Car Finance - explain it to me please!

[Hamperman]

Hi, I’ve never taken car finance before as I’ve always looked at it as there is a cost of money involved which will make it more expensive. Dealers have always argued back and told me I need to think about the opportunity of what else I could do with the money. I get this if I had my own business or perhaps had some high rate credit card bills. Mortgage rates are low so I’d rather have money borrowed on a mortgage than a lower mortgage and car finance. I get the benefit about the finance company taking the risk of the future value of the car but I suspect this is lower than the real value most of the time so they are taking little risk.

So what am I missing or am I correct? I also appreciate you might not have the money in cash to pay for the car so finance is the only option.

Cheers

[ChrisH72]

I don't think you're missing anything really.

Finance is for those who don't have the cash available to buy outright. I've only used it once and it was expensive. As far as I can see it's always cheaper in the long run to pay in full if you can.

[jjr1]

Not always true. I have a Toyota Yaris due next year and have taken it on 0% finance. Why would I not?

[Pica-Pica]

jjr1 said:

Not always true. I have a Toyota Yaris due next year and have taken it on 0% finance. Why would I not?

If you could get it cheaper for cash?

[ChrisH72]

I'd assume that 0% finance just means you're paying too much in the first place?

There has to be something in it for the dealer or they wouldn't offer it.

[anonymous-user]

Never say never. For some situations finance is crazy / leasing is crazy / buying cash is crazy / buying from a dealer is crazy / using a broker is crazy / trading in is crazy

It is generally worth spending a few minutes investigating options and asking for improved terms. If the seller is keen to push finance, tell her what deal you would go for and see if it can be done

[rix]

Finance has its benefits, even if you can afford to be a cash buyer, especially in new cars where you only intend to keep the car for a couple of years. Manufacturers usually support competitive rates (although usually more than the rate you'd be paying on your mortgage!) and often give decent GFVs _effectively the minimum the car will be worth so you can walk away at the end of the term. What this means that if you look at car buying insofar as you will loose a significant sum over a number of years, finance deals will make this a known quantity. It is often cheaper to 'buy' a new car than a one year old car if you are assessing it by the total outlay over a fixed term.

[renmure]

Pica-Pica said:

jjr1 said:

Not always true. I have a Toyota Yaris due next year and have taken it on 0% finance. Why would I not?

If you could get it cheaper for cash?

But if you can't?
I've a Toyota Aygo on 0% finance having never taken finance on anything before. The Toyota salesman is a mate of mine. There wasn't any discount for cash and the price was the price. It felt dafter to be stubborn and pay for the car up front than it did paying over 3 years and financing an Aygo.

[Sheepshanks]

renmure said:

I've a Toyota Aygo on 0% finance having never taken finance on anything before. The Toyota salesman is a mate of mine. There wasn't any discount for cash and the price was the price. It felt dafter to be stubborn and pay for the car up front than it did paying over 3 years and financing an Aygo.

Few years ago family member got a Honda Jazz on 0% and on top of all the usual discounts, there was also a £500 deposit contribution on the PCP!

Salesman told us Honda wanted all its customers on PCPs and was prepared to throw money at it to make that happen. Sure enough after 2.5yrs we had a very pushy salesman on the phone trying to move us into a new one.

[CJ1]

I bank with Lloyds, they are currently offering 3.8% APR on Hire Purchase and 5.4% on PCP’s. You don’t have to use the dealers financing which is often a lot more on a used car!

The HP at 3.8% is a no brainer!

[Hamperman]

CJ1 said:

I bank with Lloyds, they are currently offering 3.8% APR on Hire Purchase and 5.4% on PCP’s. You don’t have to use the dealers financing which is often a lot more on a used car!

The HP at 3.8% is a no brainer!

Is it though? If I had cash am I better off taking the 3.8%?

[2 GKC]

I was looking at a new car where the salesman was offering zero percent finance. His zero percent finance price was higher than the cash price and he didn’t understand why that wasn’t zero percent finance.

[Sheepshanks]

2 GKC said:

I was looking at a new car where the salesman was offering zero percent finance. His zero percent finance price was higher than the cash price and he didn’t understand why that wasn’t zero percent finance.

I don't know how the car industry gets away this - daughter's SEAT Ateca a couple of years ago had 3 different prices, one 0% but with big deposit, one 5.9% with no deposit, and a cash price (which was cheapest overall, and quite a lot cheaper than the 0% offer.

[Muzzer79]

ChrisH72 said:

I'd assume that 0% finance just means you're paying too much in the first place?

There has to be something in it for the dealer or they wouldn't offer it.

The dealer doesn’t offer it. The manufacturer does, to generate sales.

You will obtain the same dealer discount with 0% as you do with any other finance deal or with cash.

AIUI, dealers don’t actually like cash purchases.

[Hamperman]

Muzzer79 said:

The dealer doesn’t offer it. The manufacturer does, to generate sales.

You will obtain the same dealer discount with 0% as you do with any other finance deal or with cash.

AIUI, dealers don’t actually like cash purchases.

Yes I agree because they don’t make as much money out of you. I started this thread thinking I was missing something but it doesn’t look like I am.

[Macneil]

You're not missing anything, it just costs money to borrow, one way or the other.

A dealer might make more from finance than from the car itself, so you won't necessarily get a discount for "cash" but you won't have a millstone round your neck. So if you have the money, use it.

[akadk]

Hamperman said:

Hi, I’ve never taken car finance before as I’ve always looked at it as there is a cost of money involved which will make it more expensive. Dealers have always argued back and told me I need to think about the opportunity of what else I could do with the money. I get this if I had my own business or perhaps had some high rate credit card bills. Mortgage rates are low so I’d rather have money borrowed on a mortgage than a lower mortgage and car finance. I get the benefit about the finance company taking the risk of the future value of the car but I suspect this is lower than the real value most of the time so they are taking little risk.

So what am I missing or am I correct? I also appreciate you might not have the money in cash to pay for the car so finance is the only option.

Cheers

I had a 6figure car brand new on finance - handed it back at end of agreement and it lost the fin co £35k at auction.

I have a Rapide S on pcp, will hand it back again at end, will lose money at auction.

[Hamperman]

akadk said:

I had a 6figure car brand new on finance - handed it back at end of agreement and it lost the fin co £35k at auction.

I have a Rapide S on pcp, will hand it back again at end, will lose money at auction.

Ok so for example you had a £100k on finance and paid monthly figures of say £1000 a month so over 3 years it cost you £36k. You handed it back and the finance company then sold it for £29k at auction? What was the car if you don’t mind me asking?

[2 GKC]

akadk said:

I had a 6figure car brand new on finance - handed it back at end of agreement and it lost the fin co £35k at auction.

I have a Rapide S on pcp, will hand it back again at end, will lose money at auction.

How do you know what the finance company paid?

[chrispmartha]

Macneil said:

You're not missing anything, it just costs money to borrow, one way or the other.

A dealer might make more from finance than from the car itself, so you won't necessarily get a discount for "cash" but you won't have a millstone round your neck. So if you have the money, use it.

All depends on how you look at it.

If I had £40k to buy a car, and the finance was 0% or very small, Personally Id prefer to keep the £40k in the bank, still use it to pay the finance off but have the safety of the money in the bank.

If the finance is ‘cheap’ buying it that way gives you more options, Im not sure id want to put £40K into a depreciating asset, when I could finance it.