Financing the purchase of a car...

[Onemorefortheroad]

We are in the process of having to buy a car. Previously, I have always bought a car outright (small, cheap cars) or paid a deposit and put the rest in a 0% card. The car we are wanting is too expensive for us to do either of these...

A number of friends use PCP or car finance but really not sure if these are worthwhile or are we better accepting that we need to buy older/smaller car...

Interested to hear what others do?

Been in the PCP / HP trap a few times. The car always ended up in negative equity. I got a loan to pay for my latest car.

Excuse my ignorance 🙈 but what happens in the case of negative equity? I'm clueless as to what this means! Thank you!

It means you owe more money that what the car is worth. It has depreciated to a lesser amount than the predicted figure that the lease was agreed on. You have to give back the car and pay extra on top. Or just buy it outright for more than you’d allowed for.

With PCP leasing what you are paying is basically what the car is losing in value every month, sometimes more. Unless it's leased through a business (VAT reclaimable, tax deductable etc) to me they don't make sense and a damned expensive way to get a car.

You say you can't do 0% credit cards but what about two, would that be enough? If not then loans are pretty cheap, some less than 3% if your borrowing more than £7500 and have good credit history.
Otherwise I think it's like you said, something slightly older but that's not a bad thing, there are plenty of three year old cars that are good value.

Why don't you just buy a car you can afford? (Either up front or at least affordable finance payments)

Why do you feel the need to be seen driving around in a car that you can't afford?

We bought a £16000 car a while back. Saved a deposit of 6k then took out a standard personal loan for the rest - £10k over 5 years at 2.8% is £178 per month.

We plan to keep it for a decade so hopefully we’ll have 5 years of motoring where we have no car payments.

We're in this situation as I'll be looking for a new car in next year or so. My friends have PCP deals/leases that I've worked out they don't pay much more than me (when in divide how much I paid for the car over the years I've kept it) but they get the advantage of having servicing for free and no mot and no maintenance. They also get to drive round in lovely newish cars whilst I've had mine 5 years and it was 3 years old when I got it.

Thank you all. I'm just trying to decide what the best options are. I would usually prefer we buy something that is ours at the end of it to drive around for another good few years with no finance payments m but hear a lot of people taking PCP so just looking at all options, but obviously has to be affordable of course!

Just check if the dealer will take an actual credit card. Last week, mine wouldn't for more than a couple of thousand. Needed to be bank transfer (I had the cash, but wanted the credit card points!)

What the long term plan?

The real difference between buying/leasing is whether you want a brand new car every 3 years. If you're happy to keep it, for, say, 6 years (or longer) then buying a brand new one is a no brainer (either outright in cash or by loan or HP). You'll have presumably looked after it, driven it well, so it should have a lifespan of 5-10 years without major repairs being needed if you don't hammer it into the ground. (Research for any known issues usually with higher performance cars).

If you want a brand new one every 3 years, then it obviously costs you more however you finance it, as they depreciate more in the first few years which is obvious if you own it outright but also factored into the lease costs if you lease, but then leasing makes more sense as long as you can get the right deal and look after it, i.e. you don't exceed the mileage limits and don't send it back damaged.

Just don't buy a new car, they lose an average of 20% of their value in the first 12 months. Buy one that's a couple of years old

Just don't buy a new car, they lose an average of 20% of their value in the first 12 months. Buy one that's a couple of years old

Or negotiate/haggle a good discount - if you are prepared to walk away and choose the right time of the year (when reg bonuses are due), you can get 10% off and sometimes more. The best discount I got was 25% off list price - surprised myself with that one, but the salesman/garage was desperate to hit registration targets to get tens of thousands of pounds extra bonuses for the garage.

I bought a car on a 0% PCP over 42 months deal. I originally wanted to pay cash for the car but they would only give me £500 off the price for cash but £2,000 for PCP, plus car mats and a tank of fuel which I had to pay for on the cash deal. I made a few payments on the PCP then settled the bill. It's always worth seeing what the best offer the dealer can do.

It depends on how long you're planning on keeping the car to the best way of purchasing it. My plan is to keep the car for at least 10 years so I don't hit quite so hard with the depreciation that happens when you change a car every 2-3 years.

HP won’t always end in negative equity. We have a golf and when it’s paid off it’ll still be worth £6-8k which is more than we’d ever normally have for a deposit for the next one.

Definitely don’t buy brand new though!!

I'm in the same quandary, but have ruled out PCP's as I do 12K+ miles per year, whereas most PCP's seem to be based on 8K miles or less PA.

I've also ruled out buying new, as cars lose so much value in the 1st 1-2 years.

I'm planning to take out a 2.8% APR loan with M&S bank, and buy a car that is 6-18 months old, ideally an ex-demo or pre-registered car.

Thinking about a Kia for the 7 year warranty. Curious about hybrids or electric cars for lower running costs, but need to investigate if it ties in with my mileage.

PCP is fine IF you fully understand the outcome.

You generally have a deposit to pay along with your monthly payments. You're also given a minimum future value. At the end of the PCP term you either hand the car back or use any value in it to use as a deposit on your next car. This is where people can come unstuck. If your guaranteed value is £10k and that is what you now owe, but the second hand market says your car is only worth £8k then you're £2k in negative equity. The beauty here of the PCP is that you give the car back and walk away. Of course you're now stuck without a deposit for your next car. If going down the PCP route...ALWAYS save a deposit alongside your monthly payments. That way you can always move on to the next car.

@MrFartPants do you get the full value of the car for a deposit or the difference between what it’s worth and the estimated worth?

Surely that means in some cases you walk away with nothing if you hand it back but possibly a few £k if you use it as a deposit?

Which part have I misunderstood?

You get the difference between what it's worth and the guaranteed minimum future value.

If the car is worth more than the GMFV then you have that towards you're deposit.

If the car is worth less than the GMFV then you hand the car back and walk away. Or you can pay the GMFV and keep the car.

Ahh!! Thanks for explaining that.

I know we lost out massively on a PCP deal before but it was our own fault for only keeping the car a year. So a fair bit of our current payment for our HP car is that negative equity from the last one. So we’re definitely keeping this one till it’s paid off then using it as a trade in.

PCP is a good way to drive a new car every 4 years. It’s worth it if you like brand new cars, and changing them regularly. That doesn’t sound like you, so I’d recommend buying what you can afford outright

Get a car thats 6-12 months old, and finance with a bank loan. Sainsbury's have great loan rates.

Check depreciation rates on the brands you're looking at - ive recently bought a VW this way and altho ill be in negative equity for a year, after that the value of loan will aleays be lower than what the car is worth so you have an asset not a liability.

Bank loan on low % or a 0% card is way way better than pcp or hp imo.

I bought a second hand car almost 4 years ago from my savings. I am financially better off than leasing or financing a new car. Mechanics are impressed with the state of the car and because of the age of the car I was able to google potential factory defects that some lines of cars seem to have and avoid those.

I'd say it's totally worth it and saves you a lot of money.

Interesting that people are saying don’t buy a brand new car. I would normally agree, but I’ve just ordered a car that is a new to the range model. It’s just what I need and there are no second hand ones.
To my amazement the amount I’ve been given in part exchange on my 5 year old car brings the brand new one into the price bracket of the nearest second hand one.
Manufacturers seem to want their new models on the road, advertising the brand and model, so savings to be made on the OTR price.