How would you finance buying a car?

[clam]

Will need to replace my car at some point over the next few months. What are the best options for financing it? DH says buying new is a complete waste of money as it depreciates the minute you drive it off the forecourt. But can you get finance deals (good ones) for used cars? And are they a good idea if we could pay cash? I keep reading that dealers are in dire straits, but prices still seem high to me.

But that doesn't help Clam because the rates are presumably different in the UK.

Othersideofthechannel - Livret A rates were about 5-6% (guaranteed) in the first three months of this year in France. We postponed all main purchases, put all our cash in CIC and are currently getting 6% pa guaranteed interest. Of course it will end at the end of March.

Can you go into and take your money out of these assurance vie accounts at will? Or does the money have to stay in there until you retire/die?

SlightlyMadScotland - One thing I probably should mention re your calculation:

Your calculation doesn't show any capital payments, but in reality, you will be paying back capital as well as interest every month.

Banks/finance companies calculate your mortgage or interest payments such that at the beginning you pay almost entirely interest, which gradually decreases over the duration of credit and you pay mostly capital towards the end.

I sort of agree Leningrad. Apart from houses, I prefer to save up in advance. But once you've done that, it still makes financial sense to leave your savings working for you and borrow the money.
And of course, some people need a car before they have saved up the money.

CoteDAzur, you can take money out of 'assurance vie' when you like but it usually takes a week or so to get your money so it's not really ideal for dipping into regularly. You pay tax on the interest if you take the money out before the 'assurance vie' is 8 yrs old. You can choose to invest or all of it in shares, or all of it in guaranteed return bonds. And you can set one up by putting in a lump sum or by paying in a regular amount monthly.

It's not like a personal pension plan (PERP) where you have to retire or die before the money is released.

That should read "You can choose to invest some or all of it in shares"

My calculations are grossly simplified - I know that...but I have assumed that interest and capital are paid back evenly throughout the loan.

We've just taken out a 0% deal with a Kia main dealer, which I thought was a pretty good deal ( the total price of the car was on par with other sold by other dealers but without the interet free option.

btw it was a second hand model aswell

get thee here doris

sorry for the hijack.

Othersideofthechannel - We are Monaco residents so I doubt if they could charge us a tax on anything. Except if that is a 'penalite' for early withdrawal rather than tax. I am not sure if assurance vie is an option for us (some financial instruments common in France are not offered here)

Anyway, having to keep money in the account for 8 years is a bit restrictive and in that case 4% isn't much of a return imho. There are sovereign bonds for much better rates than that.

SlightlyMad - You haven't calculated capital repayment at all in the previous post.

It doesn't matter for the purpose of this thread, but when doing your own calculations for any future borrowing decision, remember that (1) your monthly payments will not just be interest, but interest+capital (amortised) (2) initially, most of your payment will be interest. At the end, most of your payment will be capital.

(2) is important for whether or not you want to pay back the loan at some point. It makes sense to throw money at it in the beginning, because you are paying so much interest. It doesn't make sense towards the end, because what you are paying is basically capital at near-zero interest.

Well I'm not trying to sell you an 'assurance vie'

I was just trying to make the same point as SlightlyMadinScotlands, that's all. Before you consider paying cash, you should compare the loan rates to the interest rates on savings products.

I know it makes sense for us to take out a loan. (We have been putting away a little each month for years knowing that we would eventually need to replace a car)

Sorry...(off the point of this thread; I just want to learn what I have done wrong) but why haven't I considered capital? I have paid off the whole value of my loan+interest in my example so surely I must have paid off the capital? I know that the way that I have calcultaed the interest isn't realistic...it was only to illustrate a point.

TBH if I am in the position I would quet a quote which would giev full details of the interest charges - I wouldn't calculate it myself. I was only trying to illustrate the 4% savings v 4.9%

Out of interest I have just put £5000 savings at 4% over 3yrs and £5000 loan at 4.9% APR (I know there is a difference...lets assume no fees) over 3yrs.

So total invetment is £5636 (£636 profit)

Total loan repaid is £5378 (£378 charges)...so the financial differences are bigger than in my illustration.

Another consideration is something called "time value of money". Meaning, £636 interest and £5000 capital you get in three years time is less valuable than £5600 in your pocket today. The reason is inflation.

Assuming 2.5% constant inflation over the next three years, that total is worth 5636/(1.025^3)= £5233.

This is why banks/finance companies make you pay the capital back every month, rather than at the end of term.

Fair point....