What’s the most cost effective way to buy a car in our situation?

[ActonBell]

We’re coming to the end of our financing deal for our car (a VW Tiguan). This is the first new car we’ve ever owned. We can’t do without a car for work and family reasons but we need to be paying less each month than we currently are.

Our options are:

• refinance (which would mean paying more each month as we would have interest payments)
• Trade in for a new vw but we could go for a cheaper model
• buy the car outright (we can afford to do this with savings) then either trade in or sell privately right away and buy a cheaper new or second hand car.

It seems to me that buying the car, reselling it privately (to get the best price) and then buying a second hand car but one that’s as new as possible (ie still with a manufacturer’s warranty) would be the best way to get a reliable car that’s affordable for us.

Am I looking at this the right way?

Our top criteria besides cost are safety (we have a nearly 5 year old and a 12 week old), reliability and boot space.

Any advice appreciated- thank you!

Personally, especially when second hand cars are holding their value (or in some cases increasing in value) I'd be trading in for another new one. The only thing to be aware of is that the reason they're going up is that there's such a wait for new ones right now. If you speak to your dealer they'll paint a clearer picture as to how long the wait might be, and ultimately that might make the decision for you.

Thank you. The dealer has a car that is ready that they are pushing us to take, probably to meet their quarterly figures, but we don’t need to make a decision for another few months so we’re not going to be pressed into anything. As you say, by that point it might be a long wait for a new car.
We just really, really need to spend less. I’m on maternity leave at the moment and don’t want to go back to work full time so we have to find ways to bring down our outgoings.

Are you definitely sure that you could buy the car outright from the dealer for a lower price than you could sell it privately?

Couldn't you just give it back to the dealer and then buy a cheaper car outright instead?

Remember that you don't need to trade it in where you bought it. Our last car was a Ford with a large balloon payment at the end, and we were offered, from memory, about 3k more for it at the Mazda garage -plus mazda paid a deposit contribution and offered 0% finance. I was on maternity leave too, and whilst I'd never even considered Mazda before it was too good to say no to especially when I wasn't sure if I was going back to work full time. It's well worth shopping around and just seeing who has the better deals, and with things being as they are at the moment it's nice to be able to hang on to your savings if you can just in case you really need them elsewhere.

Why is buying it and keeping it not an option? I tend to buy cars at roughly 18 months old, with some warranty left, and then keep them until they are 8/10 years old. Then you are only paying running costs for a few years?

@karalime - I’m not sure I can get my head round that. Current plan is we buy it for £10k and we think we could sell it for £15-19K. So we would do that, put the money back in savings and then use the extra as part payment for a second hand but nearly new cheaper car and put the rest on finance.

@Haveyoubrushedyourteeth - I think you’re right. We definitely need to shop around.

@Teenytinyvoice - we could do that but it’s 4 years old now and we worry about repair costs and depreciation over the years to come.

I have a small car which is currently worth £3.5k than the balloon payment on the finance deal. In effect it's barely depreciated in the time I've had. Have you spoken to the finance company at all? My mother was able to sell her car to a secondhand car buying company, clear the finance and pocket £6k just recently. You'll almost certainly get a better deal doing that. If money is tight, consider lease hire instead of PCP.

Maybe I’ve been lucky, but it feels like there is less to go wrong with modern cars, and I’ve only had 1 “repair” bill over the 3 cars that I’ve owned in this pattern. Although the asset depreciates, in the time I’m not paying a premium I can save for the next car.

@Teenytinyvoice - I think it’s because we’ve been stung before that we’re cautious. We had a second hand Kia and as soon as it was out of warranty we had to pay for leaking air con, a new gearbox, new brake pads, etc. over a matter of months. Maybe we were just unlucky!

@WeAreTheHeroes - thanks. How does that work? You talk to the finance company and then sell it to a company that takes on the finance?

I would like to think there may be a Kia/VW difference, but I agree it’s a gamble

@ActonBell - they settle the finance direct and make a payment to you. It won't be as much as if you were to sell privately because they'll want to be able to make a profit when they sell it on.

One thing to bear in mind re buying then selling your current car, is the history of the next car you'll buy. You know where your current VW has been, how it's been driven, involved in any accidents, how reliable it's been. If you sell it & buy a 'nearly new', where has it been?
I'm in exactly the same boat as you & I've decided to give my current car back & get another new one.
Refinancing your current car won't be financially sensible because you'll be paying the same monthly cost for an older car that will start to depreciate.
So, I'd either get another VW from the dealer, or buy & keep your current one, but buy it outright, not through finance 💕👍🏼

I tend to buy 2-5 year old cars, cheaper brands like Kia, Nissan or Ford, then keep them until they're 8-10 years old. I've always had very minimal breakdowns or mechanical repair costs by doing this. I do think the most cost effective way is probably buying an absolute banger and then driving it into the ground but that's not really for me since I had children, I want a certain level of reliability.

Sorry, so in your specific situation I would exit the finance in the most cost effective way (which seems to be buying then selling the car) then buy a cheaper car.

Personally, I’d accept keeping a car that is over 4 years old. I don’t feel I need to always have a newer car.

If the current car has been reliable and worked well, although you will have to spend some money on it (new tyres, replacement parts at the standard points) there is no reason to think these bills will be vast. It should be cheaper to keep a car and run it for lomger snd keep it maintained rather than to keep having a new one.

In order to do this, you need to have some savings and be prepared to spend a couple or few hundred when needed. This though, is generally far cheaper over the long term than the cost of replacing cars with new regularly.

These schemes love to frighten people about the costs of maintaining a car and to give huge figures. They prey on people who do t have lots of savings and fear uncertainty. They will have you believe that a 5 year old car is extremely unreliable and will cost you a fortune. It is scaremongering.

Of course, if you were going to be someone who couldn’t pay a £300 bill when it arises, then you would be worried about this issue. But I’d as low suggest that if you can’t pay a bill of £300 you probably aren’t financially secure enough to be driven new cars which are always less than 5 years old…because those payments over time are vast.

I think it all depends on if you can genuinely buy the car for significantly less than you can sell it for. Usually that’s unusual. However if you have in writing the price the dealer will sell it you for, or it was guaranteed at the point if lease, you could be in a position that is unique to this particular phase of the used car market, where you can buy it and sell it on for significantly more. Be very sure about the figure you can buy for and be realistic about what you will actually get if selling it…it’s easy to be over optimistic.

When you then buy 2nd hand, you’ll also be facing the inflated second hand market, but as a buyer not seller. So will you be able to get another car that really enters your needs and is much cheaper?

Escaping the continuous lease system (trap) is a good idea if you can. Buying and holding onto your lease car, until it’s perhaps 10-12 years old will mean that although you incur some costs of maintaining it, the money you save on monthly payments can cover more than needed to save towards your next car. But it involves some self discipline and feeling confident to pay the car repairs as and when they arise. Those doing well financially are usually happy to do this.

And I agree that your current car is a known quantity and that counts for a lot. If it’s been reliable, it will probably continue to be. Although there will always be replacements needed and basic work, a reliable car often remains that way.

I agree that when you buy a different used car, it’s an unknown quantity. Has it been offloaded due to problems? There is a risk. The more you’d and I d out about any prospective car the better — it could be an ex lease that has been fine, or it could be a car that had trouble from the start. It’s not always easy to get that info. 5ise with troublesome cars don’t tell you their history fully.

@Teenytinyvoice

Maybe I’ve been lucky, but it feels like there is less to go wrong with modern cars, and I’ve only had 1 “repair” bill over the 3 cars that I’ve owned in this pattern. Although the asset depreciates, in the time I’m not paying a premium I can save for the next car.

We’ve a 13 year old and 7 year old car, both bought new. Neither have needed anything major done, just annual services, new tyres, brakes, etc. We have no immediate plans to change either. Cars definitely last longer these days, especially if driven carefully and regularly serviced.

Thanks everyone. I’m feeling quite divided now. We don’t feel a need for a new car but I suppose I had been thinking that right now the car is an ‘asset’ of sorts - it’s newish and a good make and so I was thinking in terms of using it to get us another asset, a newer car. Whereas if we keep it it will lose a lot of value from now on as depreciation is highest immediately after you buy it and then after it’s 5 years old.

However I see the point about not knowing the history of second hand vehicles and it’s second hand ones that have given us trouble before.

So quite a few people think we’d be better off keeping the car until it’s worth a few thousand at most as a oldish car and in the meantime saving each month for the next car?

I’m not sure that at the end of that we’d end up with more money to put down on the next car than we would by buying and selling now. So, for instance auto trader give the trade in value for the car as roughly £16,500 and we think we could sell it for more privately. Maybe as much as £19,000. The end of agreement payment is £10,000. If bought it and kept it and then we saved £200 a month for the next 4 years we’d have £9,000. Plus we’d have to pay for servicing and repairs in the meantime. We’d also have the resale value of the car of course but it would probably be quite low at that point.
Or am I missing something?

Just to clarify the car is on PCP.

Is it on 0% finance? If not, what's the interest rate? What is the current settlement figure?

If you don't have £10k then consider selling it to trade and then a new lease hire deal or a new PCP where you don't have to put a huge deposit down.

So sell them car privately and shop around for a really cheap PCP/lease deal for something that is cheaper and in stock?