Car Finance - How? What? Why?

[dr_gn]

So hypothetical question on buying a decent car:

I’ve never bought a car on any kind of finance – always bought older cars privately and paid cash, no warranty, all very simple. “If you can’t afford it, don’t buy it” has been my motto for everything apart from the house. However, by the end of the year - touch wood - the mortgage should be paid off early, after over-paying and saving all I/we could over the years. I’m not getting any younger, and I’m increasingly thinking I should enjoy what money I earn a bit more, rather than saving it for who know’s what. I’d really like a nice car like a Jaguar XF; not brand new, maybe a couple of years old.

My rather naive question is: How do people do it? With all my previous and current cars, I do my own maintenance, but I’d not want to risk buying a newer car without a good warranty, preferably a dealer warranty. In fact ideally I don’t want to mess about working on my daily driver any more. The question is, finance. I couldn’t afford to buy outright, and I’d be looking at spending about £350/month. Honestly - no idea what I’d get for this.

I get the impression that once people start buying fairly expensive cars this way, they are on an endless conveyer belt of monthly payments and having to get a newer car after the warranty period expires. How much do you lose on deals like this? I had a quick look at Jaguar, and the difference between buying it on finance from them new vs. sourcing your own finance on an older car wasn’t that much. I totally accept that you have to pay for the privilege of driving a decent, new-ish car, but there are limits to how far I’m willing to go; I’m not the kind of person who needs to be seen in the latest model, but I just fancied a bit of a treat after saving to pay the mortgage (and for the house deposit before that).

I honestly don’t have a clue about finance or how much money you lose through buying this was versus outright.

Any advice? Cheers.

[dr_gn]

Thanks very much for the replies - I really appreciate that information.

In terms of warranty and service costs on a used car, say a BMW or Jaguar: Are there clear cut advantages (or disadvantages) to buying fairly low mileage cars from a main dealer in terms of warranty - in fact, do main dealers do competitive finance deals at all on cars like that?

Regarding how long I'd keep the car - I suppose it depends entirely on how long the warranty was. A friend of mine bought a Used Jaguar convertible a few years ago (main dealer) and the hood & mechanism needed replacing. The cost to him would have been astronomical if it hadn't been covered, and I'm talking several 1000's of £.

Thanks.

[dr_gn]

Steve Evil said:

You mention nearly-new, but you will get better interest rates if you go for a new car. We looked at a nearly-new M135i recently, under a year old and up for around 24k, but it worked out cheaper for us to buy a new one from them, as the rates were lower and they had more incentive to sell the newer car, manufacturer deposits, that sort of thing.

Yes, as I mentioned in the o/p, that appeared to be the case with Jaguar for some models. I thought I'd misunderstood something, but it seems to be right.

[dr_gn]

kiethton said:

Other option, if you've nearly paid off the mortgage would be to draw down the required equity from there....

With rates where they are it makes far more sense, <60% LTV mortgages can be had at rates that will be far less than those offered by any garage, you then able to do whatever you want with the car following purchase.

may be something to look at?

ETA - even if it means taking the dealer finance to get the manufacturer discount (if offered) and then settling after a month or so...

I'd forgotten that option, and in fact it's something that our friendly building society manager suggested we did many years ago (I wonder why?).

Ours was a self-build mortgage, where you draw down set amounts of money in blocks, up to a percentage of the then current value of the house as it's being built. There is no point at which more money can't be requested, even though the house was completed 10 years ago. I'll have to check on interest rates...

I guess the downside is that the mortgage wouldn't then get paid off (which is one of the reasons I wanted to treat myself in the first place!).

Good idea worth further investigation though.

[dr_gn]

So, taking all that into account (and assuming I wouldn't be paying cash for an outright purchase) - what's the deal with, say, 3 year old cars, where I guess the bulk of the depreciation has gone? For example, this car would do me just fine:

http://used.jaguar.co.uk/search#/details/2619117

TBH potential repair costs (as opposed to running costs) scare me more than what I'd potentially be paying in interest to drive the car...extended warranties etc... at what point do they become more cost than they're worth?

I recently spent over £1500 in parts for my '52 BMW 330i M-Sport, which I accept becasue it's a 100,000 mile car. How do you rationalise extended warranty benefits/cost vs car value for an older car such as the one I just linked?

All comments are extremely interesting by the way - thanks again.

[dr_gn]

gangzoom said:

Having recently sold my much loved BMW 335i I can understand your concerns about reliability. Before I got the 335i all my previous cars were 3 year old+ Nissan/Hondas, so I simply didn't understand why anyone bothered with an extended warranty....4 years of BMW ownership, and about £2.5k spent on repairs keeping the thing in the road I know better than to buy a BMW without a warranty

We looked at a XF for the wife but the reviews seems to suggest Jags are even less reliable than BMWs, hence we ended up going back to a Japnese car, and now have a Nissan and Lexus on the driveway....No more worries about extended warranties

So I think you don't have much choice but to get a warranty with a used Jag, but any warranty costs will be much less than deprecation on a brand new car. However you wouldn't get any good finance / PCP deals on used cars, so in that situation cash (or prearranged loan) may still be king. Alternative is to get handy with a spanner and do anymore your self, but if Jags are anything like BMW, it's the parts that's often expensive...Labour you can always get around by using a cheap local garage.

I thought I read somewhere that newer Jaguars got good reliability ratings, but I can easily believe they aren't that good.

I'd never, ever buy another BMW. Mine is in excellent condition, but the performance of the 330i isn't brilliant, and the maintenence cost is atrocious - things like suspension bushes, clutches, cooling system parts, throttle bodies all seem to be almost service items. My previous Honda had done 20,000 more miles and never needed any of the above.

I do fit my own parts (and have built a couple of cars in the past) so I am capable of doing my own work, but I was hoping to not have to do anything myself apart from basic servicing. I've got better things to do than mess about with daily drivers these days.

In terms of Japanese stuff, what's a decent 4 door car with decent performance. I'm looking for about 6 secs 0-60, preferably a diesel to get some decent economy (maybe 40 mpg average compared with c.29 for the BMW).

Cheers.

[dr_gn]

walm said:

Mastiff said:

tomglibbery said:

timbo999 said:

Some of the above posts imply that you don't pay interest on the GFV, but trust me you do!!

You don't. It is entirely separate the the finance agreement. Source? I sell cars for a living and arrange finance every day.

Erm - you might want to back up a little there my friend. I'm afraid that statement is not correct.

If you are informing customers that there is no interest element on the deferred amount (GFV), then you are misleading them.

What - a guy selling car finance misleading his customers?
Nah. I refuse to believe it.

You can go out and buy a £1m LaFerrari on PCP which since it is so rare will only depreciate say £50k over a couple of years.
So your total cost to borrow the £1m price is just £50k/2.
There is no interest to pay on the £950k GFV.

^^ If true, this is part of the reason I'm confused about finance in general - quite a bit of conflicting information.

[dr_gn]

rovermorris999 said:

dr_gn said:

In terms of Japanese stuff, what's a decent 4 door car with decent performance. I'm looking for about 6 secs 0-60, preferably a diesel to get some decent economy (maybe 40 mpg average compared with c.29 for the BMW).

Cheers.

How many miles do you do? Unless it's starship mileage I'd avoid a diesel. I currently drive an ancient LS400 and when it finally goes bang, if it ever does, I'll be looking at something like this
http://www.pistonheads.com/classifieds/used-cars/l...

If it's anywhere near as reliable as my old LS then it'll only cost the servicing and the occasional suspension component. Lots of power, super comfy, relatively decent mpg, more toys than you'll know what to do with and which won't go wrong and even the RFL isn't too bad for such a big engine.

Edited by rovermorris999 on Thursday 9th July 14:34

I do about 8-10k miles per year.

[dr_gn]

walm said:

dr_gn said:

^^ If true, this is part of the reason I'm confused about finance in general - quite a bit of conflicting information.

I have a couple of pretty simple rules.
1. Ignore the monthly and ignore the APR.
2. Work out the total cost of ownership.

Whichever has the lowest TCO is the best deal.
APR is NOT a good measure.
Monthly payments are a scam used by idiots/liars to get you into a more expensive car than you really want or push you into a bad deal.

My worry for you OP is that, like many, you are SHOCKED by the odd four-figure out of pocket expense on maintenance for a slightly older car.
So to avoid that you are about to spaff £12.6k on depreciation + interest.

So to avoid £1.5k every now and again, you have spent nearly £13k – nearly 10 times as much.
Now sure, every car will face depreciation.
But the 3-5 year period is obviously a lot more than say 5-8yr – yet it isn’t clear that the maintenance costs are that much more.
So what I do is aim for a low mileage but slightly older car in an attempt to minimise BOTH maintenance and depreciation.

The question of finance is just finding the lowest possible TCO and here the MAIN swing factor is far more likely to be depreciation rather than interest rate.

True, but total cost of ownership is difficult to nail down for random maintenance costs (as you say).

Yes, it always amuses me when people say "the cost of fixing it is worth more than the car". You can get a hell of a lot of spare parts and labour (if necessary) for the price of a replacement car - assuming you're not replacing your immobile car with one of the same value, but which will be an unknown quantity. but that wasn't really the point - I just wanted a nice, new-ish car, just for the hell of it. However, the more I learn about all this, the more I'm coming to the conclusion that buying a decent new car on finance is primarily for the genuinely very rich, or very stupid.

While I decide for sure whether this is in fact correct, I'll bask in the glory of soon being mortgage and debt free, but while suffering the ignominy of driving a 13 year old car...

Thanks again folks for all the great information.