Second hand car. Buy outright or purchase plan?

[OneJumpAhead]

It’s time to buy a family car after running my tiny car into the ground. I bought it second hand 12 years ago and it has done me well! The cars that I am looking at are decent SUVs, couple of years old, lowish miles, around £30k. I don’t need to replace every few years and fully intend to have the car for a long time so want to buy something that is only a couple of years old. I have £30k savings so could afford to buy outright and bring the savings back up over next 6-12 months. Would you buy outright and risk being without savings for a few months or, would you put say £15k down as a deposit and have the rest on a plan? Thanks for any advice.

Just compare the "total" cost of your alternatives, over the life of the finance.

I.e. how much interest and charges would you pay if you took out finance and deduct the amount of interest you'd earn on your savings if they stayed invested. If you can get a low or zero rate finance deal on the used car, then it may pay to do it. Also consider any other "benefits" as sometimes you can get a free/cheap service plan or extended warranty etc by taking out the dealer finance (or even a discount on asking price if you haggle!).

As for being without savings for a short time, that's something only you can evaluate the risk of needing savings for something, and whether you'd be able to finance the "something" by other means until you can save it again, i.e. availability of credit on your credit cards, or ability to take out a 0% interest rate on purchases credit card for a few months, and of course, what likelihoods there are of needing it, i.e. are you likely to need a new boiler, or a new roof, or whatever?

Personally, I would, and have just done it, use savings and buy outright rather than taking on debt and paying interest and charges.

I would go for the second option to keep savings in place but I’d pay a reasonable chunk and put the rest on an interest free credit card. If you can replenish that amount of savings in 6-12 months you should easily be able to pay it off before the free period ends and if not, transfer the balance.

We’ve just done exactly this (albeit on a cheaper car).

Thanks so much for the reply. You have given me a few things to think about. Will brain storm about possible big risks coming up but leaning towards buying outright. Feel like I missed out on learning about finances somewhere along the way (parents not so good with money) so these boards are useful!

I would buy outright.

If anything terrible happened financially before you had chance to replenish the savings you could always just sell the car to free up some cash and get a cheaper one.

I was looking at a new car the other day and the dealership were offering 0% 26 month PCP packages, could that be worth looking at? I was going to put down a healthy deposit, make the monthly repayments then use the rest of the money I had budgeted to make the final payment at the end of the term. That way my savings could stay working for me for a bit longer.

Are you talking about a used car pcp? I was looking at those-my budget is smaller than yours, but I tend to buy mine 3 years old then keep them around 6/7 years. The headline figures looked good but once I put in my actual mileage, it went up to around £400pm-I figured out after 3 years, I’d’ve shelled out the deposit, payments only to hand the car back and be down around 15k. I thought I’d stick to buying the car outright for around 20k and keep it for a further 3 years making it around 9 years old when I get rid. Only you can decide if you’ll be fine with no savings. Could you put some in interest free cc?

We're in the process of buying a second hand car and have gone for hire purchase. We could have bought it outright using savings but it would have completely emptied our savings accounts and, whilst we could build it back up again quite quickly, I don't like the thought of having no safety net in the meantime if something bad happened.

We're still paying a hefty chunk of the car's value between a decent deposit and the part exchange value of my current car, so our repayments will be minimal and paid off fast, it just feels better to keep enough money in our savings account to cover house repairs/vet bills/Christmas if we need it. I've always bought cars outright before so I wasn't keen on taking on finance initially, but we got a good deal interest wise and it's not a crazily long-term commitment.

Have you accounted for the SUV being a lot more expensive to run than a normal car? Fuel, insurance, tyres, servicing all cost more.

I'd look at a normal estate car for about £25k and keep back the other £5k as savings and not tie myself to something so expensive for getting from A to B.

I wouldn't empty my savings for a car. Can't you get something in a lower price bracket?