a free lunch...

if you have a car-sized amount of cash sitting around, then your main choices are:

a) invest it and buy a car on finance;

This will not work as how are you going to pay off a car loan if the money is invested? Investments are for a minimum of 2-3 years- otherwise the costs and risks are not worthwhile. You cannot spend the money and invest it simultaneously!

YABU. We have bought our last two new cars outright. I like just spending the money and knowing it is paid for and it saves a lot in the long run too.

@SenorFrog

I always buy my cars outright, it always annoys the dealer but it's not really up to them how I pay.

How times have changed. Many many years ago you would get a discount for paying cash, back when dealers provided their own finance. Now it's all outsourced they get a return on the finance so they always try to push for it.

I worked out a few years ago when we were last looking for a car that the cheapest option was to buy a second hand, petrol driven (not diesel) car outright and run it into the ground and then replace it with another in the same way. YANBU, what you say strikes me as the best method.

Also there's no such thing as 0% interest. The price will have been increased to take account of the cost of the 0% interest. That's why cash buyers can negotiate better deals!

Actually there is. The dealer advertises the exact same price to all buyers. You negotiate the price BEFORE talking about cash buyer or finance. I do this all the time. Say I have cash to buy it outright, not a lie. I get great deals and if a dealer tries to change the price or my exchange value after I’ve said, hmmm will do that 0% after all. I walk away and another dealer always always gives me the deal I want.

This will not work as how are you going to pay off a car loan if the money is invested?

The scenario of investing money instead of using all of it or any of it to buy a car is presupposed on the person having got that sum of money by regularly saving from their monthly income and that the monthly regular savings amount is still available in future to be applied to car loan payments instead of going into savings. So say I’ve been saving £450/mo for several years and now have £20k to spend on buying an almost new car. I still have £450/mo every future month to play with.

So, what I did was I put 50% deposit and then 0% finance other 50% of the car on a 3 year loan. The monthly payments are £310...I use some of my £450 extra towards that instead of savings. Meanwhile, I leave £10k in a investment account to grow on average 8-12%/yr. I’ve just used that figure as a rule of thumb in this thread because that’s usually what I get. I did actually look up my account and it’s earned 26% over past three years (yes despite the Covid crash earlier this year).

So yes, you are committing some of your excess income for next three years towards a debt (at 0%), but you are also getting ahead by a couple grand. Now, there is no way on earth that I paid £2k more for the car than a cash buyer. Not with the research and negotiating I did.

Most dealers use the 0% to move excess stock because every day that car sits on their lot, it depreciates in value. And the market lately has been one of excess used cars, there is no shortage. (I buy 1yr old cars). Cash buyers don’t have the power they used to have as well because the financing isn’t in house anymore. The dealer gets the full price paid to them the day the sale finalises whether you pay cash or finance. So they don’t care what you do.

[quote Aroaringfire]@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![/quote]
A good idea would be to get a Kia that's 3 years old then you've got 4 years left on the warranty if not you could chose to buy a stand alone warranty for an extra £230 if you're worried about niggly bits but always get it serviced and your oil changed regularly then you're away

I'm with you though buy outright

I bought my car from a Vauxhall dealership in June and they were offering 0% finance to everyone. The car is advertised at a set price and it is up to the buyer how they pay for it. I didn't want to spend all my money on the car, so the 0% on part of it, was a good option to be able to buy a nicer car.

I think they were offering it at the time to get cars moving as it was just after the car showrooms were allowed to open up.

So no, the finance did not add to the price of the car in my case. I paid £8400 for a 4 year old car, with 30K miles on the clock, top spec Vauxhall Mokka, so certainly nothing fancy.

I would never buy a brand new car, ever.

If the male members (snicker) of your family want to get into debt for their shiny, depreciating penis extensions, they are the idiots.

You do what works for you. And yes, they are mansplaining arses.

@mycatlovesmenotyou

I bought my car from a Vauxhall dealership in June and they were offering 0% finance to everyone. The car is advertised at a set price and it is up to the buyer how they pay for it. I didn't want to spend all my money on the car, so the 0% on part of it, was a good option to be able to buy a nicer car.

I think they were offering it at the time to get cars moving as it was just after the car showrooms were allowed to open up.

So no, the finance did not add to the price of the car in my case. I paid £8400 for a 4 year old car, with 30K miles on the clock, top spec Vauxhall Mokka, so certainly nothing fancy.

I would never buy a brand new car, ever.

How do you know you wouldn't have been able to haggle a deal for paying cash? Main dealers make their money by registration bonuses which increase at different levels of registration, hence why they register "demos" at certain times of the year. They also get other incentives for registering unpopular colours, unpopular engine sizes/specifications, and even moreso when a model is coming to the end of it's life and the manufacture is wanting to get rid of the stocks in their compounds. I think it highly unlikely that the garage you refer to wouldn't have done a deal to sell another car, despite what their flash marketing/advertising might say! It's all smoke and mirrors, like the way the salesman has to go to talk to the manager - it's bullshit, when they're in the office, they're talking football, women, or whatever - the salesman knows exactly what deal he's allowed to do - it's all an act to make out you're getting something special. I've worked as an accountant for two main dealerships, I know how it works. They can sell two identical cars on the same day, one at list price, the other at 25% discount, just according to who blinks first in the haggling stage!

They will see you coming for PCP - I recently bought a brand new car - used our savings (as they are earning bugger all interest) and used HP for £1500 as that gave us a discount from the manufacturer of £1500 . I haven't heard anything good about PCP (I know, you only hear bad stuff) but it does explain why you see all these youngsters in high end cars, when I were young... youngsters drove beaten up old heaps - then it didn't matter if they got a prang. How times change...

If you’ve never heard anything good about pcp @Yesyoudoknowme, I suggest you get out more. I’ve had pcp deals for the last six years and they suit me perfectly because I don’t want to tie my money up in a depreciating asset. What works for one person doesn’t for another.