If you have a car on finance, why?

[Cupboarddoorknob]

Genuinely curious and not a dig.
I’ve only ever owned three cars, my first car my parents bought for me was an old banger, then the other two I’ve bought myself one for £6k which I saved for and then ran it until I realised repairs were silly and sold it on for £3k to cut my losses, I used that £3k and a bit of savings to buy my now car which cost between £3 and £4k and seems to be doing well so far. DH has always bought his cars cash as well.
We have friends who have up to £1k a month going out for car payments, all the while they are stressing about their outgoings, not able to save, not living in poverty obviously but it strikes me as total madness to have this monthly expense on a depreciating asset, even if it does bring a level of enjoyment.

I used to have cars on finance because I could afford it. I wasn’t paying more than I could afford and was able to pay the bills, save some money and enjoy my day to day life with enough spending money.

I don’t get it either. My parents bought my first cat and I’ve always saved and bought the next car that’s around 6 years old and then got rid when it starts to cost in repairs. Touch wood all of my cars have been very reliable have lasted years before starting to heed major repairs, and that’s driving around 10k miles a year. I’d understand HP if you’re going to buy on finance and you’d own the car after but I don’t understand why anyone would borrow through PCP. It’s never ending debt.

It's because people can't afford it. I have older cars & have had bank loans in the past & nowadays pay cash. My son's friend had no choice but to get finance from the garage for their car (10 year's old) as she had just turned 18 & couldn't get a loan from the bank, she couldn't afford to buy it outright & her parents couldn't afford to buy it for her. Car finance was her only option.

It’s never ending debt. well no, it ends when the contract terminates. You can see it as debt, I see it as monthly fee for driving a brand new car and without worrying about servicing or repairs. I don't have any particular desire to own a car, I only want to have use of one.

I have a never ending need for a car? Just as I do food, holidays, clothes etc…it’s all never ending. Surely as you’re using your car you’re saving for the next one in cash? That’s never ending?

Absolutely this and you can say the same with many things in life like home improvements. Borrowing money doesn’t mean you are up to your neck drowning in debt. You can borrow sensibly and enjoy life with nice things. Life is short there is no need to live miserably .

I am the same op and I honestly don't get it. I was given my sisters very very old car when I was learning to drive. It was over 20 years old by the time I had it. Later on I took out a very small loan and bought my second second hand car. While I was with my husband we took out loans to buy a van and a few cars for him. I was lucky enough to get a job with a company car, so sold my own. Drove that as a company car for quite a long time. When I separated from my ex and had some money out of the house we were selling, I bought my company car as it was coming up to being sold and wasn't being replaced. I still have that car, which has 200k miles on it. I have since buying this car been saving for a new one, so that when this one dies I have enough to replace it. I'd never consider taking out finance, and would only get a loan now if I absolutely had to.

Jan 2024

Honestly sometimes it’s cheaper.

We paid £50k cash for a car in Nov 22. Just sold it for £16k.

We would have paid considerably less than £34k on 3 years of finance payments with a balloon payment at the end (handing the car in instead of paying the balloon).

The depreciation was unavoidable due to the huge number of miles we do.

I do admit i find it weird when people buy cars on finance and replace them every 3 or 4 years.

I prefer to drive new cars and change them regularly. I don't want to save, buy a car and then drive it until it dies. It's a preference I'm happy to pay for. Yes, I could also buy a new car and then sell it every 3 years, but cars are generally not a great investment.

Our 17 year old car has never needed any more than basic service/consumables, so no, modern cars don't break down more and they last longer than ever. Never needed a new clutch nor gear box, nor suspension bits, etc., just a couple of new batteries, new brake pads, oil change and filters every year, new spark plugs every few years, etc so basic consumables. Same with the car previous to that which I got to 195k miles before I got rid. It's a fallacy that older cars break down all the time and aren't reliable. Unreliability is often down to lack of maintenance and poor driving (i.e. suspension, brake problems, etc). Look after them well and they look after you. I can't remember the last time we had to call out the breakdown insurance, must be at least 30/35 years. But we've been buying new for the past 30 years or so so we look after them from new and they last 10-20 years easily without major costs. I suppose if you buy second hand, you don't know what kind of muppet has driven them previously so more risk of problems due to either lack of maintenance of sheer bad driving taking it's tolls on the wheels and suspension.

Again I don’t know why people are so obsessed with depreciation, most things we buy depreciate! I’m not buying cars to invest, I have property and pensions for that! I buy cars for transportation and I like a comfortable and reliable vehicle, that is what I am paying for, I cant get that in old cars.

Wow. Where can one find reasonable running car under 4k? We looked this year and nothing this price waa in any dealerships.
We are not touching private sale, so maybe that's that

Better investment is buying new and keeping them till they drop which is usually 10-20 years, only costing annual services and replacing consumables. You can't get cheaper than that!

@taxguruwith all due respect but a 17 year old car isn’t what I would consider modern!

Surely your lease costs would have been a lot higher if you do high mileage, either that or high "excess mileage" penalties when you return it.

Where do you buy a car for £3-4K?

My current 2011 car, second hand, cost just north of $17k. That's what used cars go for here, in fact it's on the cheaper end. I used a chunk of savings and have a low monthly payment. Making that payment monthly improves my credit score.

I don't know anyone who pays cash upfront andnin full for a car. It depreciates the minute you drive it off the dealer's lot.

They’d be higher but not high enough to have exceeded the ridiculous depreciation. It was also a Landrover so was hit with those price crash issues simultaneously.

I’ve gone from never ever being willing to consider a PCP finance to thinking it could be the way forwards after this (I’m an accountant so fully understand the figures).

That's the thing. You have them from new and take care of them.
Many people don't take care of them and then it shows years later when someone else buys it.
I grew up with cars around from 70s and 80s and you could repair them with cellotape essentially😂 (only slight exaggeration). These were often given as first cars because their value was somewhere in a range of 2 good vodka bottles. People tookcare of tjem many still can drive around.
Now cars have way more technology in and one thing goes wrong it snowballs (and that's not just for cars).
Friend got used electric car few months ago and have been to service already 3 times. He is trying to return it to dealership now.

Depreciation is a huge factor in deciding whether to pay the full whack. You might as well flush a load of money down the loo if you pay full price up front.

There’s some weird inverse snobbery with some people, about others owning new cars. Those that buy old bangers seem to think they’re better than those who want to drive a newer car. For the record, both of our vehicles are several years old now but I totally get why someone would want to drive a newer, more reliable car.

If leasing is cheaper than buying, how do the leasing companies make any profit ?

If you buy new outright, then when you sell the cost of your vehicle will be the depreciation and the opportunity cost of the capital you used to buy

If you lease, then the lease fees must equate to both the depreciation and cost of capital (as above) plus the leasing companies profit margin and other costs.

It only works if the leasing company can buy a vehicle at a significant reduction to an individual, which I don’t believe is the case today apart from EVs that manufacturers are desperate to shift.

What have I missed ?

Depends on how long you keep it. If you keep it 15-20 years, depreciation is pretty immaterial when you divide it by 15-20. Obviously the opposite if you buy new and sell in 2/3 years when you'll suffer the highest/worse depreciation, but doing that is pretty insane really.

If I’d had the cash to buy a reliable car for my children and me post divorce I would have. But the reality is every penny I had went in to keeping a roof over our heads so my only option was finance.

I think a lot of extra profit is made by excess mileage penalties and damage charges at the end of the lease. Some people don't understand the lease terms and get whacked by big charges at the end.

Some garages also do the dirty by making out they're doing you a really good deal with the PX when you buy new on a lease, but they roll over the outstanding finance on the old into the new, and often extend the terms, or put in huge balloon payment, and the poor customer doesn't twig what they've done and get screwed big time.