What I'm trying to weigh up is the upsides/downsides of 2 options. One where I keep a car for say 3 years and pay the whole loan off in that period and sell a car that is 100% mine, the other where I opt for a repayment period of more than 3 years but still selling in 3 years, in effect financing the depreciation.
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Nasr - I like the 'free' motoring feeling when you've paid the loan!!
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It was close for me, but the dealer finance option worked out best.
Car: Seat Ibiza 1.4S with metallic paint & height adjustable seat
List price: £9400 (with interest free finance over 3 years)
Cheapest found at drivethedeal.com: £8752.49
Cheapest loan found at moneysupermarket.com: Co-op bank, 5.9% over 3 years on £8753 gives total repaid at £9550.
I hadn't worked out the repayment costs on a discount before you posted your experience, so could have been caught out. Mind you, I had a car to part-exchange, so buying through the web would have been a problem.
Moral? Take each deal on a case-by-case basis according to the car, how much it can be discounted, dealer's interest rates etc.
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Tall Driver - sometimes brokers (especially those supplying through franchise dealers, such as www.drivethedeal.com ) do manufacturers' special offers and part exchanges as well.
Nsar - if you are buying a new car on finance, you have a couple of options. First of all, as you can get a 5.9% APR finance rate from Cahoot at the moment (if your credit's good - and if it's not, stick with the banger!) then I'm not sure that it makes that much sense to add it to your mortgage, mainly because of the fact that the temptation is there just to let the £5k or whatever you're borrowing be fed into the remaining 15 years perhaps on the loan. Bad idea.
Secondly, you may wish to get finance the car under a 'conditional sale' or 'hire purchase'. These mean the same thing. The advantage of this is that, if your credit is slightly dodgy, the finance company has an asset it can sell if it thinks it is too exposed to risk and thus may offer you a better APR (but not as good as a mortgage). In theory, the dealer may also have some kickback (i.e., margin) to play with and offer you a better price.
You can also return the car after you have paid over 50% of the total credit price, which might seem to offer protection against excessive depreciation - but if you buy wisely, this situation shouldn't arise unless you do astronomical mileages.
The disadvantages are that it's hard to shop around for rates as you more or less have to get the finance through the supplying dealer. Sometimes this is more expensive, sometimes not. The main disadvantage though is that when you come to sell, you need to clear the finance first, which makes it more difficult to sell halfway into the loan. For that reason, I tend to prefer a straight cash deal (where the finance comes from the bank before you negotiate on price) because you're comparing like with like.
You can also go for a straight finance deal or a personal contract purchase/deferred payment. They can be useful if you know how long you're keeping the car from the outset. The advantage is lower monthly payments but, even at the same APR, they work out more expensive. The reason is that the balance on which interest is paid is greater at any given point in the loan. For instance, borrow £11k with a deferred ('balloon') payment of £4000 and the last monthly payment will include interest on a little over £4k. Borrow £11k and pay it off outright and the last payment may involve interest on, say, £300.
Secondly, if there is a 'conditional sale' element (i.e., they're lending you the money on the car) then the 'guaranteed' future value may actually be dependent on mileage and condition. Fine for most people but you can be caught out. Thirdly, they don't make sense if you have a large deposit - e.g., the £199 a month Focus deal currently advertised requires you to have a deposit of over £3k. This could be the five year old Focus you're trading in - but where's the deposit for its replacement going to come from in three years' time? Of course, no deposit = more interest paid.
www.smartermotoring.com does this kind of deal but there is no 'conditional sale' element - i.e., the loan is completely unsecured. The URL actually points to the Alliance and Leicester site and the APR is a fairly competitive 6.9%, at least until interest rates rise soon.
If you're spending £11k (a figure I've chosen because it lets you get anything from a top-end C3 to a StreetKa to a Civic to a Scénic to a base Mondeo) your monthly payments over three years would work out as:
Straight loan, no deposit, Cahoot - £333.38 (£12002)
Balloon loan, unsecured (A&L) - £227.64 with £4400 outstanding (£12595.04)
Manufacturer's finance deals vary because of the amount of value a car will retain. Generally though, 0% finance may not cost you any interest but it's being funded from somewhere and the chances are that either the car is overpriced, unpopular (and therefore will lose the 'interest' in additional depreciation come resale). Do the discount vs interest calculation above, but don't forget to take into account that cars with it on may be worth less than cars without it.
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David, an awesome post thank you indeed for the time and trouble you have taken. You've made things much clearer.
My postings here may be a bit iffy, but I know my credit's good.
It's a 3 way for me in that I'm also thinking about going back into the comfort of the company car world, as well as weighing up the methods of financing a car myself.
My cash instead of car is £6k pa and I reckon on allowing £10k depreciation over 3 years (I'm looking for a car at about £20k so owning a car (taking into account 40% tax on the £6k, insuring it at £750 - my current car is grp 18, £500pa svc + maintenance, plus road tax) is taking all £6k plus a further £1.1k. This doesn't take into account petrol. Does this seem reasonable?
£20k over 3 years is about £615 per month, over 5 years it's £385.
Personal Contract Hire is attractive, but every site seems to quote 10k miles pa not the 15k I'll do.
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Okay, good credit is something to start with.
You've forgotten to take company car tax into account, which is about £1600 based on 0.4 × 0.2 (emissions based BIK, for a sensible large diesel, probably higher for something juicier) × £20k NB this is based on list, so the actual BIK payments may be up to 25% higher for a car you would spend your own money on.
Would you get a mileage allowance for any business miles on top of your cash? This could tip the balance if this is generous. 40p per mile at 5000 miles per year (okay, we don't all get that!) is £1200 after tax and would pay for your remaining private mileage if you were getting 50 mpg.
At £20k you're looking at an amount larger than most bank loans are designed to cope with. Personal contract hire isn't necessarily a bad way to go, although it depends very much on the individual deal. Sometimes they can get fantastic 'discounts' that don't don't harm residuals too much, keeping the monthly figure down, because there's no advertised cash price at 40% below list or whatever.
Oh and reckoning on 50% retained value at 3 years and 45k isn't impossible by any means, but it depends very much on the car, so choose wisely.
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