Finance - what do people think?

Finance - what do people think?

Author
Discussion

carpov

Original Poster:

190 posts

160 months

Tuesday 11th November 2014
quotequote all
Coming up to that time when I make my next purchase.
Traditionally I have always bought outright. But apparently about 80% of supercar buyers go for the finance arrangement. I have always assumed that that will cost more and I can't see the point.
Can anyone explain the benefit to me, apart from allowing people who can't afford the list price to get into such a car?
Also, what's a good APR to look out for?
Thanks!

Ferruccio

1,832 posts

118 months

Tuesday 11th November 2014
quotequote all
Buying what, 99 times out of 100 is a wasting asset, on borrowed money, has never seemed sensible to me.
You end up paying depreciation, interest and servicing.

Buy what you can afford.

marky1

1,045 posts

195 months

Tuesday 11th November 2014
quotequote all
There is no benefit really, especially with rates so low. Although you will get those who argue they can use the money they would have used for the car to receive a greater return than the rate they are paying to borrow. I guess some can, but hard to see how you can get a safe enough 6%+ (which I assume is the apprx borrowing rate on cars) in such a low rate environment. I guess everyone is different but totally cannot see the point of borrowing on cars unless it's a great deal.

Russell996

494 posts

128 months

Tuesday 11th November 2014
quotequote all
The car industry is built on finance. Supercars are now available to virtually anyone depending on personal choices and without the wide availability of finance options most car companies would be struggling.

Edited by Russell996 on Tuesday 11th November 11:38

northo

2,371 posts

218 months

Tuesday 11th November 2014
quotequote all
There's going to be a lot of opinion on this one....

The FLA are reporting that nearly 80% of all new cars sold by their members are now purchased using finance.

The reasons people take out finance are for cashflow, security and opportunity. They keep cash in the bank which they can then use if an opportunity arises and with lots of opportunity out there and low interest rates, people are happy to borrow.

People who buy supercars or classics (it's estimated that around 20% of collectable cars are financed) using finance generally don't NEED finance - they CHOOSE it because it is right for them and their circumstances.

It's incredible who does choose to use finance - some of the wealthiest buyers won't do anything else. Bottom line - use it if it suits you.

TISPKJ

3,648 posts

206 months

Tuesday 11th November 2014
quotequote all
Never understood how it can possibly be a good idea either TBH, however I understand that some of this lease plan mularkey is great if you are self employed or have your own company and can offset against tax bill.

Friend has a pub that is making zilch, and yet they have a new galaxy at £300 per month ...... 300 quid wasted to my mind as after 3 years you give the car back, better to get a bank loan and buy a used example for 7k at least at the end its yours.

andrew

9,953 posts

191 months

Tuesday 11th November 2014
quotequote all
"finance" covers a multitude of sins, by a company or private individual, with or without ownership, but usually one or more of these reasons :

1. no need to save-up the full purchase price, and so can grab the car earlier
2. known, fixed lifetime costs ( bundled insurances and services, no depreciation worries etc )
3. manufacturer incentives ( ie further discount off list price if you take the finance )
4. owner can get a higher rate of return on their capital than the finance rate
5. convenience ( always running a newish car means if you're lucky only one trip to the garage during the three years )
6. denial ( concentrate on the £X99 pm, and ignore the full new cost and 50% loss after three years ! )

eta 7. dealer makes more money on the finance/financed extras than they do on the car, and so customer is encouraged to take finance !

Edited by andrew on Tuesday 11th November 12:32

TISPKJ

3,648 posts

206 months

Tuesday 11th November 2014
quotequote all
I read somewhere a few years ago that either Ford of America or General Motors cant remember which made more out of finance than they did selling cars

threesixty

2,068 posts

202 months

Tuesday 11th November 2014
quotequote all
TISPKJ said:
I read somewhere a few years ago that either Ford of America or General Motors cant remember which made more out of finance than they did selling cars
I'd say that could be true for the vast majority of mass market low end cars. Probably just depends on who is actually providing the finance.

belleair302

6,835 posts

206 months

Tuesday 11th November 2014
quotequote all
GMAC (The finance arm) makes more money than GM regarding profit and turnover. Fe people actually buy cars today most lease and obviously companies don't help with their thirst for lease cars even in this financial climate.

TISPKJ

3,648 posts

206 months

Tuesday 11th November 2014
quotequote all
That sounds about right ....
Think my one was Ford credit v Ford motor company or similar.

stain

1,051 posts

209 months

Tuesday 11th November 2014
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Most showrooms now are now banks which happen to include cars with their finance packages.

Muzzer79

9,806 posts

186 months

Tuesday 11th November 2014
quotequote all
I should also imagine that a lot of people who buy cars such as this, own their own business and do the deal through that?

A good accountant once told me that anyone who owns their own business and buys their car outright is a fool.

ferdi p

1,519 posts

171 months

Tuesday 11th November 2014
quotequote all
Muzzer79 said:
A good accountant once told me that anyone who owns their own business and buys their car outright is a fool.
Not really...

If it's a 'low emission/low tax/whatever' car, then yes financing thru the firm makes sense...

If it's a 'Lambo/Ferrari/Porsche' then probably not...




rjn21

289 posts

163 months

Tuesday 11th November 2014
quotequote all
Finance is either because the borrower cannot afford the cash up front or if they can, then usually a greater return can be achieved through investment of the cash than the interest charge on borrowing the cash. Personally, this year, I used BMW Finance on an M5 at 100% LTV as it was 0% APR. I used BMW Finance branded Alphera for a Ferrari F12 at 65% LTV as that was 2.5% flat. I can achieve far higher returns than the cost of borrowing, so the decision is simple.
Porsche Finance was very expensive, particularly as the dealer group skims ~3% before you start. I think I got them down to around 5% flat but that seemed expensive for the market on unsecured car debt earlier this year.

Whatever you do, understand the product fully before committing. There are so called balanced payments or high-earner plans - sales speak for variable interest rate at absolute discretion of lender, with any interest increase being compounded into the final payment and incurring compound interest thereon. Stay well clear unless you like gambling if a lender may arbitrarily increase the rate.

Generally most expensive are guaranteed future buy back PCP products as you are fixing the final payment now for 3 years and some insurance co is taking that risk.

Lease purchase ie monthly payments + balloon non GFV are the next as you pay interest on the balloon.

Cheapest is HP or unsecured loan in that you are just paying it off over the time, but you are building equity into a depreciating asset, which may be a bit pointless.

"Cheapness" in this case means total interest cost over the period of the product. Of course HP will be much more per month as you are paying off in full and building equity.

PCP gives the most certainty (if you want to own).

Consider leasing, although you won't get the tax benefits of a company, as fixed payments, at the end of lease give car back. You will have no equity but monthly's usually cheaper than PCP, and equity above PCP GFV is a gamble that car finance companies have got the depreciation model wrong on that vehicle.

Edited by rjn21 on Tuesday 11th November 19:22

Cheib

23,112 posts

174 months

Tuesday 11th November 2014
quotequote all
Finance or specifically lease deals can definitely make sense if the manufacturer is motivated enough....you could "buy" an M5 on a two year lease deal for £500 a year or so ago. So you're paying £12k to rent a car over two years and over the same period that £70k M5 is going to depreciate by at least £20k and I would argue a lot more.

Clearly BMW would discount the car to a cash buyer but £12k for an M5 for two years is cheap motoring.

I have never leased/financed a car because I don't subscrive to financing a depreciating asset as others have said BUT some of the lease deals now really are pretty good.

franki68

10,330 posts

220 months

Wednesday 12th November 2014
quotequote all
It depends on the deal,as was. Mentioned at500 a month a bmw m5 is a no brainer.
However for example I just bought the wife a boxster the price was around the 40k mark,I looked into various finance and the best deal I could get would have meant the car ended up costing me 47k ,now for my money to earn that extra 7k I would actually have to earn close to 15k ( due to the lovely taxman) .there are no safe investments available offering anything like that sort of return .

topless360

2,763 posts

217 months

Wednesday 12th November 2014
quotequote all
My personal view is that I avoid finance of any kind unless its a mortgage. It's amazing how retailers are all pushing products with finance packages attached be it TV's, sofas or wardrobes. Just yesterday I was buying some tyres for SWMBO's car and found websites offering tyres on monthly payments! eek

When it comes to cars I tend to follow the rule of if you haven't got enough cash in the bank to buy 2 of them outright, then you probably can't afford to comfortably buy and run 1. Obviously not true for everyone but it works for me.

Of course some people would rather take out finance in order to achieve better returns with their cash elsewhere. But I prefer to play on the safe side. Besides, I have made around 20% annual return after my first year of 360 ownership thanks to rising values. Better than money in the bank biggrin

Kyodo

727 posts

123 months

Wednesday 12th November 2014
quotequote all
topless360 said:
My personal view is that I avoid finance of any kind unless its a mortgage….
Besides, I have made around 20% annual return after my first year of 360 ownership thanks to rising values. Better than money in the bank biggrin
Same here, I'd been thinking more like 10% but for me, regardless of values rising or falling, anything even close to what we paid for our Modena is a big bonus. Rosso beastie in the garage is a lot nicer than the same amount of cash doing v.little in the bank smilesmilesmile

Kyodo

727 posts

123 months

Wednesday 12th November 2014
quotequote all
topless360 said:
My personal view is that I avoid finance of any kind unless its a mortgage….
Besides, I have made around 20% annual return after my first year of 360 ownership thanks to rising values. Better than money in the bank biggrin
Same here, I'd been thinking more like 10% but for me, regardless of values rising or falling, anything even close to what we paid for our Modena is a big bonus. Rosso beastie in the garage is a lot nicer than the same amount of cash doing v.little in the bank smilesmilesmile