Buying a car - tell me how finance works, can you put it on the mortgage etc?

[theborrower]

DH and I would like to get a car. Not totally essential as we bus it to work, but we are always borrowing my parents' car for day trips and visiting the in-laws (essential for that) and it would be handy/nice to have our own.

DH and I have been crap with money in the past, and now that we're not (we don't have any debts apart from the mortage, always pay off the CC in full each month etc) we're conscious of not taking on any debt. We tell ourselves that if we can't pay cash, we shouldn't buy it.

However, a colleague told me that nearly everyone pays for a car on finance, and she put her car purchase on their mortgage.

Is it easy to do that? Is it sensible? Or should we just get a finance deal from the car people? Or a loan from the bank??

I don't have a clue how it works! Advice welcome.

I actually save and buy cars out right but obviously that takes time. Second choice would be a loan (sainsbury's loan 5% or something at the moment). You can then pay monthly + other chunks when you have the money. If you put it on your mortgage you pay more overall as you are borrowing for 25 years instead of, say, 5. Even if the rate is lower its probably not worth it.

I bought my current car on my credit card and am paying it off as I would with any other debt. It cost around £3k and I had a fairly low interest rate on the card.

I've also bought cars using personal loans (bank and other reputable loan companies) and an overdraft (first car for £500).

I've always shied away from getting car dealer finance as a) it's normally very expensive and b) if I missed a payment I could potentially lose the car.

You could put it on your mortgage if you're happy you have the equity to cover it but bear in mind that you'll be paying the cost of the car back over the term of the mortgage (eg 20 years) so you'll still be paying for it long after the car's on the scrap heap.

I never heard of putting a car loan onto the mortgage - unless your friend has a home equity line of credit and used that to purchase a car?

Have you worked out what it would cost you per year to own a car - payments, MOT, parking, petrol, insurance, etc.?

In your shoes, I'd keep borrowing the parents' car while I piled up money to pay for a car (or most of it) in cash.

Bugger, I've just realised that I am still paying for the shitty Renault Scenic that I got rid of 6 years ago! I bought that one for a couple of grand, using the remainder of some money that we took out of the mortgage to do some work on the house. Repairs came in under budget then my old car died, so I used the left over cash to finance a replacement car. Which turned out to be a crock of shite.

Can't believe I'm still paying for it every single sodding month .

i have my car on ford finance options. it means i pay a certain amount each month and i can upgrade it in a few years for a newer model

i spent so many years with old cars which broke down and cost a fortune to fix that so far this has been really great and the car is newish so isn't knackered!

i wouldn't have added it to my mortage to be honest but would go with a big car manufacturer ie ford, vw etc and check out their deals before you make your mind up. with them i get cheaper mots and services etc.

It isn't just the car - it is also the insurance, roadtax, petrol and everything else.

Would it be cheaper to look into a car scheme?

For occasional use, I honestly would not buy a car. Once you've factored in all the costs (including the finance costs) you'd almost certainly be better off either hiring a car if/when it's not convenient to borrow your parents', or doing some kind of scheme like the City Car Club.

I went thro car loans 4 u and was really worried it would be some awful pay day loan type thing: I got a really good deal thro a bank via them that was cheaper and better t and c than the dealer finance.

I presume you will be buying second hand? Are you planning to buy privately or from a garage? I would never buy a car on finance. It depreciates and so chances are you will end up paying money on a loan that is more than the car is worth, so if you need to sell it you still owe money.

I hate being in debt so I always save up for my cars and pay cash for them

There are 2 types of car finance - a straightforward loan, like you woukd have from your bank, and something more akin to leasing, where you pay an amount upfront, then a monthly fee for 2 or 3 years (or whatever term you agree) and then at the end you can buy it, hand it back or upgrade to a newer car.

Agree that for occasional use it makes no sense to have one depreciating outside your house every day. Car club or hire a car will work out cheaper.

OP, we have always lived on the same principle, save up and pay cash. We have no debt now, not even the mortgage, but obviously we had one of these.
If you have been bad with money before, don't get involved in financial deals unless you totally understand the t&cs. What always worried me was the fact that in my lifetime interest rates went from 4.5% to 15.5% almost overnight. If you either can't understand the repercussions of this, or don't want to take risks, save and pay cash.

We did pay for a car with our mortgage. I worked out what a 3 year car loan would cost us and overpaid the mortgage by that each month for the 3 years. A far cheaper interest rate.

Once we had finished the 3 years I put the "loan" money into a separate account and 4 years on we have enough to by our next car.

please dont put your car on your mortgage - it means you are paying for the car as long as your mortgage lasts - so if you have 17 years left on it you are paying for your car for 17 years.

i have a few friends who have used a couple of different ways to buy a car. one put a small down payment on a car and used an interest free credit card to pay the rest with and paid the rest off over 2.5 years - she moved cards during that period to keep the loan interest free.

another friend bought her car on one of these deals where she paid £150 per month but after three years just handed the car back.

Another reason for not putting a depreciating asset like a car on the mortgage which you're paying for over 20, 25 or 30 years. Putting it baldly, if you default on mortgage payments, you lose your home. If you default on car finance payments, you only lose the car.

There are some good deals for new vehicles at the moment where you can buy a new car, pay so much a month for three years and, at the end of the time, trade it in for a new model with the same dealer. Alternatively, have a look at leasing. All the benefits of car ownership with none of the costs attached to maintenance, depreciation etc.

Wow, thanks for all the replies! Some food for thought.

Another reason we'd like one is that we have a 3 year old and are TTC another. It would be handy for me to get across town to visit friends etc if we had a car, rather than trudging across town on a busy bus for 45 minutes+. But yes, still not essential, and we've agreed that we won't use it/ need it for work as that will waste petrol.

DH and I discussed the mortgage thing last night and agreed that was a mad idea, especially as we've just recently started a new 25 year mortgage. So that is one option we are not pursuing.

DH is reluctant to get a second hand car, as he had one when he was younger and found it swallowed up costs for maintenance, and he only got pittance for scrap when he was done with that. That was a long time ago, mind you.

No, we haven't actually worked out how much a car will cost us every month/year - I guess we better start researching that too! Insurance may be high for me as I'm only learning to drive at the minute, so will be a new driver when/if we get one. DH has been driving for a loooong time.

I think we're going to do some research on how much these deals are where you put down a payment and then pay x a month, which allows you to trade up later. Will also investigate leasing (how do we do that?).

My dad is always banging on about the City Car Club, so yeah, might check that out too, just to see what it's all about.

Thanks!

Can someone talk to me about leasing
E.g. Toyota leasing includes all running costs (minus petrol!)
I can't get my head around just leasing and handing it back.

(Maybe I need to do a spreadsheet)
Don't you feel you are just paying something you never own?
Wouldn't buying new give you a second hand car to sell at the end?

I've leased a car (through the company) for years. I pay a monthly amount which covers the use of the car, road tax and maintenance/repairs. I still need to insure myself to drive the vehicle (and anyone else obviously). Mine also includes roadside assistance (RAC) and windscreen replacement with the lease cost. You agree a term for the lease and, once that expires, the car is returned or replaced with a new one if you keep the agreement going.

Moneysupermarket.com has a typical selection of long-term lease offers and some good background explanations.

"Don't you feel you are just paying something you never own? "

Unlike other assets (like a house) a car loses value every year and tends to cost more every year in maintenance and repairs. If you buy a car on HP you're paying quite a lot of interest as well. So a lot of the money you put down on the car you never see again.

Example

Car costs 10,000
HP over 3 years at 8% ... 300/month
Servicing/repairs/tyres/MOT over 3 years... 1000
Resale value three years later .... 6,000

You've 'lost' 10,800 in HP payments, 1000 in servicing and 4,000 in depreciation.... total 15,800

Using this example, if you lease a car for 3 years at 438/month you'd break even.

The middle ground between new and second-hand is a car that is 2/3 years old. It will be considerably cheaper than a new car yet still have the new car feel, perhaps be in warranty and the previous owner took the depreciation hit for you. We did this for our last two cars and have been very happy with them.

Car loan is usually deemed as unsecure debt , hence the rates can be higher than a mortgage. You always lose money on cars or pay over the odds.

I've financed cars through loans and HP. I found HP much more expensive than the loan, when we came to sell the car with the loan our px value was higher than the loan, so we sold it for the loan and had some money left over. Currently we save and buy and nearly paid by credit card but we'd have been charged a percentage for that.

I have never bought a car on any kind of finance package & I've been a car owner for 24 years now.

I always buy cheepish cars, usually about 10 years old for approx. £2 - 2.5k. I am reasonably car savvy, so check for full service history, cam belt replacements, check mileage patterns, know what engine oil should look like etc.

I buy fairly simple cars, that don't cost much to service & I replace them every 3 or 4 years, selling them for about half what I purchased them for.

So, I usually only lose £1 - 1.5k value over 3-4 years. The cars cost £300 to service & MOT each year & very occasionally (once every 5 or 6 years) I might have a bigger repair of £600 or so.

They are not very glamorous, but apart from one, have all served me very well.

your colleague is a fool. If money is tight, tying into a car loan is FOOLISH.

'nearly everyone' buys on finance. Do they hell.

you can get a decent car for £1000 or less. Save up.

On the City Car Club, I relied on it right up till getting my own car a year ago, when I had a five year old and 18 month old. It's doable as long as you have an available car near your house. But you do have logistical issues if you can't carry your car seat that far. I had a car within five minutes walk and I could do it relatively easily until my no 2 moved into the 1 year plus seat, because that's so much more heavy.

But my DH works from home so usually he could mind the kids while I got the car so times when I had to carry car seats a distance while also looking after two children were few and far between, but I don't think you could do it without someone around unless the car was nearby.

In terms of money, I found I was spending about £120 a month on it when I was using it probably 2-3 times a week. And that includes petrol, insurance, everything. I often used the bus to get around instead (if you're going somewhere that takes 45 minutes to get to on a bus it's often quicker in a car but with city car club you're then paying to have the car sitting outside doing nothing.)

I'm spending about the same on having a car now - and the car I have was free, so no finance costs to take into account. The other city car club upside is you can feel like you're doing your bit for the environment too and don't have to worry about garages.

OP glad you have decided against the mortgage option. I think this was popular pre credit crunch as a cheap way of getting finance when house prices were rising everywhere (so people had plenty of equity to borrow against) but I'd be surprised if any lender gave money to someone wanting to borrow more for a car these days.

We've bought 2 cars this year (replaced DH's and got one for me as we were expecting DC1). We have plenty of savings but didn't want to use them all up on both cars. Decided that as savings rates are rubbish it would be best to buy DH's car (our main family car) for cash because it would have attracted bigger interest cost on finance of any kind. We were looking at either new or up to 18 months old. Found dealers are really not interested in cash buyers, they make all their money from finance, so you get better deals that way. However consumer credit rules allow you to cancel your finance (in 14 days I think) and pay the finance company off, but you still get the benefit of whatever deal you did with the car dealership. So that was what we did. Plenty of information about how to do this online, DH did the research so not sure of best links.

With my car we got a bank loan. The monthly payments are more than many car finance options but this is because we're paying the whole amount off in the 3 year term and don't have a "balloon payment" to settle. We're hoping to keep running it as long as possible so that works for us, it was nearly 2 years old with low mileage when we bought it and will mostly be used for local trips so should stay low mileage too. The loan is flexible so we may pay it off early depending on bonuses, potential house move etc.

One thing I would add is dealers can be very opaque about finance terms/interest rates etc. DH works in financial services and it made him quite cross as he is not allowed (by regulators) to promote mortgages the way car dealers communicate. So pays to do your research and ask questions, and if you don't feel like you're getting the answers you need be prepared to walk away.

Having said that the VW website had quite a clear finance calculator thing when we were looking that is worth checking out...even if you're not planning to buy from them, might help illustrate the options better.