Buying a car, cash or finance?

[steve1]

I'm sure it's been discussed before many times, but humour me, if you were buying a second hand car for around 15K, and you had the cash, would you use it or finance it in some way.
I've always tended to buy any car outright, but it JST got me thinking that maybe there is another way of doing it without costing an arm and a leg.
The particular car in I'm after would be bought privately and not via a dealer, so not looking at dealer finance options.
Open to suggestions.

[Simpo Two]

Borrowing money to buy something that depreciates rapidly has never made sense to me. You end up owing £15K on a car worth £5K. Finance companies make money - from you; therefore you lose.

If you run a company then there can be a tax benefit but it's still never made sense to me.

[rfoster]

In your situation, if you can afford to pay for the car in cash, then I wouldn't finance it *unless* you could use the cash more effectively than the interest you'd pay on the finance agreement.

[ATM]

The only reason to finance the car is because you want to use your cash for something else. If you have other debt which is charging more interest than the potential car finance deal would do then use the cash to settle this debt first and finance your car.

[anonymous-user]

It depends on whether the 15K is all the liquid assets you have. I'd rather finance a car and pay a bit of interest than use all my liquid assets in purchasing it. In my opinion it's always best to have some form of backup in case of Job loss, illness etc

[pacoryan]

Any car you finance at £15k and is immediately worth £5k sounds a bit suspect to me :0)

You either pay the depreciation by buying it outright and crystalising your loss at re-sale, or you pay it monthly and keep the capital for other purposes.

If you have surplus income the drip method makes sense, if you have surplus capital, maybe vice versa.

The interest at that level would be what, 4% flat? You could invest your £15k over the same time period and be reasonably confident of recovering that, so I don't think finance is the big bad beast it is often made out to be.

I have a £20k car, it costs £350 a month and after three years I'll need to buy it for £8k or give it back. I'll probably give it back. And I'll have £20k in savings still because I paid for it out of income.

Of course I could have paid for it outright and saved £350 a month to refill the coffers for the next purchase...

Horses, courses.

[waterwonder]

Cost of interest on loan > Cost of not having £15k in the bank = Cash
Cost of Interest on loan < Cost of not having £15k in the bank = Finance

Cost can be Quantitative or Qualitative.

Also not all finance is created equal, HP is different from a unsecured load etc etc. Take these factors into account as well.

Edited for typo

Edited by waterwonder on Wednesday 13th November 20:07

[R1gtr]

Bluequay said:

It depends on whether the 15K is all the liquid assets you have. I'd rather finance a car and pay a bit of interest than use all my liquid assets in purchasing it. In my opinion it's always best to have some form of backup in case of Job loss, illness etc

Exactly the way I feel, better to have the spare cash in case of an emergency.

[sidicks]

pacoryan said:

The interest at that level would be what, 4% flat? You could invest your £15k over the same time period and be reasonably confident of recovering that, so I don't think finance is the big bad beast it is often made out to be.

You could confidently invest at a risk adjusted rate of in excess of 8%?


Seriously, have another one...

[sidicks]

waterwonder said:

Cost of finance > Interest after tax from having £15k in the bank = Choose cash
Cost of finance < Interest after tax from having £15k in the bank = Choose finance

Also not all finance is created equal, HP is different from a unsecured load etc etc. Take these factors into account as well.

Good advice!


corrected

Edited by sidicks on Wednesday 13th November 20:09

[waterwonder]

sidicks said:

waterwonder said:

Cost of interest > Cost of not having £15k in the bank = Cash
Cost of not having £15k in the bank < Cost of Interest after tax = Finance

Cost can be Quantitative or Qualitative.

Also not all finance is created equal, HP is different from a unsecured load etc etc. Take these factors into account as well.

Good advice!

See edit above, i typed that out wrong. I was referring to the interest on the loan.

[sidicks]

waterwonder said:

See edit above, i typed that out wrong. I was referring to the interest on the loan.

Yep, I've amended my post - should make sense now i.e. we agree!

[waterwonder]

:-) Sorry about that. Yes I agree, good point.

As you were everyone.

Edited by waterwonder on Wednesday 13th November 20:24

[Ilikebeaver]

We recently bought a car for similar money and with low interest rates an unsecured loan over 3 years dorsng cost much at all.

The car will be payed off in full in 3 years and then it will still be worth something to me, either as a car to continue with or use as a deposit for the next vehicle.

I wouldn't be spending that amount of cash in one go unless I still had a lot left over, to be able to do other things like move to a bigger house or have an extension or start a side business etc...

[Welshbeef]

All that is important is the total cost of ownership of the vehicle during the time it is with you.

The reason that is important is that you may find that there are silly promotional offers on contract hire

[Simpo Two]

pacoryan said:

Any car you finance at £15k and is immediately worth £5k sounds a bit suspect to me :0)

Well I meant trade value at the end of the term.

How about half cash half finance, so OP keeps some loot in the bank?

But then if £15K was all I had I wouldn't want to spend it all on a car however I paid for it.

[pacoryan]

Simpo Two said:

pacoryan said:

Any car you finance at £15k and is immediately worth £5k sounds a bit suspect to me :0)

Well I meant trade value at the end of the term.

How about half cash half finance, so OP keeps some loot in the bank?

But then if £15K was all I had I wouldn't want to spend it all on a car however I paid for it.

Exactly, at the end of the term you wouldn't still owe £15k, but I take your point that some folks get into negative equity very quickly, there are some expensive deals out there.

[dazwalsh]

Mrs wanted a ford Kuga so only way i could get one was to trade her car in for 5k, with 5k cash and 5k finance over 3 years. Has worked out well. She will prob want to change after 3 years again so will probably do the same thing - trade in and a 50 -50 mix of cash and finance.

[mrmr96]

Simpo Two said:

Borrowing money to buy something that depreciates rapidly has never made sense to me. You end up owing £15K on a car worth £5K. Finance companies make money - from you; therefore you lose.

If you run a company then there can be a tax benefit but it's still never made sense to me.

What difference does it make if the thing you've bought is depreciating or not, to how to pay for it? If you pay cash for something that depreciates it will still depreciate. Paying cash doesn't stop that happening. So to me the fact that cars depreciate isn't really an influencing factor on how to pay for it.

To me there's two separate issues:
1. Buying something that depreciates. This can't be helped really as we need cars to get to work etc. Could be avoided by buying a classic car, or getting a very old/cheap car which is virtually worthless so it won't depreciate any more. BUT if you 'want a nice car' then chances are it will be worth less when it's older and more knackered than when you bought it. This cost is part of the cost of choosing to have a car and drive it. Nothing to do with how you pay for the car.

2. Paying interest on a loan, when you could have paid cash. This is a personal decision and depends on how much interest you're earning on the savings vs. the cost of interest on the loan. Plus whether you like to have a stash in savings 'just in case'. Some rational people may choose the loan just because they like the safety of having a good sized 'rainy day fund' and are happy to pay the interest cost on the loan for this 'insurance'.

Ok, I've waffled a bit with my own opinion. Maybe you can explain why depreciation and finance are related. Cheers

[steve1]

Blimey, so much to consider, but this will not be any old car, or daily runner, I'll still have my daily runner and the new one will be a bit of a toy thing, and it's a car that's going up in value every time I look at them, so depreciation is not going to happen as with a euro box type of car, ( no offence to euro boxes ).
Does that change things at all?