How To Fund My McLaren
Discussion
Oaky said:
OldAndTired said:
Can someone explain to me why many people who finance cars think they are somehow avoiding the depreciation component?
With finance you pay interest AND depreciation.
Some comments do make me wonder.With finance you pay interest AND depreciation.
much like paying £40 pm for a mobile phone whilst denying what 24 x £40 equals
If you don’t have the cash, finance it.
If you do have the cash, and believe you have a reasonable chance of delivering a return on investing that cash in excess of the interest cost, then finance it.
If you don’t believe you have a reasonable chance of delivering a return in excess of the interest cost, then pay cash.
If you do have the cash, and believe you have a reasonable chance of delivering a return on investing that cash in excess of the interest cost, then finance it.
If you don’t believe you have a reasonable chance of delivering a return in excess of the interest cost, then pay cash.
There is no right answer. Clearly, the cheapest way to buy a car is to pay cash. And this is likely to be the case for a McLaren 12C. It’s not always the case and sometimes the best way to ‘buy’ a car is through a finance scheme. Think of the Golf type R deals @ £180 a few years ago.
The next thing to bear in mind is that car finance is unsecured - apart from on the car. If your world turned upside down, they might get the car, but you won’t have secured any other assets such as your house.
Car finance is also easy to get, so the cash you might have used to buy the car can be put to other purposes. You might not get a better return than you pay in interest for the car, but you will have the cash to use for purposes that can only be financed using cash - such as a deposit for a house.
You may also be risk averse and feel that using your savings to buy a car high risk and would rather leave the cash in the bank (or other liquid ‘home’) so if the worst happens you will have plenty of breathing space.
So financing a car does cost more. But that doesn’t mean it’s not a prudent and sensible choice depending on your circumstances.
The next thing to bear in mind is that car finance is unsecured - apart from on the car. If your world turned upside down, they might get the car, but you won’t have secured any other assets such as your house.
Car finance is also easy to get, so the cash you might have used to buy the car can be put to other purposes. You might not get a better return than you pay in interest for the car, but you will have the cash to use for purposes that can only be financed using cash - such as a deposit for a house.
You may also be risk averse and feel that using your savings to buy a car high risk and would rather leave the cash in the bank (or other liquid ‘home’) so if the worst happens you will have plenty of breathing space.
So financing a car does cost more. But that doesn’t mean it’s not a prudent and sensible choice depending on your circumstances.
davek_964 said:
It's not wise to buy a depreciating asset in the first place! 
After buying and losing a small fortune (to me anyway ) on anew car that I paid cash for I was advised / taught to never buy a depreciating asset. It has served me well as I usually have managed to get a better deal by using dealer finance, then switching that to my own finance to get a better deal on the finance and then investing the money wisely for a about an average e of 10% return on the the amount I would have originally used to buy the car.The one thing I have always done is make sure I have the cash in the bank to buy the car even if I am financing it , sort of "just in case" mentality and the way I was brought up to only buy what I could afford. Maybe not the way it is done but kind fo suits me.
But with the world now pretty much upside down how is the finance market ? One would assume that with base rate at all time lows then it would be cheap but with future car price uncertainty is the PCP / Lease deals still around and it seems lenders are not passing on the base rate cut to consumers
davek_964 said:
I'm a bit adverse to debt these days, so although I see plenty of posts that say you can invest the money somewhere and earn a zillion percent more than the interest on a loan, I only ever pay cash.
Why do you prefer to pay the cash? Is that you are not convinced the returns are there or just do not like to have a debt ?RT964 said:
You may not be able to get a PCP, however you will be able to get something that still has a deposit, monthly payment and final balloon (although this is not a guaranteed future value). There are many places that do these such as Oracle, JBR Capital, Magnitude Finance, etc. If you go on the Magnitude Finance website, there is a calculator which allows you to plug in the car details and it will give you a guide on what different finance options will look like.
Like you, I could have paid cash when I bought my last car, however I preferred to use finance as I'm in the process of buying another house, and so want to use more cash for that purchase (gotta love stamp duty !!).
Also, depending on how big you want your deposit to be and how long you are intending to keep the car, a 5 year HP deal may be worth exploring ?
Thank you I will go and give it a look. Like you, I could have paid cash when I bought my last car, however I preferred to use finance as I'm in the process of buying another house, and so want to use more cash for that purchase (gotta love stamp duty !!).
Also, depending on how big you want your deposit to be and how long you are intending to keep the car, a 5 year HP deal may be worth exploring ?
I see you and I are in the same boat.when it comes to using our money wisely lol.
I was thinking of buying a lovely waterfront flat that has come down bit in the last few months , it might be a better investment than putting all the cash into a car , so my wife say, lol
Mr Cod said:
You are not going to get any GFV on a a car like you are contemplating (or if you do it will be derisory for an early sports series). Therefore you are likely going to bear the entire amount of any depreciation. The question is whether on top of that you also make a finance company nice and rich. With cash, there's depreciation, with finance there is depreciation and financing costs. With most banks you're not going to earning more than 50bps on a cash balance at the moment, so the opportunity cost of deploying that capital into a vehicle is nearly non-existent.
I think you are spot on and tbh not been fan of PCP, tried it once , didn't like it. I was not intending on putting the money in the bank as that is not going to make money.
My normal route is buy the car on HP at say 3% and invest the same amount as I have borrowed into something that will return approx 10% (and thanks to the clever investment type bods I use for the last 5 years this has been the case ). Then once HP is paid I have a bigger cash amount (original cash plus interest earned over 4 years ) to invest in the next car.
Just wanted t see if this was still the best method in these uncertain times
EvoSid said:
davek_964 said:
I'm a bit adverse to debt these days, so although I see plenty of posts that say you can invest the money somewhere and earn a zillion percent more than the interest on a loan, I only ever pay cash.
Why do you prefer to pay the cash? Is that you are not convinced the returns are there or just do not like to have a debt ?I also prefer to keep my monthly outgoings low. I make sure I have enough left in the bank that I wouldn't suddenly be homeless if the work economy suddenly tanked like it's about to.
Griffgrog said:
The next thing to bear in mind is that car finance is unsecured - apart from on the car. If your world turned upside down, they might get the car, but you won’t have secured any other assets such as your house.
.
Yes it’s unsecured..
But it’s not non-recourse.
So, if you still owe the finance house, they can pursue you, if they think it’s worth it for them.
If you have other assets, they are potentially there for them.
MAC 720S said:
The world will look very different when you decide to buy next year. I would pose the question when you are ready to buy.
Ready to buy now if the right car / deal comes up. But equally happy to wait for the right car / dealWhat do you mean the world will look different next year ?
EvoSid said:
Thank you I will go and give it a look.
I see you and I are in the same boat.when it comes to using our money wisely lol.
I was thinking of buying a lovely waterfront flat that has come down bit in the last few months , it might be a better investment than putting all the cash into a car , so my wife say, lol
Buying a McLaren, or any other supercar for that matter, is a frivolous expenditure. Your wife is absolutely correct.I see you and I are in the same boat.when it comes to using our money wisely lol.
I was thinking of buying a lovely waterfront flat that has come down bit in the last few months , it might be a better investment than putting all the cash into a car , so my wife say, lol
You state in a post further up this page “After buying and losing a small fortune (to me anyway ) on anew car that I paid cash for I was advised / taught to never buy a depreciating asset. It has served me well as I usually have managed to get a better deal by using dealer finance, then switching that to my own finance to get a better deal on the finance and then investing the money wisely for a about an average of 10% return on the the amount I would have originally used to buy the car“. You’ve answered your original question.
If you can get an average 10% return, I think you need to be teaching us what to do with our cash.
A few thoughts below. Please feel free to add/comment if I've missed anything. There is not necessarily one best option - it depends on your circumstances and risk tolerance.
Cash:
+ lowest cost as no interest (0% APR deals aside)
+ instant access, no credit check or finance application required
+ clearer picture of the immediate cost/affordability and impact on your finances, for those who aren't the hottest on budgeting
- reduces your liquidity and flexibility in case you want to use cash for something else while you still have the car
- dependent on selling car to release cash
- possible that your investment returns could have been higher than APR on a PCP, although this won't matter if you are risk averse
PCP:
+ better in terms of liquidity, i.e. you will hold on to any cash savings for use elsewhere. Fixed monthly payments with a guaranteed payoff/value at the end, so easy to meet each month
+ can walk away at the end without hassle of selling
+ can voluntarily terminate mid-term if desperate
- guaranteed value is almost always favourable to manufacturer/lender; you are still paying depreciation in addition to interest
- some may not realise/calculate the true cost over X years as it's slightly more opaque/complex than cash
- usually high APR
- credit check/finance application required
HP: similar to PCP, except you are paying off the whole amount across the term as no lump sum/guaranteed value.
In my opinion, a mortgage facility is (most of the time) the best way to finance a car if possible:
+ low APR as secured against property
+ flexible repayments/can be interest only
+ hold on to your cash
+ if you have significant equity in your property there is little risk
- you're in a tough spot if house prices crash, you lose your source of income and you don't have much equity
- no guaranteed value
NB: I'm sure people know this, but for the benefit of anyone that doesn't: you should pay attention to APR, not the interest rate. The interest rate only pertains to the actual loan/product you are being offered, excluding admin fees and other costs. APR is a single figure that represents the total effective cost of the finance to you, taking into account any admin fees etc. APR is therefore far more useful and a more viable way to compare finance products.
By the way, anyone who questions why you would pay cash for a depreciating asset when you can finance it, as if that eliminates depreciation, should not be listened to.
Cash:
+ lowest cost as no interest (0% APR deals aside)
+ instant access, no credit check or finance application required
+ clearer picture of the immediate cost/affordability and impact on your finances, for those who aren't the hottest on budgeting
- reduces your liquidity and flexibility in case you want to use cash for something else while you still have the car
- dependent on selling car to release cash
- possible that your investment returns could have been higher than APR on a PCP, although this won't matter if you are risk averse
PCP:
+ better in terms of liquidity, i.e. you will hold on to any cash savings for use elsewhere. Fixed monthly payments with a guaranteed payoff/value at the end, so easy to meet each month
+ can walk away at the end without hassle of selling
+ can voluntarily terminate mid-term if desperate
- guaranteed value is almost always favourable to manufacturer/lender; you are still paying depreciation in addition to interest
- some may not realise/calculate the true cost over X years as it's slightly more opaque/complex than cash
- usually high APR
- credit check/finance application required
HP: similar to PCP, except you are paying off the whole amount across the term as no lump sum/guaranteed value.
In my opinion, a mortgage facility is (most of the time) the best way to finance a car if possible:
+ low APR as secured against property
+ flexible repayments/can be interest only
+ hold on to your cash
+ if you have significant equity in your property there is little risk
- you're in a tough spot if house prices crash, you lose your source of income and you don't have much equity
- no guaranteed value
NB: I'm sure people know this, but for the benefit of anyone that doesn't: you should pay attention to APR, not the interest rate. The interest rate only pertains to the actual loan/product you are being offered, excluding admin fees and other costs. APR is a single figure that represents the total effective cost of the finance to you, taking into account any admin fees etc. APR is therefore far more useful and a more viable way to compare finance products.
By the way, anyone who questions why you would pay cash for a depreciating asset when you can finance it, as if that eliminates depreciation, should not be listened to.
speedick said:
Pay cash (£75k), then put £3750 (5%) a year into a bank account titled "Mcwarranty"
You wont pay any interest for finance / pcp etc. Your warranty may or may not be needed, but by year 2 will stand at £7k (a big chunk of repairs if spent with an indie). You should aim to mitigate your first year warranty risks with a good pre buy inspection - most common faults are known and easily spotted.
If your ownership is trouble free (which in my opinion you will have a significant influence upon in the way you use & look after the car) you may even have the first £14k of depreciation covered after say 4 years,
Put another way, your residual plus any unspent savings may well leave you in a much stronger position to fund whatever you might want next. Finance costs plus depreciation would require a much bigger top up.
Very good way of doing it but I if I financed it then the same amount would be invested . Hopefully if I did not need to dip in to that funs I would end up with a healthy budget for the next car. You wont pay any interest for finance / pcp etc. Your warranty may or may not be needed, but by year 2 will stand at £7k (a big chunk of repairs if spent with an indie). You should aim to mitigate your first year warranty risks with a good pre buy inspection - most common faults are known and easily spotted.
If your ownership is trouble free (which in my opinion you will have a significant influence upon in the way you use & look after the car) you may even have the first £14k of depreciation covered after say 4 years,
Put another way, your residual plus any unspent savings may well leave you in a much stronger position to fund whatever you might want next. Finance costs plus depreciation would require a much bigger top up.
Gassing Station | McLaren | Top of Page | What's New | My Stuff