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?

We've always paid with cash, but never bought brand new. The last car DH bought he was offered a better deal if he took the finance option, with a minimum of six months payments. The dealer knew DH wanted to pay cash for the full amount but suggested taking the finance deal and then clearing the balance after the six months.
If this is a regular thing with dealers then it skews the stats somewhat that "everyone" is buying on finance, well yes we did but not for the full £20k over 3 years, and it was only because we saved money doing so.

My parents always paid cash, but drove old bangers, DH's dad did the same, my sibling and their partner too.
We've never been in that mindset of must have brand new cars. After we've bought a car we start saving again for the next one.

On my 4th car in 26 years. (Since dc). Pay cash. First wasn't quite big enough so pex after 5 years. Followed by two unglamorous mpvs bought at 2 years old and one year old that lasted for 10 years each, turning over 100,000 miles each. Overall annual cost v low. Latest car is smarter and ex demo because I am old and deserved it.

@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?

This is EXACTLY what I was going to say. I do not see the point of going into debt for a car as I am not into cars or having the latest spec. I'd rather buy outright something modest and spend money on other things.

From a bad experience I will never use finance or take out PCP deals etc. Vehicle finance companies are the most horrendous people and they will not help you out if needed, they would rather see you homeless.

Bank loan if you need too or save up and pay cash.

@Glitterb

From a bad experience I will never use finance or take out PCP deals etc. Vehicle finance companies are the most horrendous people and they will not help you out if needed, they would rather see you homeless.

Bank loan if you need too or save up and pay cash.

I do have the money in the bank that would cover all my finance if the shit hit the fan. I am saving for a house deposit though. I didn't want to get rid of all my cash. I wouldn't have done it otherwise. I've been in debt before and I'm not going back there. For my balloon payment I have set up a stocks and shares ISA. Finance can be useful if used correctly. The downside is the payment will reduce my affordability for a mortgage but my salary will increase quite a bit in the next year.

Never bought on finance.
I buy a 3 year old car in good nick and run it for 6 years or so.
Have never bought a car with a flashy spec or any kind of image, just go for the size and function we actually need.
I see people using finance to get big shiny 4x4s and think it is a marketing con.
My last car was 3 years old and £8k. Skoda. Had it about 4 years now, not a penny spent in it beyond service, MOT, tyres.

@lovelyupnorth I was idling about where I read it and I found this article. It only applies to new cars of course. But that's why I said to research it. As a PP said, but a new car and you lose 20% of its value just driving it off the forecourt. www.lovemoney.com/news/10350/a-cheaper-way-to-get-a-new-car

Monthly repayments are determined by subtracting your deposit and the car's minimum guaranteed future value (how much it would be worth at the end of your contract), then dividing the remaining amount across your contract term.
Because a large portion of the loan payment is deferred to the end of the loan term -- or in many cases not paid at all, monthly payments are much lower than traditional forms of finance, as you are effectively only paying for the cost of the depreciation of the car.

It's just a random atrifle on a finance page but I've seen it quite often.

I'm not sure I'm the reason the country is screwed btw, not sure what you mean there but it's pretty rude. I have never bought a new car myself as not into them.

We buy cash but I know we're in the minority amongst friends and family.

@lovelyupnorth here is an actual article from
What car - CARS THAT ARE CHEAPER TO BUY ON FINANCE THAT IN CASH. Include a Ford Fiesta, £522 pounds cheaper.

www.whatcar.com/advice/buying/cars-that-are-cheaper-to-buy-on-finance-than-with-cash/n19750

I'm sick of having to justify myself to rude people on this site. Why are people like this?!

We were offered the chance to refinance the car we had after 3 years on finance so we could pay less per month. That might be an option?

We didn't, as we were planning on getting rid of the car anyway due to a change in circumstances so I don't know how much it would have worked out.

Try refinancing your existing car at the end of the pcp - over 24 months . You will pay more overall but if cash flow is your main concern this could help. It should be a significantly lower monthly figure than you pay now as effectively you are buying a 5 year old car.

Most people I know have cars on a PCP lease. This includes my parents who are very well off and could afford to buy but like the convenience of PCP and not being stuck with an old car that needs constant maintenance.

I knew this thread would be full of cash buyers! In real life practically everyone I know buys on finance or pcp/leasing. I got a 2% bank loan on my car.

@lovelyupnorth My car was £1,800 cheaper using finance, it was a 0% deal.

We have 2. 1 on lease that's due to go bk after 3yrs and then we get a shiney new one. The other is bought outright, it's almost 6yrs old and is becoming a pain with repairs. Last 2 yrs have cost us £1300. We got rid of older car that was 11yrs old as it started needing more work but it was more reliable than this one. Be getting rid of it when everything opens back up for something with better reputation.

I hunk there are a lot if people who always buy on finance and a lot who never would and not much inbetween.

Personally, I don't want debt, I like to know I've paid for what I have and look at what it will cost overall rather than if the monthly payments are affordable. I like the security if very low committed outgoing and over time I have saved £££ putting me in a strong position as I approach retirement.

My boss, an intelligent, educated, professional person on a salary if about £80k is completely incredulous that anyone ever pays cash for a car.

Mine and also my DHs last car we've bought used (3 years old with low mileages though) and used a bank loan to buy. Then we intend to keep them till they die a death.

What "most people do" and what is actually sensible to do aren't always the same thing.

A former colleague who had worked for one of the biggest car manufacturers once said to me that said company's business model for making money was primarily as a finance anc loans company. The car-manufacturing activities made negligible profit by comparison but that arm of the business existed simply as a hook to get people to sign up to the financial products.

I have never used an "official" car finance plan but I have been able to fund my various cars with a mixture of saving and juggling with interest-free borrowing (eg buying on an old credit card and then instantly doing a balance transfer to a new credit card with a 24 month 0% deal) but only ever borrowing amounts that I could easily pay back from income in 2 years or less, and only ever buying used cars that I expect to last me at least 5 years or more so I spend more time not needing to make any car-purchase repayments than I do paying off car debt.

In your situation op, the question is, what are the alternatives? Renewing the car finance tie-in with a new car is fair enough if you can afford it and aren't compromising on budget needs elsewhere. Paying the balloon payment could be reasonable if the amount you would have to pay is significantly less than what you would pay for a similar age and quality of used car that was standing on a dealer's forecourt. There are always cheaper options but it's often rational not to go for the cheapest, so there's no one right answer it is about choosing the right balance point between your needs and wants when it comes to a car vs your needs and wants for all the other things you could be doing with your financial resources.

Neither. Only buy secondhand, non-luxury with cash.

What car do you own that is 13years old and worth 7k trade in? I'm guessing your either slightly hopeful with your value or the car is something interesting that holds its value.

I'm not a fan of PCP personally, not against finance though.
I took out a bank loan for our last car, as it had lower interest rates than finance and appeared on my internet banking so easy to manage and keep an eye on.

[quote girlofnow]@lovelyupnorth here is an actual article from
What car - CARS THAT ARE CHEAPER TO BUY ON FINANCE THAT IN CASH. Include a Ford Fiesta, £522 pounds cheaper.

www.whatcar.com/advice/buying/cars-that-are-cheaper-to-buy-on-finance-than-with-cash/n19750

I'm sick of having to justify myself to rude people on this site. Why are people like this?!

[/quote]
Because you didn’t add the evidence to the original post and who’s stupid enough to buy a new car?

How much debt is being carried by people’s so they can keep up with the Jones’s? And failing to save an emergency so when a pandemic hits they can’t eat or pay their bills.

But that’s the way of the UK.

That said, I don't look down on people for financing things or spending more money on cars. I just prefer to waste money on other things; we don't value having a nice car at all.

It all depends on whether a person wants a shiny new car or is happy with an older one. Personally I'm in the latter camp.

MPV 1: £10,500 drove for 9 years
MPV 2: £15,000 drove for 10.5 years

Spent very little on them and because I knew I would keep them until they died, never worried about the odd scratch or parking dent. It's the cheapest way of running a family car and surely it makes sense to tuck away £150pcm to cover the next one.

To be fair, when I bought my latest car and talked discounts, the best price was with finance for the dealer so I bought on Finance and repaid within the first month.

Cars are utterly meaningless to me and were to DH until he turned 50 and bought a flying willy.