What's your experiences on finance?

X-Morgan · 16 Jan 2011 at 14:05

I've always been against finance. I always found it pointless since you're paying into a car you'll probably never keep at the end of the 3/4 year period.

Here's my story.

I got bored one day and decided to pop into Arnold Clark Ford/Fiat Centre to see the 2nd hand cars they had on the back court. One of the sales guys comes over and talk to be and I give a brief rundown of what I want. (At the point, I've never stepped into a dealer before) So he takes me in, and shows me a 'special offer' Fiat have introduced.

Shows me a 60 plate Fiat Grande Punto Sound 1.4. It looks damn impressive (biased since I've always liked the shapes of the Grandes, EVO's, not so much)

He tells me that the car is £6988 and I can have it for £125/month for 4 years, then I have 3 options: Give the car back and walk away, trade in for a new car, or pay the excess and keep the car (around £3200ish)

Having a new car was mighty tempting, 'cos my wee 2000 Fiesta is getting long in the tooth, but I can't even fathom the notion of 4 years paying that kind of money. Especially that the insurance is £75/month ontop of it.

So anyway, I didn't even get to look at some 2nd hand 2007 Fiestas since he spent so long showing me immaculate 2011 cars.

What's your experiences? Good and bad.

I know your opinions on financing, I've lurked around here enough to know the consensus, but I do understand now why people my age all go for it. £125/month on a £800.month salary. i just don't think they see the big picture.

Serpantine · 16 Jan 2011 at 14:16

In some ways, its a good way of saving money. Example being you pay the car off quickly, then sell it you can get your money back or lost say 1-2k on it and you're kind of forced to pay the cash because it's your car...

Say it cost you 7.5k paid it back after 2/3 years and it's now worth 5k sell the car for 5k and buy something outright the next time.

I wouldn't advise getting a brand new car, but you'l find good 07 examples of zetec-s fiestas will cost you 7.5-8k

DM · 16 Jan 2011 at 14:18

Serpantine said:
In some ways, its a good way of saving money. Example being you pay the car off quickly, then sell it you can get your money back or lost say 1-2k on it and you're kind of forced to pay the cash because it's your car...

Say it cost you 7.5k paid it back after 2/3 years and it's now worth 5k sell the car for 5k and buy something outright the next time.

I wouldn't advise getting a brand new car, but you'l find good 07 examples of zetec-s fiestas will cost you 7.5-8k

I got to ask, how is buying something that depreciates daily, with money you pay interest on in any way a good way to save money?

X-Morgan · 16 Jan 2011 at 14:22

Serpantine said:
In some ways, its a good way of saving money. Example being you pay the car off quickly, then sell it you can get your money back or lost say 1-2k on it and you're kind of forced to pay the cash because it's your car...

Say it cost you 7.5k paid it back after 2/3 years and it's now worth 5k sell the car for 5k and buy something outright the next time.

I wouldn't advise getting a brand new car, but you'l find good 07 examples of zetec-s fiestas will cost you 7.5-8k

Sorry Serpantine, I'm not following you. In 4 years, the Grande would be worth about £2,500 (if it's in perfect condition) and by that time, I've already paid £6,000 for the privilege of owning it. Then Arnold Clark will ask me for £3,200 to keep it. Where would money be made from that?

IAmATeaf · 16 Jan 2011 at 14:30

Serpantine said:
In some ways, its a good way of saving money. Example being you pay the car off quickly, then sell it you can get your money back or lost say 1-2k on it and you're kind of forced to pay the cash because it's your car...

Say it cost you 7.5k paid it back after 2/3 years and it's now worth 5k sell the car for 5k and buy something outright the next time.

I wouldn't advise getting a brand new car, but you'l find good 07 examples of zetec-s fiestas will cost you 7.5-8k

Wouldn't "pay the car off quickly" incur a penalty charge? Also don't forget the final lump sum you've got to pay before the car is yours.

To me this only makes sense if you have the monthly amount as a disposable income and you intend to trade the car in for something more modern near or at the end of the deal. A guy at work does this, every 3 years he trades his current finance/lease car for something newer but sinks around £450 (I think, at least that's what he told me

) each and every month for the pleasure.

I asked him why he does this and the basic answer is he never had the money to buy a car outright and neither did have an amount to throw in as a deposit to buy a car on finance whereby the monthly repayments are tolerable. Using the scheme he's on he sinks £450 a month and drives around in new(ish) car.

Me personally, I'd never take a car on finance, if I don't have the money then I'm willing to wait.

Serpantine · 16 Jan 2011 at 14:32

OK, i couldn't afford 7.5k and lord knows i won't save that without trying seriously hard so in the case of my car which if i pay it off in the next 6 months it will have cost me the best part of 2/3k to own it for a year and a half.

Is that not better than buying something new with 10k of your own cash and keeping it for 3/4 years?

I'm talking about paying it off quickly avoiding the 11% interest hit as much as possible - no its not as good a model as putting £125 into your savings account each month but for something who does not have the cash to put down its not a bad way of doing things, you will lose out but only by the depreciation of the car ..really.

DM · 16 Jan 2011 at 14:34

The youth of today, learn to save boys, learn to save

Serpantine · 16 Jan 2011 at 14:35

IAmATeaf said:
Wouldn't "pay the car off quickly" incur a penalty charge? Also don't forget the final lump sum you've got to pay before the car is yours.

According the loyds, say you have £500 left, pay £450 and they then take £50 as the final payment automatically and does not incur a charge because its basically been automated.

As for the 'lump sum' my agreement does not have that, its a pay x a month for x years jobby, higher repayments basically.

IAmATeaf · 16 Jan 2011 at 14:40

Serpantine said:
OK, i couldn't afford 7.5k and lord knows i won't save that without trying seriously hard so in the case of my car which if i pay it off in the next 6 months it will have cost me the best part of 2/3k to own it for a year and a half.

Is that not better than buying something new with 10k of your own cash and keeping it for 3/4 years?

I'm talking about paying it off quickly avoiding the 11% interest hit as much as possible - no its not as good a model as putting £125 into your savings account each month but for something who does not have the cash to put down its not a bad way of doing things, you will lose out but only by the depreciation of the car ..really.

But if you can afford to pay the car off quickly in the first place why get into the scheme to start off with? Maybe I just don't understand what you're trying to say but to me it doens't make any sense.

Serpantine · 16 Jan 2011 at 14:45

New job, more disposible income, need a new reliable car - can't save that kind of money in a couple months (somewhat obviously) so the only other option is to take finance and use the disposable income to clear the debt quickly.

do you see what i mean now?

Meatball · 16 Jan 2011 at 15:48

You'll buy it and get bored of it after a year or two and want something different, don't do it. If you must buy the car but can't afford to buy it outright get a bank loan. That way you can sell the car on if you wanted to without the hassle of sorting out the finance.

StevenG · 16 Jan 2011 at 15:48

Buy something decent, get a fixed term fianance, depending on the cost of the car, pay the monthly payments, trade in near the end of your deal for something newer/better.

done this on 2 cars now and works well. if you judge it correctly you'll end up with positive equity in the car at around 2/3's of the length you signed up for, this allows for deposit on new car, take another finance deal... repeat.

StevenG

Peerzy · 16 Jan 2011 at 15:53

X-Morgan said:
Sorry Serpantine, I'm not following you. In 4 years, the Grande would be worth about £2,500 (if it's in perfect condition) and by that time, I've already paid £6,000 for the privilege of owning it. Then Arnold Clark will ask me for £3,200 to keep it. Where would money be made from that?

I'm not gonna get into the whole finance arguement as I'm pretty much totally against it unless it's one of those amazing deals.

However a 4 year old Punto Evo will not be worth £2500. My OH has a 56 plate Grande Punto that's 6 months off being 4 years old and her's is probably 'worth' somewhere between £3000 and £4000. I'd expect a 4 year old Evo to be worth about the same.

I say 'worth' as you obviously never know how much a car is really worth till you sell it.

Hilly · 16 Jan 2011 at 15:56

As long as you can afford finance and can get it at a decent APR, then it's a valid way of getting a car.

The general rule is to work out what you can afford and pay it off over the least amount of time. E.g you say this is over a 4 year deal, can you afford it over a 3 year deal perhaps? The less in terms of time, the less interest you pay.

DM · 16 Jan 2011 at 16:02

What ever happened to working up the car ladder and saving in between?

I suppose that went out of fashion with flares

TONY · 16 Jan 2011 at 16:07

I found that a personal loan worked out better than finance, unless of course they are giving 0% finance (no chance for me at BMW).

I like the fact that I own the car from day one and can sell it at any time.

Phate · 16 Jan 2011 at 16:13

Speaking from the experience of having had a car on finance...I wouldn't do it again

I wouldn't advise anyone to do it either.

PMKeates · 16 Jan 2011 at 16:15

'Finance' isn't bad at all. It's a very good and clever thing. What's bad is paying a lot of money for a car that you don't really get much out of.

I suspect £125/month will not include servicing, insurance or anything like that. I imagine it is just paying for the car. You are paying £125/month (£6,000) for essentially depreciation plus a 3yr warranty. That's it. Doesn't sound much, but it is. If you were to buy a second hand car for £4,000 without a warranty the depreciation would probably cost £50/month, and the cost of repairs is highly highly unlikely to be £75/month.

For the cost of running that Fiat you could (unless you do a lot of miles or are 17) probably run a nice, one owner FSH ~2006 Ford Mondeo 2.0 Ghia X with leather, climate control, cruise control etc. I know which one I'd prefer!

Duke · 16 Jan 2011 at 16:36

PMKeates said:
'Finance' isn't bad at all. It's a very good and clever thing. What's bad is paying a lot of money for a car that you don't really get much out of.

I suspect £125/month will not include servicing, insurance or anything like that. I imagine it is just paying for the car. You are paying £125/month (£6,000) for essentially depreciation plus a 3yr warranty. That's it. Doesn't sound much, but it is. If you were to buy a second hand car for £4,000 without a warranty the depreciation would probably cost £50/month, and the cost of repairs is highly highly unlikely to be £75/month.

For the cost of running that Fiat you could (unless you do a lot of miles or are 17) probably run a nice, one owner FSH ~2006 Ford Mondeo 2.0 Ghia X with leather, climate control, cruise control etc. I know which one I'd prefer!

Although with one you're able to spec the right car and have it right away and the other is used and you have to save up the whole amount. Not saying either way is right or wrong, just saying

Financing works out best if you can do it via your employer / self employed.

Peño · 16 Jan 2011 at 16:41

X-Morgan said:
He tells me that the car is £6988 and I can have it for £125/month for 4 years, then I have 3 options: Give the car back and walk away, trade in for a new car, or pay the excess and keep the car (around £3200ish)

I have no experience on financing cars, but this is my very basic financial breakdown of the offer:

The minimum OTR price for this car is £9,995.

The cost of leasing the car over 4 years is £6,000 (assuming interest is included in the payments).

To own the car after the 4 years would cost you £9,200.

Looking at the depreciation of a similar car (Fiat Grande Punto 1.4 Dynamic 3d 07 - original OTR price £9,222), this is currently valued at about £3,900 (average valuation derived from Parker's).

In simple monetary terms you would lose about £1,325 per year in (straight-line) depreciation.

In my opinion you need to be intent on the car and can justify the depreciation costs.