Discussion
So, I've got itchy feet again... always promised myself another Ferrari after the 355 (can't believe I sold it for £35k 9 years ago... would be worth £100k now, grrrr). Anyway, weighing-up a few options and struggling to decide how much to spend and how to finance the purchase. Whatever car I get, I'll be likely to keep it for maybe only 1-2 years.
Initially, I was thinking of a cash purchase. However, that's a lot of money tied-up in an illiquid asset. So, that got me thinking about finance.
As I understand it, there are, generally speaking, 2 options available to me on a used car (>5 years old) purchase... HP or HP with a balloon.
Plain old HP is pretty simple to grasp (even for me); deposit at the start of the loan + the loan amount over a specific term with fixed monthly repayments.
HP with a balloon has me all confused; I get that it's the same as HP, but with a balloon payment that's deferred until the end of the term, but it's really confusing me in terms of calculating the overall cost of borrowing for 1 or 2 years. I presume the interest I'd be paying monthly would be calculated on the entire loan amount including the balloon, but the capital portion would only be for the loan amount not including the balloon? So, compared to regular HP, the monthly repayments are lower, but the total cost of borrowing is higher?
Of course, given I have the cash (or most of it) available, it wouldn't make sense to use finance unless I had something better to do with the cash. I had thought of investing in high-yield stocks that I also think show some decent-ish growth potential... that would give me a highly liquid investment that I could turn into cash easily if I needed to and might pay for the borrowing costs on the car, for example.
Would appreciate the opinions of those who have 'been there, done that' and can offer any words of advice.
Initially, I was thinking of a cash purchase. However, that's a lot of money tied-up in an illiquid asset. So, that got me thinking about finance.
As I understand it, there are, generally speaking, 2 options available to me on a used car (>5 years old) purchase... HP or HP with a balloon.
Plain old HP is pretty simple to grasp (even for me); deposit at the start of the loan + the loan amount over a specific term with fixed monthly repayments.
HP with a balloon has me all confused; I get that it's the same as HP, but with a balloon payment that's deferred until the end of the term, but it's really confusing me in terms of calculating the overall cost of borrowing for 1 or 2 years. I presume the interest I'd be paying monthly would be calculated on the entire loan amount including the balloon, but the capital portion would only be for the loan amount not including the balloon? So, compared to regular HP, the monthly repayments are lower, but the total cost of borrowing is higher?
Of course, given I have the cash (or most of it) available, it wouldn't make sense to use finance unless I had something better to do with the cash. I had thought of investing in high-yield stocks that I also think show some decent-ish growth potential... that would give me a highly liquid investment that I could turn into cash easily if I needed to and might pay for the borrowing costs on the car, for example.
Would appreciate the opinions of those who have 'been there, done that' and can offer any words of advice.
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