Do most people use finance or borrow money to pay for cars typically?

[Onedropbeat]

We have 2 cars, one is old but bought for cash so it’s just the maintenance required to keep it running that it costs us. This is creeping up with the older the car gets (13 years old)
It’s worth around £7k as a trade in or £8k private sale.

Our main family car is now 5 years old. Bought on finance with a balloon payment which is due this time next year

It’s a good car and not very costly to run at the moment as still relatively new and low mileage (to us)

Originally I planned on saving the money in a pot to pay the balloon and keep the car so that we are finance free on the cars

However, Covid means earnings and bonuses have dropped and vanished and so I won’t have all the money required by this time next year

Do most people use some form of borrowing for their cars?

At the moment it’s appealing to hand the car back, swap for a new one, and keep paying the same monthly payments which we can afford without having to worry about or dip into savings

But this will end up being in a perpetual cycle of finance for this car and I worry how long the original car will last before it’s more economical to replace for a new one

What would you do?

@NoSquirrels

I basically think there’s no really great way to buy a car unless you’re happy to buy very cheap for cash and accept the uncertainty on reliability and that you just scrap it if it costs more than it’s worth to buy another very cheap car.

If you want a reliable car you either pay cash outright (then need to save up again £x per month to do it again in x years), get a bank loan for £x per month for x years, keep it hopefully longer than paying off the loan and save up again a bit longer, then start again, or pay £x per month on finance for x years, hand it back and start again.

It all costs £x per month and your ‘asset’ depreciates so it’s your comfort level of cost-reliability that determines it.

This sums it up. A car will always lose you money. We do PCP - I love my car - it's my one extravagance. Yes it costs a lot but I don't drink or smoke and we rarely go out. I love driving and enjoy my commute. We all spend our money on something. I'd do as others have suggested - buy on a PCP again.

In real life, the majority of people get cars on finance. So much so that the majority of dealerships now don’t offer any discount for paying in cash as the majority of their customers are finance.

Our experience was that they're not really interested in selling cars, only finance

Have done both. Bigger decent one on finance, cheaper run around bought in cash.

Bank loan and Hefty deposit / trade in

I would never get a PCP deal they are the worst value. If you want a new car and low payment, lease.

PCP is basically leasing at a higher cost and with a lump sum to keep the car. Or "hand it back" and cut your losses. It's pushed by car dealerships are is almost guarantees you'll stay with that brand and return it for a new one with them. Avoid

Only ever bought a car I could pay for in full. Save for it and pay for it. Finance is an elephant in the room. What if your circumstances change. Acar is a vehicle, it gets you from A-B, that's it for me. Doesn't have to be flash just decent, reliable and economical. I could never commit to years of monthly payments, I'd feel trapped.

Bank loan plus deposit or trade in.

I think the majority have finance. My car is leased and my group of friends all lease too.

When it comes to money (and food!) mumsnet is not the real world.

There’s no winning with buying a car. They cost what they cost and you’re either saving up that money to buy it or paying that money to a finance company.

For the first time we’ve actually got to the end of our HP agreement and don’t have a payment but all it’s meaning is our car is worth less and less all the time and won’t get us as much when we trade it in.

Unless you’re one of the people happy to drive an absolute banger or something cheaper you can afford to buy with savings you already have then I don’t know why you wouldn’t just pay finance. Yes there’s interest but such is life.

We always buy second hand and for cash. I’d say the majority of our friends have cars on finance, but they drive much nicer cars than us!

I save up and buy outright. I don't like getting things on finance. You still have to pay tax and insurance and fuel and I'd hate to pay for the car aswell

Research it, but I thought it was acknowledged that you should never buy a new car with cash. I think finance is actually cheaper when you take into account depreciation.

@QuestionEverythingOrBeASheep I feel the same as you

@girlofnow I don't think most people are suggesting to buy a new car with cash but more a second hand car with a few thousand.

In my circle of friends, most people buy second hand cars with cash. Most are not able to afford new cars and would rather not do finance.
For finance however, I think the hire purchase option seem more plausible if one wants to avoid the ballon payment in the end as even if the monthly payment is more than the one in PCP, you’re paying to own the car basically.

We always buy second hand unfashionable but fairly new cars for cash. The key is buying the unfashionable ones. We bought a couple that were very low milage ex-motablility cars, they were good. Now we have just gone for a discount brand. If you want something smart you need much more money or finance, bur personally I don't care about cars and don't want one as a status symbol. I also don't do that many miles so tonnes of gadgets are wasted on me. Safe, simple, cheap is all I want.

Although expect an absolutely shit attitude from car dealerships if you want to pay in cash - they will hate you as they see their bonuses from selling finance/ gap insurance etc flying out the door.

@girlofnow

Research it, but I thought it was acknowledged that you should never buy a new car with cash. I think finance is actually cheaper when you take into account depreciation.

Wow. The opposite is true.

But that’s why Britain is screwed.

@Thislittlefinger123

We've never used finance. Always bought cars 2 or 3 years old for cash and kept them until they die of old age 😆 But I'm very debt averse (except mortgage) so I've never bought anything on finance. Could you hand it back but buy a cheaper second hand one?

Exactly like me. If you want shiny new cars which don't go wrong, this approach is not for you.

The majority of new cars are bought with finance.

Secondhand cars vary more, finance companies won’t lend if the car will be a certain age at the end of the finance agreement, banks are less fussy.

Sometimes you can get a better price via finance. I bought a brand new car just over a year ago, I went with finance as I could get a far better deal on the price of the vehicle. I then settled the finance within the 28 day cooling off period. Paying cash to the dealer would have cost me £1,800 more. My previous car had been stolen, so my insurance payout along with some savings meant I had the luxury of having the cash available.

My finance deal was 0%, so even if I stuck with the monthly payments it would still be cheaper buying with cash, even when you consider the slight increase in insurance.

We bought a 3 year old car for £6k new £16!000 at the time. Kept it for 10 years. Sold it for £1k having driven 80,000 miles in it.

We then bought a 1 year old car with a reasonable mileage for £11k (new would be £19k) and we will keep if for around 10 years. We’ve owned it for 18 months now ans to the we buy any car valuation is £10250. So it’s costs us less than £40 a month in depreciation.

But as above it’s not a fashionable car but it’s rock solid with all the toys.

but I thought it was acknowledged that you should never buy a new car with cash

Agree, why lose 20% of your money straight away in VAT, plus all the other charges that dealers levy, like delivery, number plates etc. ?

I got a personal loan for mine, it was only £2k though and paid it off within a year.

We’ve always bought our main family car on finance (bank or ‘supermarket’ loan as low rates), and a second run around with cash. The main family car is usually about 2 years old when we buy it and 8 years old when we replace it. The run arounds have always been about 2k and kept 3/5 years until not worth repairing anymore.

I got my latest car on PCP. I usually buy outright. However, due to the nature of my job I needed something newish because I do a lot of late night solo driving in remote places. My balloon payment is small compared to many because I put the max deposit down.
The way I view it is that I am renting a nice car for 30 quid a week.

Always buy second hand cash , it used to be total bangers that would last a year, but now I've moved up in the world and have a car that's a mere 5 years old.! I have no interest in cars they just get from a to b .

My daughters balloon payment was due last summer and she was able to switch it to monthly payments over two years and keep the car. It was really straightforward.