Best way to buy a 'nearly new' car every 1-2 years
Discussion
Struggling to find the best way to buy a 'nearly new' car every 1-2 years. Finance doesn't really work as normally you are tied in to the agreement for at least 3 years. Leasing is only really for brand new cars, I am unable to afford the type of cars I would like on a lease. The cars I'm after are between 30 and 40k brand new but only 20-25k after 2-4 years. I don't have the funds to just buy them outright either so I was wondering if there were any other ways of doing this or if I just need to wait it out for a few years until I have more income?
So for example I cant afford a brand new Golf R but I could afford one that is 2 or 3 years old on finance. However, I do not want to be tied down to owning it for 3 or 4 years.
So for example I cant afford a brand new Golf R but I could afford one that is 2 or 3 years old on finance. However, I do not want to be tied down to owning it for 3 or 4 years.
Edited by KaoGeorge on Monday 30th September 15:54
It's hard to see how you can do it if you can't lease over 2 years then I assume you cant afford a 25k loan and to pay it off in it's entirety over 2 years?
That being the case you would be trading in every car on negative equity, refinancing and racking up a whole load of debt on every change.
Without wanting to be rude it sounds like you may need to lower your expectations somewhat
That being the case you would be trading in every car on negative equity, refinancing and racking up a whole load of debt on every change.
Without wanting to be rude it sounds like you may need to lower your expectations somewhat
KaoGeorge said:
Leasing is only really for brand new cars, I am unable to afford the type of cars I would like on a lease. The cars I'm after are between 30 and 40k brand new but only 20-25k after 2-4 years
So for example I cant afford a brand new Golf R but I could afford one that is 2 or 3 years old on finance. However, I do not want to be tied down to owning it for 3 or 4 years.
To be honest, leasing still sounds the best option. Using a Golf R as an example, I reckon this would cost around £10k in depreciation, finance charges and things like RFL, were you to buy a 2 year old car and keep it 2 years. If you keep a look out for a good lease deal, you should be able to get a brand new car for the same price as a second hand one, if the plan is to change every 2 years. You can get a Leon Cupra for about £8k for 2 years, or a Golf GTi Performance Pack for similar https://leasing.com/independent-brokers/drive-vehi...So for example I cant afford a brand new Golf R but I could afford one that is 2 or 3 years old on finance. However, I do not want to be tied down to owning it for 3 or 4 years.
Edited by KaoGeorge on Monday 30th September 15:54
Edited by Gareth1974 on Tuesday 1st October 11:06
If you’re living at home and only 21- how’s your credit rating? You may find you won’t get particularly competitive apr rates on personal loans without a credit history.
Also, looking at your proposal, you’re assuming the car will depreciate at the same rate that you repay the interest -i.e. That after 1/2 years you’ll have paid off the same amount as what the car has depreciated so you can repay it from the sale. This will depend on the car, but typically you’ll be buying the car with a margin. Your £12k car you’ve bought will likely be worth less from day 1, so either buy a car with very low depreciation, or keep an eye on the market value of the car and the value of the remaining loan and don’t sell until they meet (or you’re prepared to take a bath on it).
Also, looking at your proposal, you’re assuming the car will depreciate at the same rate that you repay the interest -i.e. That after 1/2 years you’ll have paid off the same amount as what the car has depreciated so you can repay it from the sale. This will depend on the car, but typically you’ll be buying the car with a margin. Your £12k car you’ve bought will likely be worth less from day 1, so either buy a car with very low depreciation, or keep an eye on the market value of the car and the value of the remaining loan and don’t sell until they meet (or you’re prepared to take a bath on it).
Edited by pb8g09 on Tuesday 1st October 11:28
With leasing you're only financing the cost of the lease over the term, so you may be more likely to be accepted for lease finance. With PCP/HP you'll have the entire purchase price of the car plus interest on your credit file.
I just returned a Volvo V90 which if I had paid list price (I know no-one ever does) of £45k, I'd have had £45k plus interest on my credit file. The lease deal I got came to £6880 over 2 years so I only ever had to be accepted for £6880 finance.
I just returned a Volvo V90 which if I had paid list price (I know no-one ever does) of £45k, I'd have had £45k plus interest on my credit file. The lease deal I got came to £6880 over 2 years so I only ever had to be accepted for £6880 finance.
KaoGeorge said:
So it looks like leasing or a personal bank loan. Never had a loan before but assuming that I could borrow say 12k over 4 years and then if I sell the car after 1 or 2 years I can use the money I get back from selling it to pay the rest of the loan off in one go?
Worth also seeing how much the car is likely to depreciate over those 1-2 years so you can guarantee that you are not going to be in negative equity (owing more in loan repayments than the car is worth) when you come to sell it.Chris
Yeah that's true I'll need to watch out for depreciation. My credit score is actually pretty good as I've been using a credit card since 18 and paying phone contacts ect but being 21 might still make it pretty difficult.
Typically how bad is the depreciation on a car that is around 4 years old?
Is leasing worth it if I already have a large deposit I could pay upfront?
Typically how bad is the depreciation on a car that is around 4 years old?
Is leasing worth it if I already have a large deposit I could pay upfront?
KaoGeorge said:
Yeah that's true I'll need to watch out for depreciation. My credit score is actually pretty good as I've been using a credit card since 18 and paying phone contacts ect but being 21 might still make it pretty difficult.
Typically how bad is the depreciation on a car that is around 4 years old?
Is leasing worth it if I already have a large deposit I could pay upfront?
If you can comfortably afford the lease payments, you could put that large deposit in an ISA, especially one like this which the government top up https://www.helptobuy.gov.uk/help-to-buy-isa/how-d...Typically how bad is the depreciation on a car that is around 4 years old?
Is leasing worth it if I already have a large deposit I could pay upfront?
To do the maths for you, if you do as other have suggested then a £25000 personal loan will cost you around £450-500pm over 5 years.
That's all well and good, but then you want to change the car after 2 years too.
I'd suggest that if you are looking at a 2 year old / 20000 mile car at £25000 today, then depending on the make and model typically you might find that 4 year old / 40000 mile examples are retailing at around £20000 today.
So in 2 years time you might be able to sell your car for £20k privately or more like £17k as trade in at a dealer. In other words, in order to replace in 2 years time you need to be putting aside £5000 - £8000 every 2 years (£200 - £350pm) on top of your car payment.
All told, your project will need you to commit around £650 - £850 per month albeit after 5 years you will end up owning outright what will be your 3rd car worth maybe something around £20-22000.
Total net cost at best = 60 (450+200) - 22000 = £17000 which is equivalent to £280pm over 60 months.
Total net cost at worst = 60 (500+350) - 20000 = £31000 which is equivalent to £500pm over 60 months.
Not cheap is it?
That's all well and good, but then you want to change the car after 2 years too.
I'd suggest that if you are looking at a 2 year old / 20000 mile car at £25000 today, then depending on the make and model typically you might find that 4 year old / 40000 mile examples are retailing at around £20000 today.
So in 2 years time you might be able to sell your car for £20k privately or more like £17k as trade in at a dealer. In other words, in order to replace in 2 years time you need to be putting aside £5000 - £8000 every 2 years (£200 - £350pm) on top of your car payment.
All told, your project will need you to commit around £650 - £850 per month albeit after 5 years you will end up owning outright what will be your 3rd car worth maybe something around £20-22000.
Total net cost at best = 60 (450+200) - 22000 = £17000 which is equivalent to £280pm over 60 months.
Total net cost at worst = 60 (500+350) - 20000 = £31000 which is equivalent to £500pm over 60 months.
Not cheap is it?
So buying outright every 2 years using a loans will only really work on older that cars that are more or less guaranteed to hold their value? Thought I would also mention that my annual mileage is only around 5k.
Looks like leasing is the only realistic way to change cars that often without having to set aside lots of money on top of the payments for the actual car?
Or I can simply lower my expectations of the cars I would like/accept that changing cars every 2 years is just going to be expensive whichever way I do it.
As you can probably tell this is my first experience of car finance and leasing having only bought one car before.
Looks like leasing is the only realistic way to change cars that often without having to set aside lots of money on top of the payments for the actual car?
Or I can simply lower my expectations of the cars I would like/accept that changing cars every 2 years is just going to be expensive whichever way I do it.
As you can probably tell this is my first experience of car finance and leasing having only bought one car before.
Edited by KaoGeorge on Tuesday 1st October 13:15
Edited by KaoGeorge on Tuesday 1st October 13:31
^^^ That's pretty much the attraction of leasing or PCP ing. You can be in a very nice new car for £3-400 per month outlay rather than the £6-800pm outlay involved in buying them outright.
You can counter that the long term cost is higher, but if £400pm falls within what you are prepared to spend but £800pm doesn't then thats the route to go
You can counter that the long term cost is higher, but if £400pm falls within what you are prepared to spend but £800pm doesn't then thats the route to go
It will never be 'cheap' to buy and run a new/2 y.o. car for 2 years then swap out, no matter how you finance it. If you want to do it and can afford it then great, have at it - but you will take a hit each time.
Buying a £500 shed and running it into the ground is probably the cheapest way to run a car (short of buying something depreciation-proof for cash)
Buying a 2 y.o. car and running it for 5+ years is probably the second cheapest way.
Leasing is probably the cheapest way to run a brand new car, provided you jump on a good deal and aren't too fussy about make/model/options.
Buying a £500 shed and running it into the ground is probably the cheapest way to run a car (short of buying something depreciation-proof for cash)
Buying a 2 y.o. car and running it for 5+ years is probably the second cheapest way.
Leasing is probably the cheapest way to run a brand new car, provided you jump on a good deal and aren't too fussy about make/model/options.
Really, the foremost thing is that you need to cover your depreciation. And that you could repay any finance early without excessive penalty.
For an average car (for this purpose, a Golf R is average), to avoid any surprises, I'd work on a depreciation curve of 50% every 3 years. If it performs better, then you will only get a nice surprise. I'd have to be pretty confident that it was a low depreciation risk to up that figure to nearer the 65% mark. 50% depreciation every 3 years is 20% loss/year.
If we say that you want to keep it for 1.5 years, you will probably achieve ~70% of the value on trade in. In order to be able to cover the remaining loan value with the trade in, you need to have repaid 30% of the loan at 1.5 years - so a period of ~5 years.
So as a very basic affordability check, what loan can you afford to repay over 5 years - bearing in mind that your profile may attract a higher interest rate? That is pretty much your budget, assuming 100% financed.
For an average car (for this purpose, a Golf R is average), to avoid any surprises, I'd work on a depreciation curve of 50% every 3 years. If it performs better, then you will only get a nice surprise. I'd have to be pretty confident that it was a low depreciation risk to up that figure to nearer the 65% mark. 50% depreciation every 3 years is 20% loss/year.
If we say that you want to keep it for 1.5 years, you will probably achieve ~70% of the value on trade in. In order to be able to cover the remaining loan value with the trade in, you need to have repaid 30% of the loan at 1.5 years - so a period of ~5 years.
So as a very basic affordability check, what loan can you afford to repay over 5 years - bearing in mind that your profile may attract a higher interest rate? That is pretty much your budget, assuming 100% financed.
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