Can someone explain how finance works?
Discussion
I know this is a broad general topic, but hear me out. Im unsure if finance is for me, and how it works out.
In 10 years of driving, i've probably had 9 cars. My current E46 320d is only 11 months old and i'm looking at changing. I assume this nullifies any finance on contract hire because of how often I change, however if the 320 was more powerful and had some decent toys, i could easily keep it for a couple of years.
Im mainly looking for a 330d touring. Autobox, Xenons, iDrive etc. Everything to stop me getting bored, but im unsure how these will impact on the price.
I've been looking for one to buy, but a decent model with everything I want, less than 5 years old, is difficult to come by. Budget is only about 13k, yet im looking at 17-19k for one that fits the bill. If i was to bankloan the remaning money, then i'd still be paying each month to repay it. So why not get a new car, and pay each month for that?
If anyone can offer some advice, how it works etc, then it'd be appreciated. Sometimes you give the car back and swap for a new one and keep paying, I assume this is PCP? It's all a bit confusing to someone who has only bought used cars.
Thing is, my used cars have always been less than £10k, which in my own circumstances, isnt a deal killer, especially as I would be p/x'ing something in, to reduce the cost even more.
It just seems that with the newer, high-end expensive stuff, buying outright seems an expensive, and possibly illogical option for someone who won't buy it and keep it for 5 years.
In 10 years of driving, i've probably had 9 cars. My current E46 320d is only 11 months old and i'm looking at changing. I assume this nullifies any finance on contract hire because of how often I change, however if the 320 was more powerful and had some decent toys, i could easily keep it for a couple of years.
Im mainly looking for a 330d touring. Autobox, Xenons, iDrive etc. Everything to stop me getting bored, but im unsure how these will impact on the price.
I've been looking for one to buy, but a decent model with everything I want, less than 5 years old, is difficult to come by. Budget is only about 13k, yet im looking at 17-19k for one that fits the bill. If i was to bankloan the remaning money, then i'd still be paying each month to repay it. So why not get a new car, and pay each month for that?
If anyone can offer some advice, how it works etc, then it'd be appreciated. Sometimes you give the car back and swap for a new one and keep paying, I assume this is PCP? It's all a bit confusing to someone who has only bought used cars.
Thing is, my used cars have always been less than £10k, which in my own circumstances, isnt a deal killer, especially as I would be p/x'ing something in, to reduce the cost even more.
It just seems that with the newer, high-end expensive stuff, buying outright seems an expensive, and possibly illogical option for someone who won't buy it and keep it for 5 years.
I have my car on solutions which I think is the same as PCP.
Depending on your deposit and term they will figure out a monthly amount and then give a car a future minimum value.
When you get to the end of your term you can either just hand the car back and ow nothing else (obviously losing the money you first put into it).
You can pay them whatever the amount the future value was and then own the car outright, or refinance that future value and carry on financing it.
Or you can trade the car in for another. Whatever they value the car at, anything above it is yours to go into the next deposit.
I think you can hand the car back in and end the contract before the end, you just have to have paid for a certain amount of time. Also you can refinance into another car early but they will probably offer you a naff price for your car, so you will have to inject more cash into it.
Edit:
Also you can inject cash into it at any time and choose whether to cut the timescale of the finance or reduce your monthly payments.
Depending on your deposit and term they will figure out a monthly amount and then give a car a future minimum value.
When you get to the end of your term you can either just hand the car back and ow nothing else (obviously losing the money you first put into it).
You can pay them whatever the amount the future value was and then own the car outright, or refinance that future value and carry on financing it.
Or you can trade the car in for another. Whatever they value the car at, anything above it is yours to go into the next deposit.
I think you can hand the car back in and end the contract before the end, you just have to have paid for a certain amount of time. Also you can refinance into another car early but they will probably offer you a naff price for your car, so you will have to inject more cash into it.
Edit:
Also you can inject cash into it at any time and choose whether to cut the timescale of the finance or reduce your monthly payments.
Edited by TonyTony on Saturday 16th November 22:13
It's really not too complicated:
If you enjoy changing your car regularly, then a multi-year finance arrangement perhaps isn't for you? May be worth looking at leasing as well (where the intent from the outset is you'll hand the car back)?
Finance isn't evil, but being clearer about your longer-term objectives (and deciding if/for how long you want to be making monthly payments) makes it easier to make the right decision.
fjord said:
I've been looking for one to buy, but a decent model with everything I want, less than 5 years old, is difficult to come by. Budget is only about 13k, yet im looking at 17-19k for one that fits the bill. If i was to bankloan the remaning money, then i'd still be paying each month to repay it.
^^^ results in you owning an asset at the end of the payment term. You stop making payments and can then decide when to change it again at your leisure.fjord said:
Sometimes you give the car back and swap for a new one and keep paying, I assume this is PCP?
If you stay on the finance treadmill, keep handing back and getting a new one, it results in you NOT owning the asset (but contributing to the lovely flow of depreciated cars to the used market), having to decide/change at a certain point in time, and making the associated ongoing payments. If you decide you want to buy the car at the end of the process then you'll need to find the (often hefty) balloon payment (although you can borrow to fund this over a period of years, resulting in more payments).If you enjoy changing your car regularly, then a multi-year finance arrangement perhaps isn't for you? May be worth looking at leasing as well (where the intent from the outset is you'll hand the car back)?
Finance isn't evil, but being clearer about your longer-term objectives (and deciding if/for how long you want to be making monthly payments) makes it easier to make the right decision.
First thing I'd ask myself is why a car I bought 11 months ago is no longer good enough. If you're bored with it then the next one might suffer the same fate.
Bottom line? THE biggest cost of motoring is depreciation, and generally speaking you'll end up spending a fortune changing cars on a regular basis.
Bottom line? THE biggest cost of motoring is depreciation, and generally speaking you'll end up spending a fortune changing cars on a regular basis.
Customer gets offered car at what appears to be a great price so feels chuffed.
Customer sees low monthly payments he thinks are very affordable.
Customer gets to end of contract and is offered the opportunity of "buying" the car or handing it back.
Customer goes onto PH and tells anyone paying cash that they are stupid.
Customer actually pays more than the full list price when interest is factored in.
Customer sees low monthly payments he thinks are very affordable.
Customer gets to end of contract and is offered the opportunity of "buying" the car or handing it back.
Customer goes onto PH and tells anyone paying cash that they are stupid.
Customer actually pays more than the full list price when interest is factored in.
You will pay more by financing a car but the benefits are that you will be able to drive a new car and basically borrow half the amount of money and having a "guarantee'd buy back figure" gives a bit of peace of mind. Every 3/4 years you change for another new car the downside is that when you decide to stop doing this you have no capital and hand the car back. It's basically like renting a new vehicle for 3/4 years but you will pay for this privilege. Normally £1500-£3000 per agreement so haggle hard. Cars depreciate incredibly quickly so this is a good way to manage the situation best idea is to buy a demonstrator over 4 years.
fjord said:
I've been looking for one to buy, but a decent model with everything I want, less than 5 years old, is difficult to come by. Budget is only about 13k, yet im looking at 17-19k for one that fits the bill. If i was to bankloan the remaning money, then i'd still be paying each month to repay it. So why not get a new car, and pay each month for that?
Not sure if I've missed something vital but assuming I havent, a very good reason is because you'll be loaning 4-6k, and losing maye 5-6k on top; instead of loaning 20k+ and losing 12-15k. And driving a similar car anyway.Phil117 said:
“If it appreciates, buy it. If it depreciates, lease it.” J.Paul Getty, billionaire oil tycoon
As always, this tired and completely wrong saying is wheeled out by someone who has no idea what they're talking about, every single time finance is brought up.You really need to look at the specifics of each deal. Just because something is going to depreciate, doesn't necessarily mean you should lease it. The lease payments could (note "could", not "will") easily cost you more money long term than buying it up front then selling it when you were finished with it...
fjord said:
I know this is a broad general topic, but hear me out. Im unsure if finance is for me, and how it works out.
In 10 years of driving, i've probably had 9 cars. My current E46 320d is only 11 months old and i'm looking at changing. I assume this nullifies any finance on contract hire because of how often I change, however if the 320 was more powerful and had some decent toys, i could easily keep it for a couple of years.
Im mainly looking for a 330d touring. Autobox, Xenons, iDrive etc. Everything to stop me getting bored, but im unsure how these will impact on the price.
I've been looking for one to buy, but a decent model with everything I want, less than 5 years old, is difficult to come by. Budget is only about 13k, yet im looking at 17-19k for one that fits the bill. If i was to bankloan the remaning money, then i'd still be paying each month to repay it. So why not get a new car, and pay each month for that?
If anyone can offer some advice, how it works etc, then it'd be appreciated. Sometimes you give the car back and swap for a new one and keep paying, I assume this is PCP? It's all a bit confusing to someone who has only bought used cars.
Thing is, my used cars have always been less than £10k, which in my own circumstances, isnt a deal killer, especially as I would be p/x'ing something in, to reduce the cost even more.
It just seems that with the newer, high-end expensive stuff, buying outright seems an expensive, and possibly illogical option for someone who won't buy it and keep it for 5 years.
Hmm, you say you've got 17-19k to spend and know nothing about finance. Talk to me, I think I can sort you out a good deal on a bridge In 10 years of driving, i've probably had 9 cars. My current E46 320d is only 11 months old and i'm looking at changing. I assume this nullifies any finance on contract hire because of how often I change, however if the 320 was more powerful and had some decent toys, i could easily keep it for a couple of years.
Im mainly looking for a 330d touring. Autobox, Xenons, iDrive etc. Everything to stop me getting bored, but im unsure how these will impact on the price.
I've been looking for one to buy, but a decent model with everything I want, less than 5 years old, is difficult to come by. Budget is only about 13k, yet im looking at 17-19k for one that fits the bill. If i was to bankloan the remaning money, then i'd still be paying each month to repay it. So why not get a new car, and pay each month for that?
If anyone can offer some advice, how it works etc, then it'd be appreciated. Sometimes you give the car back and swap for a new one and keep paying, I assume this is PCP? It's all a bit confusing to someone who has only bought used cars.
Thing is, my used cars have always been less than £10k, which in my own circumstances, isnt a deal killer, especially as I would be p/x'ing something in, to reduce the cost even more.
It just seems that with the newer, high-end expensive stuff, buying outright seems an expensive, and possibly illogical option for someone who won't buy it and keep it for 5 years.
fjord said:
What do you do at the end of, say a 2 year agreement.
Do you need to pay another 7k deposit or whatever, hand the car back, and then get a new one?
Or pay £*** to buy the car outright?
You can pay the GMFV (expected value of the vehicle) and own the car. If the car happens to be worth less than the GMFV you can hand it back and walk away, or if it is worth more you can use the difference between the GMFV and actual value as a deposit for a new car (or again hand it back if you don't fancy buying another car). Do you need to pay another 7k deposit or whatever, hand the car back, and then get a new one?
Or pay £*** to buy the car outright?
I am a big advocate of car leasing I see it as a great way to own a car without spending a fortune, you get the new car warranty and potentially over 2 years are not going to pay any other costs at all other than maybe one service.
If you could get a new 135i for £299 a month with 6 months payment up front then just pay for it and hand it back after 2 years and start a fresh.
a C250 estate wouldn't be far off 330d performance and you could probably get a decent spec one for around £250 per month.
It is really an individual choice and very much marmite.
For me it helps as I used to buy outright, however these days have a lot of my own cash tied up within my business, but can pull out 400/500 a month towards a car pretty easy.
If you could get a new 135i for £299 a month with 6 months payment up front then just pay for it and hand it back after 2 years and start a fresh.
a C250 estate wouldn't be far off 330d performance and you could probably get a decent spec one for around £250 per month.
It is really an individual choice and very much marmite.
For me it helps as I used to buy outright, however these days have a lot of my own cash tied up within my business, but can pull out 400/500 a month towards a car pretty easy.
KFC said:
Phil117 said:
“If it appreciates, buy it. If it depreciates, lease it.” J.Paul Getty, billionaire oil tycoon
As always, this tired and completely wrong saying is wheeled out by someone who has no idea what they're talking about, every single time finance is brought up.You really need to look at the specifics of each deal. Just because something is going to depreciate, doesn't necessarily mean you should lease it. The lease payments could (note "could", not "will") easily cost you more money long term than buying it up front then selling it when you were finished with it...
No one that has trotted this meaningless cliché out has yet managed to explain how ADDING interest payments to the cost of depreciation actually helps save money.
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