Best way to finance a car
Discussion
Hi all,
In the market for a new car circa 20k. However, I get bored fairly easily and would look to get rid of the car after 2/3 years. What would be the best way to finance it without seeing the full amount leaving my bank account?
The car I'm looking to purchase is a year old, so won't face immediate forecourt depreciation and checking used variants - generally, the prices seem to hold well.
i.e. Can I go down the avenue of an HP with Balloon and then sell the car and settle the finance early?
In the market for a new car circa 20k. However, I get bored fairly easily and would look to get rid of the car after 2/3 years. What would be the best way to finance it without seeing the full amount leaving my bank account?
The car I'm looking to purchase is a year old, so won't face immediate forecourt depreciation and checking used variants - generally, the prices seem to hold well.
i.e. Can I go down the avenue of an HP with Balloon and then sell the car and settle the finance early?
Yeah, if you're looking at year-old cars that rules out leasing straight away (although some of the deals to be had shouldn't be ignored). Work out what you want first of all, then look at the best way to fund it. You may even find in the current climate that a lease deal on a new car might work out cheaper than buying a year-old one outright - it'd certainly be less hassle as you won't have resale/trade-in to deal with. But for the scenario you've set out so far, I'd agree with the bank loan angle especially if you can get it in the 3% interest region.
If you are intent on returning in 2 years, you need to look at the overall outlay in that period of time. For example, you could:
Take out a loan for 2 years and own the car at the end but the payments would be very high.
Take out a PCP with a large balloon payment, pay a small deposit and whatever the payment is over the 2 years. Hand back, job done.
Take out a lease on a new car for 2 years, an initial payment of anywhere between nothing and 9 months worth (note this doesn't reduce the number of payments, just the payment amount each month), then 23 payments and hand the car back.
Each have their benefits and weaknesses. Leasing might make the most sense if you don't plan on modifying or keeping the car beyond 2 years, but you need to keep in the mile allowance.
For example, I leased a 2019 Volvo V90 CC for zero down, £279 a month for 18 months. List price on the car was close to £50k but the total lease cost is around £5k. You would lose well over £5k in depreciation alone if I had bought or PCP'ed it, so a lease was a no brainer.
Take out a loan for 2 years and own the car at the end but the payments would be very high.
Take out a PCP with a large balloon payment, pay a small deposit and whatever the payment is over the 2 years. Hand back, job done.
Take out a lease on a new car for 2 years, an initial payment of anywhere between nothing and 9 months worth (note this doesn't reduce the number of payments, just the payment amount each month), then 23 payments and hand the car back.
Each have their benefits and weaknesses. Leasing might make the most sense if you don't plan on modifying or keeping the car beyond 2 years, but you need to keep in the mile allowance.
For example, I leased a 2019 Volvo V90 CC for zero down, £279 a month for 18 months. List price on the car was close to £50k but the total lease cost is around £5k. You would lose well over £5k in depreciation alone if I had bought or PCP'ed it, so a lease was a no brainer.
Edited by Camelot1971 on Friday 29th May 16:49
There is no universal 'best' way of financing a car - it all depends what your priorities are.
If the priority is to pay the least amount of interest then a personal loan will usually offer a lower interest rate than dealer finance on a used car, but it won't necessarily offer you a lower monthly payment.
If you are firm that you will change the car every 2-3 years then a 2 or 3 year PCP will guarantee that you won't be in negative equity at that point, as would a 60 month HP agreement.
If you took out a 60 month personal loan and decided to change the car after 2-3 years with a further loan then you would either be servicing repayments on 2 loans for a time, or you would need to settle the first loan and take out another larger one. Ifyou take the second option there is still the possibility that the value of the first car will be less than the settlement figure on the first loan and you won't have the right to return the car to the finance company.
But 2-3 years is not such an unusually frequent change cycle, do you suspect that you might actually change more frequently than that? Unless you are very lucky or skilful at sourcing your new car and disposing of your old one for good prices then changing cars often is an expensive hobby whether you pay cash or however you finance it.
If the priority is to pay the least amount of interest then a personal loan will usually offer a lower interest rate than dealer finance on a used car, but it won't necessarily offer you a lower monthly payment.
If you are firm that you will change the car every 2-3 years then a 2 or 3 year PCP will guarantee that you won't be in negative equity at that point, as would a 60 month HP agreement.
If you took out a 60 month personal loan and decided to change the car after 2-3 years with a further loan then you would either be servicing repayments on 2 loans for a time, or you would need to settle the first loan and take out another larger one. Ifyou take the second option there is still the possibility that the value of the first car will be less than the settlement figure on the first loan and you won't have the right to return the car to the finance company.
But 2-3 years is not such an unusually frequent change cycle, do you suspect that you might actually change more frequently than that? Unless you are very lucky or skilful at sourcing your new car and disposing of your old one for good prices then changing cars often is an expensive hobby whether you pay cash or however you finance it.
SSG1000 said:
Hi all,
In the market for a new car circa 20k. However, I get bored fairly easily and would look to get rid of the car after 2/3 years. What would be the best way to finance it without seeing the full amount leaving my bank account?
The car I'm looking to purchase is a year old, so won't face immediate forecourt depreciation and checking used variants - generally, the prices seem to hold well.
i.e. Can I go down the avenue of an HP with Balloon and then sell the car and settle the finance early?
Echoing the previous comments, i'd avoid PCP as they tend to be fairly awful on used cars.In the market for a new car circa 20k. However, I get bored fairly easily and would look to get rid of the car after 2/3 years. What would be the best way to finance it without seeing the full amount leaving my bank account?
The car I'm looking to purchase is a year old, so won't face immediate forecourt depreciation and checking used variants - generally, the prices seem to hold well.
i.e. Can I go down the avenue of an HP with Balloon and then sell the car and settle the finance early?
I always budget for 50% depreciation every three years so if you're spending £20K now, expect to get roughly £10K back when you sell. If its a bit more than that, then its a bonus.
I'd go down the cheap loan route.
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