For those who have bought a new 911 on finance...
Discussion
I'm a bit unsophisticated on this finance lark, so hope you'll bear with me. I've always bought with cash, but people here seem to be saying that's stupid. I just don't get it. Say I pay £100k for a car. If I hang on to the cash and invest it at fixed interest, it's not going to net back to more than 3% after tax (I'm assuming money market or internet deposit at 5%.)
Now...I can't borrow money at 3% APR, and that's what I need to do just to break even, don't I? I mean there's no tax relief on car loans or mortgages. I accept that if you wangle it through a business loan, that's different, but other than that I just don't get it.
Can someone explain it in simple terms to a simpleton?
Now...I can't borrow money at 3% APR, and that's what I need to do just to break even, don't I? I mean there's no tax relief on car loans or mortgages. I accept that if you wangle it through a business loan, that's different, but other than that I just don't get it.
Can someone explain it in simple terms to a simpleton?
Indeed an interesting conversation. I actually work in finance and source a lot of cars for clients. We generally always advise leasing as opposed to outright purchase. I can understand where a few of the arguments and confusion are coming from however. A couple of points:
1) Dont forget the depreciative effect of inflation which is approx 3%pa. This means over 2-3 years, the real effect of any financing can automatically be reduced by a couple of points as a result.
2) The cash can be used in other ways. If you are talking about a £5000 runabout then fair enough, but when spending £15k+ then that money could be invested beneficially elsewhere. Is the risk on an investment more than the risk you are taking putting the money into a car which is GUARANTEED to depreciate at least 17.5% the minute you drive off the forecourt! There are plenty of investments which can potentially give you returns way above the cost of borrowing, im just obliged not to talk about them on the forum. Why do you think property investors take so many mortgages - it's called gearing and is a tax-efficient way to leverage more money for investment.
3) Loans can be transferred to 0% credit cards if you have the credit capacity.
4) Leasing can allow you several ways of writing off a lot of tax if you are self-employed or run a company. I have already helped a couple of PHers save a lot of money through these methods.
A few thoughts. Like I said there are several positives to leasing, and I would never pay cash again, knowing what I know now. Some leasing companies are also able to source cars at very good discounts or at short notice due to wholesale buying. eg recently found client a DB9 with 3 days notice!
1) Dont forget the depreciative effect of inflation which is approx 3%pa. This means over 2-3 years, the real effect of any financing can automatically be reduced by a couple of points as a result.
2) The cash can be used in other ways. If you are talking about a £5000 runabout then fair enough, but when spending £15k+ then that money could be invested beneficially elsewhere. Is the risk on an investment more than the risk you are taking putting the money into a car which is GUARANTEED to depreciate at least 17.5% the minute you drive off the forecourt! There are plenty of investments which can potentially give you returns way above the cost of borrowing, im just obliged not to talk about them on the forum. Why do you think property investors take so many mortgages - it's called gearing and is a tax-efficient way to leverage more money for investment.
3) Loans can be transferred to 0% credit cards if you have the credit capacity.
4) Leasing can allow you several ways of writing off a lot of tax if you are self-employed or run a company. I have already helped a couple of PHers save a lot of money through these methods.
A few thoughts. Like I said there are several positives to leasing, and I would never pay cash again, knowing what I know now. Some leasing companies are also able to source cars at very good discounts or at short notice due to wholesale buying. eg recently found client a DB9 with 3 days notice!
clapham993 said:
Don't rule out the benefits of opening one's papworth to reveal tightly packed blocks of £50s.
Contrary to the urban myth, no one doesn't deal for cash........
why would the porsche garage be interested, they get paid in full by the finance house on collection if you go that route and its therefore zero risk for them....
Well for those that might be interested here's an actual recent OPC quote. 70K car, 25K down, 40% balloon (28K) gives £735 a month. Using the most-useful site:-
www.grosvenor-butterworth.co.uk/car_loan_calculator.html
I can see that this is 9%APR. This was against a several months old 997. Note especially that this realises a near ~10K interest charge for the period for a total of £80K. Value after three years? £45-55K maybe?
Additionally, a fellow PistonHeader sent me their specific figures for a brand new OPC 996 purchase. Using the same site - enter the details and keep altering the APR to home in the known monthly figure gives exactly 9%APR again. I won't post their specific figures as it's their business...
The figures given on Page 1 - Barissimo? - return 8.5%APR for his purchase.
FWIW, I wasn't asking the OPC to beat alternatives; I just wanted actual real-world figures to consider. They may well go lower, who knows?
So there you go. Cars cost a lot, they depreciate - you may or may not have to pay a chunk of interest to get one; we all know this. We still do it of course and why not if it's what you want!
Anyway, I'm making no comment or observation here - just thought I'd share the data...
>> Edited by SunDiver on Wednesday 9th February 00:53
www.grosvenor-butterworth.co.uk/car_loan_calculator.html
I can see that this is 9%APR. This was against a several months old 997. Note especially that this realises a near ~10K interest charge for the period for a total of £80K. Value after three years? £45-55K maybe?
Additionally, a fellow PistonHeader sent me their specific figures for a brand new OPC 996 purchase. Using the same site - enter the details and keep altering the APR to home in the known monthly figure gives exactly 9%APR again. I won't post their specific figures as it's their business...
The figures given on Page 1 - Barissimo? - return 8.5%APR for his purchase.
FWIW, I wasn't asking the OPC to beat alternatives; I just wanted actual real-world figures to consider. They may well go lower, who knows?
So there you go. Cars cost a lot, they depreciate - you may or may not have to pay a chunk of interest to get one; we all know this. We still do it of course and why not if it's what you want!
Anyway, I'm making no comment or observation here - just thought I'd share the data...
>> Edited by SunDiver on Wednesday 9th February 00:53
bennno said:
Don't rule out the benefits of opening one's papworth to reveal tightly packed blocks of £50s.
Contrary to the urban myth, no one doesn't deal for cash........
why would the porsche garage be interested, they get paid in full by the finance house on collection if you go that route and its therefore zero risk for them....
A) Who says you'd be dumb enough to source through an OPC?
B) Advice from a chap I know in the trade is that owner-operated dealers tend to like cash buyers and discount accordingly because they tend to be less likely to jerk around
barrisimo said:
My car was a new 996 C4S in 2002.
Full price was £70k.
I put down £30k did a 4 year baloon with £35k at the end. It costs me £360 per month. Wanted to keep the monthly payments down so hence why I did it over 4 years. You should be able to get something similar probably a little more per month as the interest rate is now higher. Not the lowest total cost option by far but an option if you want to keep the monthly payments down.
This doesn't sound right to me.. you paid £65000 of a £70000 car (30 dep+35 residual) and an additional 17,280 whilst you 'owned' it?
Surely the dealer could discount the car 7%, allowing complete payment for £65000, and a monthly payment of 0?
Even paying the "list" of £70000, that is £12280 in interest...
For what it`s worth I`m not totally convinced by these balloon payment schemes. Basically for the same APR amount as a repayment loan your balloon segment attracts double the amount of interest. ie £10k repayment over 1 year at 10% flat (circa 20% APR) is £1k interest. £10k balloon at same 20%APR is £2k interest.
Given that a lot of people change cars before the loan term is over (especially when financed over 4 or 5 years) a little thing called rule of 78 kicks in. It basically takes the total interest you were ever going to pay and makes sure it`s front end loaded in favour of the finance company, ie they attribute plenty of the money you`ve paid them to interest rather than repaying the borrowed amount.
When you look at the settlement figures and work back from there your APR figures start looking a little different.
The big difference with say popping the car onto a mortgage is that you don`t have to settle the finance everytime you change your car, (even if you re-finance a new car with your existing company you`ll still have to completely clear the old agreement and start again).
The one benefit of balloon schemes is that commission payments are often linked to total interest charged !
Henry
Given that a lot of people change cars before the loan term is over (especially when financed over 4 or 5 years) a little thing called rule of 78 kicks in. It basically takes the total interest you were ever going to pay and makes sure it`s front end loaded in favour of the finance company, ie they attribute plenty of the money you`ve paid them to interest rather than repaying the borrowed amount.
When you look at the settlement figures and work back from there your APR figures start looking a little different.
The big difference with say popping the car onto a mortgage is that you don`t have to settle the finance everytime you change your car, (even if you re-finance a new car with your existing company you`ll still have to completely clear the old agreement and start again).
The one benefit of balloon schemes is that commission payments are often linked to total interest charged !
Henry
The clearest way (and the thing that gets the salesman quaking in his boots...) to copare finance is to ask for the "total charge of credit". Asking this one simple question showed me that the PCP I was being offered was actually £1,000 more expensive over the 3 years than the HP deal we agreed on.
rubystone said:Totally agree.
The clearest way (and the thing that gets the salesman quaking in his boots...) to copare finance is to ask for the "total charge of credit". Asking this one simple question showed me that the PCP I was being offered was actually £1,000 more expensive over the 3 years than the HP deal we agreed on.
Gassing Station | Porsche General | Top of Page | What's New | My Stuff