downgrading car lifestyle

[Dave200]

This doesn't need to be another thread where finance is looked down upon. Financing assets is fine if you can afford the payments. In fact, it's the most sensible decision in many cases, like guarding against new car depreciation. As people in this thread have demonstrated the problem comes when you realise you've stretched yourself to make those finance payments, and in the worst case scenario won't even own the asset at the end. Seeing people here talk about having to sell cars or give up leases so they can afford the basics in life is an indication that the allure of shiny things is causing people to stretch themselves unnecessarily.

[keo]

Forgive my ignorance but how does finance guard against car depreciation? Depreciation is a cost however one thing is paid for?

[Deep Thought]

keo said:

Forgive my ignorance but how does finance guard against car depreciation? Depreciation is a cost however one thing is paid for?

The most common form of new car finance is PCP.

With PCP you have the option to hand the car back at the end of term, with nothing further to pay rather than pay the residual payment.

[Nomme de Plum]

keo said:

Forgive my ignorance but how does finance guard against car depreciation? Depreciation is a cost however one thing is paid for?

It depends on the finance arrangement. If one borrows an amount to buy a car then is is zero protection as the car is yours.

Other finance arrangements allow the car to be run for a period, then handed back or a final payment made . Depreciation is not lost. It's just hidden in the payments. It's illusory.

[Hugo Stiglitz]

Abarth 595 Competizione to a 12yr old Ford Mondeo. I love it.

[Deep Thought]

Nomme de Plum said:

keo said:

Forgive my ignorance but how does finance guard against car depreciation? Depreciation is a cost however one thing is paid for?

It depends on the finance arrangement. If one borrows an amount to buy a car then is is zero protection as the car is yours.

Other finance arrangements allow the car to be run for a period, then handed back or a final payment made . Depreciation is not lost. It's just hidden in the payments. It's illusory.

I think the word missing was "unexpected" deprecation.

If someone has got a PCP agreement at a palatable interest rate (pre COVID 0% was more common but its about out there now again) then you have a fixed amount to pay at the end of the term.

If the car turns out that the car is worth less than that, then simply hand the car back.

For example, i'd have thought quite a few people who got a new Tesla, etc via a PCP deal will quite cheerfully be handing the car back at the end of term, with the cars being worth £,£££s to potentitally ££,£££s less than expected.

Years back Mrs Thought had a Z4 Coupe on PCP. It was just after the stock market / property crash around late 2009 / 2010 that the end of the term was reached. I think from memory the final payment was £18K, and the car was worth about £14K in that market dip. Needless to say she handed it back.

[keo]

Thanks. So finance is renting unless you pay the balloon. If that is an option.

Different strokes to different folks. I had my Exige on 0% and kept my money invested. This helped to pay the depreciation. I aren’t so naive to think 0% is truly 0%. The salesman even said the finance costs them but strangely when I said do me a deal and il pay outright they wouldn’t. Maybe a typical salesman full of rubbish?

The way I did it definitely worked out best at the time. But the world was different 2.5 years ago!

[Dave200]

keo said:

Forgive my ignorance but how does finance guard against car depreciation? Depreciation is a cost however one thing is paid for?

If you buy a car outright you're 100% exposed to depreciation. If you lease or PCP a car then your exposure is limited to a fixed amount. In the event that the car depreciates by more than the amount you've paid, you just hand the car back and walk off into the sunset.

[Deep Thought]

keo said:

Thanks. So finance is renting unless you pay the balloon. If that is an option.

Different strokes to different folks. I had my Exige on 0% and kept my money invested. This helped to pay the depreciation. I aren’t so naive to think 0% is truly 0%. The salesman even said the finance costs them but strangely when I said do me a deal and il pay outright they wouldn’t. Maybe a typical salesman full of rubbish?

The way I did it definitely worked out best at the time. But the world was different 2.5 years ago!

PCP can be used like renting / leasing if you're treating it as deposit + monthly repayments and dont want to own the car at the end of the term.

Typically 0% finance deals are done as an incentive via the manufacturers finance division, thus there is no discount offered if you dont take it (which would be illegal IIRC).

[keo]

Dave200 said:

If you buy a car outright you're 100% exposed to depreciation. If you lease or PCP a car then your exposure is limited to a fixed amount. In the event that the car depreciates by more than the amount you've paid, you just hand the car back and walk off into the sunset.

Thanks, I’m getting a bit mixed up in all the reply’s now. But from what you say and the example about Tesla above I understand it a bit more now. I don’t think it would work for me. But everyone’s circumstances are different. You do the best for you.

[jhonn]

Dave200 said:

If you buy a car outright you're 100% exposed to depreciation. If you lease or PCP a car then your exposure is limited to a fixed amount. In the event that the car depreciates by more than the amount you've paid, you just hand the car back and walk off into the sunset.

True - but let's not forget that you are potentially limited in other factors, that can cost you as well..

If you exceed agreed mileage, excess charges can be significant
Modding your car isn't allowed (adding towbar, lighting, etc)
Any damage (kerbing, minor dents, etc) can be prohibitively expensive

Of course, these are all things that will affect the value of a car outright owned, however in a privately owned car they are more in the control of the owner.

Different strokes for different folks - there's no universal 'right answer' that fits all.

[alscar]

keo said:

Thanks. So finance is renting unless you pay the balloon. If that is an option.

Different strokes to different folks. I had my Exige on 0% and kept my money invested. This helped to pay the depreciation. I aren’t so naive to think 0% is truly 0%. The salesman even said the finance costs them but strangely when I said do me a deal and il pay outright they wouldn’t. Maybe a typical salesman full of rubbish?

The way I did it definitely worked out best at the time. But the world was different 2.5 years ago!

Might depend on the dealer too ?
I was offered that same deal on my Exige 410 but they agreed to give me the OTR costs as a discount plus a few other bits - worked out to around £3k off.

[Nomme de Plum]

Dave200 said:

keo said:

Forgive my ignorance but how does finance guard against car depreciation? Depreciation is a cost however one thing is paid for?

If you buy a car outright you're 100% exposed to depreciation. If you lease or PCP a car then your exposure is limited to a fixed amount. In the event that the car depreciates by more than the amount you've paid, you just hand the car back and walk off into the sunset.

The depreciation is wrapped up in the monthly payments. Furthermore you do not get the benefit of a discounted purchase price that would be available with a cash or separately financed position. Sometimes if timing works in your favour and the retailer wants to shift some stock then financing offers or discounts may be available.

It's purely peace of mind nothing more. The motor manufacturer, retailer and financier still all make their profit. It's just you don't have visibility to how the cake is sliced.

[Deep Thought]

jhonn said:

True - but let's not forget that you are potentially limited in other factors, that can cost you as well..

If you exceed agreed mileage, excess charges can be significant
Modding your car isn't allowed (adding towbar, lighting, etc)
Any damage (kerbing, minor dents, etc) can be prohibitively expensive

Of course, these are all things that will affect the value of a car outright owned, however in a privately owned car they are more in the control of the owner.

Different strokes for different folks - there's no universal 'right answer' that fits all.

Agreed RE: mileage charges - some people put as low a miles as possible down to keep "the monthlies" lower, but that can be a false economy.

Theres no particular issue modding your car, providing you return it to factory when handing it back.

All damage charges have to be in line with BVRLA guide lines so cant / shouldnt be excessive.

[Deep Thought]

Nomme de Plum said:

The depreciation is wrapped up in the monthly payments. Furthermore you do not get the benefit of a discounted purchase price that would be available with a cash or separately financed position. Sometimes if timing works in your favour and the retailer wants to shift some stock then financing offers or discounts may be available.

It's purely peace of mind nothing more. The motor manufacturer, retailer and financier still all make their profit. It's just you don't have visibility to how the cake is sliced.

With PCP - yes you do. You can avail of ALL discounts that a cash buyer would be getting.

In fact you can avail of MORE discounts than a cash buyer as there are often finance contributions put in to the finance deal by the manufacturer that someone insistant on paying cash would miss.

With leasing, you should be able to lease a car at a potentially inflation beating cost anyway, given the leasing co will have access to bulk buying discounts direct from the manufacturer, thus also saving on the dealers substantial margin.

[keo]

alscar said:

Might depend on the dealer too ?
I was offered that same deal on my Exige 410 but they agreed to give me the OTR costs as a discount plus a few other bits - worked out to around £3k off.

Thinking about it you are right. The dealer paid the first 12 months tax at around £2k iirc. I got a few bits thrown in. I don’t think I got the best possible deal. But I got what I wanted at the time.

[alscar]

keo said:

Thinking about it you are right. The dealer paid the first 12 months tax at around £2k iirc. I got a few bits thrown in. I don’t think I got the best possible deal. But I got what I wanted at the time.

Tbh that’s all that matters.

[Dave200]

Nomme de Plum said:

Dave200 said:

keo said:

Forgive my ignorance but how does finance guard against car depreciation? Depreciation is a cost however one thing is paid for?

If you buy a car outright you're 100% exposed to depreciation. If you lease or PCP a car then your exposure is limited to a fixed amount. In the event that the car depreciates by more than the amount you've paid, you just hand the car back and walk off into the sunset.

The depreciation is wrapped up in the monthly payments. Furthermore you do not get the benefit of a discounted purchase price that would be available with a cash or separately financed position. Sometimes if timing works in your favour and the retailer wants to shift some stock then financing offers or discounts may be available.

It's purely peace of mind nothing more. The motor manufacturer, retailer and financier still all make their profit. It's just you don't have visibility to how the cake is sliced.

The point is still valid. Leasing and PCP expose the renter to a fixed cost. As opposed to a buyer who even with discounts and free car mats is still exposed to variable depreciation costs through the ownership term.

[Nomme de Plum]

Dave200 said:

The point is still valid. Leasing and PCP expose the renter to a fixed cost. As opposed to a buyer who even with discounts and free car mats is still exposed to variable depreciation costs through the ownership term.

I'm not denying that which is why it is popular but generally that route will cost more in the long run. It's a nice little earner for the salesperson and their retail company too.

[Dave200]

Nomme de Plum said:

Dave200 said:

The point is still valid. Leasing and PCP expose the renter to a fixed cost. As opposed to a buyer who even with discounts and free car mats is still exposed to variable depreciation costs through the ownership term.

I'm not denying that which is why it is popular but generally that route will cost more in the long run. It's a nice little earner for the salesperson and their retail company too.

Right, but this is a thread about personal finances rather than dealer profits.