Dingdongler

This is an interesting topic as I'll probably be buying a new car soon. When I was young and stupid (23) I once bought a car for something like 23%apr!

More recently I've bought my cars cash. Funnily enough when I bought my current car about 3 years ago they were trying to push finance and I kept saying no. They eventually offered me a loan at about the same rate I would get on the money in a savings acct. I did all the calcs and the finance over 3 years would cost about £150 more than I would get on the money in the savings acct so I took it. Just in case I decided to invest it etc.

I've always felt (after I was 23!) that all finance is a cancer (unless it's for investment/buying assets) and buying with cash is the best way. But then I hear this argument, as put forward by Mitchy (and others) that locking up that capital that could be used for investment is a missed opportunity ans I get a little confused. Am I missing a trick?

It's just that when I add up what these finance packages cost with balloon etc it just seems like so much extra money to pay. Would I actually be able to make that money back by low risk investments? Does the amount of interest I'll pay be less than what I will 'save' in depreciation with these GFV schemes?

Very confusing. Maybe like JB I'm too conservative about these things but whenever somebody mentions finance my gut instinct is that somebody is trying to rip me off.

john banks

Well you have to ask yourself if finance houses could get a better risk:return ratio than lending money to car purchasers they would do?

Some risky investments could quadruple in three years and some could be worthless. Property can easily move 30% either way in that time.

Trout

iTrader: (1)

Ding - with the right contacts you can get tracker asset finance as well just to make the decision even harder. Usually about 2.5% above base, 3% above LIBOR.

PM me if you want details.

hodgy0_2

isn't the basic starting premise flawed

you are buying a depreciating asset full stop --- it is just damage limitation, you can't win in the way you can with an investment (assuming it actually increases in value) by using leverage finance

so I think it is a moot point really -- the long tall and short of it is that you have to pay to play

I will admit to looking on from the touch line - admiring all your enthusiasm

Terminator X

iTrader: (7)

I'm amazed that anyone can spend £85k so casually ...

TX.

paulwrxboro

Is this your roundabout way of saying i payed cash for both my cars ?
any fool would know you can move asmuth money as you like without touching any cash

Trout

iTrader: (1)

I guess that was my original point!

Trout

iTrader: (1)

That's why you pick your 911 carefully and they only appreciate

hodgy0_2

I was going to post "we are not all as clever as you Trout"

but I won't

john banks

I'm only interested in 997 to be honest, so are there any 997 that you can buy now either new or used that are depreciation resistant, and that are sensible to be used daily? Weird ones with scaffolding instead of back seats and lederhosen for door pulls probably don't count.

In summary, any easily obtainable, sensible Pork that holds its money? Much of the mainstream stuff looks pretty bad for depreciation to me.

Trout

iTrader: (1)

I wouldn't get a Porsche then.

The more the scaffolding the less the depreciation!!

I suspect the most depreciation proof 997 will be the GT2 RS - expensive in capital I suspect will terrific returns.

993 GT2s are selling at around 40-60% appreciation; 964 RS 2-300% appreciation. You have to wait a while though

thesyn

Interesting, you boys with the high value motors seem to be in the north of the island.

Dingdongler

That's because a house there costs about 20p so lots of money left over for toys.

Dingdongler

That's interesting. So 2.5% above BOE is 3%, I can get that in a savings acct. So I can take the money from the loan company and leave my money in the bank and be cash neutral. Upside is I have the cash at my disposal for opportunities, downside is I will pay tax on the 3% return. Interesting....

zip106

Try this - for fixed and variable interest.
http://www.broombroom.com/finance

Mitchy260

I understand the principle of making money work. Like I said, If it were me that £90k would be invested, it would generate me a monthly income, it would appreciate in value over the term and I'd lease the car.

zip106

That's because that there London has had its day.

zip106

I don't know if you watch the news and read about house prices, but I think there's some pretty big falls around the corner - much more than we've seen over the last 2 years.

I'd much rather chuck a little cash into a depreciating asset for a couple of years that you can actually enjoy.





I do know what you mean though.

Mitchy260

I have no idea what you are talking about there fella. With that level, £37k, I'd say the sums would be very close in repects to the difference between buying outright and financing.

Cash buyers need to factor in depreciation along with missed investment opportunity. Lease buyers, well they dont have anything tied up, they pay a monthly rental and couldnt give a monkeys about depreciation.

It's not as clear cut as you think, cash buy does not always make sense. At the levels discussed here, £90-100k etc then even more so.

Trout

iTrader: (1)

In the original quote you stated you did not have to worry about depreciation because you were leasing.

Just out of curiosity, what do you think your £598 is funding? From what I can tell, not much of it is interest!

Trout

iTrader: (1)

To qualify for a LIBOR deal you will need to opt out of the Consumer Credit Act. To do this you need to do one of three things: -

Have over £300k of assets; or a net income of £150k (both of these will be independently audited); or the one that is not audited, to make a statement that you will use your car for more business miles than personal miles. So you either don't need to borrow the money; or you are a business user

The upside is taking advantage of very low rates. The downside is that the rate is not fixed; and during the credit crunch the LIBOR rate went over 6%.

Payments remain fixed, if the interest rate rises the payment schedule is extended.

Of course assuming rates remain ultralow for the next twelve months, once rates start to rise you will have eroded the capital sum anyway and so any impact of rate rises will be reduced.

So the biggest risk at least at the moment is whether there will be another once-in-a-hundred-year event such as autumn 2008!!!

zip106

I was being quite facetious.

I didn't realise you were leasing.

But, if you'd have done an HP purchase even with massive depreciation you'd still have a car at the end of it.
Not so with a lease.


Anyway, I'm not one to talk as I'll quite possibly be leasing the wifes next car.

Trout

iTrader: (1)

Whether it is a lease or a lease purchase, Mitchy seems to be missing a key factor in his calculations

hodgy0_2

Lord Sugar leases his Rolls Royce Phantom

Trout

iTrader: (1)

And I am sure he can work out that it is a sunk cost...



...just like depreciation

Mitchy260

You're right, it is of course based on depreciation as at the end of term I'll have nothing to show for all those payments. (Well not entirely true, I supect there will be £2-3k equity to go down as a deposit on the next car in order to keep me in the PCP loop)

Some say madness, but I get to drive the same car without the loss of investable capital. When you drill down into the figures, it's a little closer than what it may appear.

Mitchy260

Sorry, I'm using the word leasing but that is wrong. PCP or HP-Balloon.

Trout

iTrader: (1)

john banks

Was I right in saying you will have paid 24k to run a used 37k car for 3 years? Do you think that is a good deal? Your only guarantee out of this is that you give the car back and leave with nothing, and if you try to get a better return than the loan interest you have no guarantee of that at all and risk to capital. And if you are already earning then making a monthly income is a PITA IMHO.

Mitchy260

£28.7k for 4yrs John, Yes. (I suspect I'll still have my initial deposit to go onto the next car, it's the way PCP usually works and has done in the past for me)

Cash buy = £37k with a £15k asset at the end of the 4yrs.
Finance buy = £28.7k with nothing to show for it at the end.

Difference = £15k - £8.3k = Cash buyer is better off to the tune of £6.7k.

Can I make £6.7k through 4yrs of investment with £37k? I can get pretty close at £1800pa after all deuctions over the 4yrs with rental yield in Aberdeen. Factor in possible HPI into the equation and it could be a sound investment plan (2006-2010 Aberdeen HPI around 35-40%) Although, saying that, I suspect a stagnating market for the next 5yrs or so so wouldn't count on that.

The maths between the two is quite close. A bit of a PITA but shows that you can work it both ways. With different cars, different amounts, It sometimes makes more sense to lease. Look at the top 10 most depreciating cars of 2009 for example

http://www.parkers.co.uk/News/Motori...iation-report/

A new model may make a car depreciate faster than the finance house had accounted for, changes to road tax, a more economical model released, company going bust etc so there's no protection with a cash buy like there is with say a PCP