Car Finance vS Ownership?
25 April 2006, 10:17 AM
#1
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Car Finance vS Ownership?
Had a discussion over the dinner table last night with regard to whether it's the right or wrong thing these days to outright own your car/cars.
In our situation, both myself and the wife have cars that are fully paid for and currently worth approx. £38k. These cars were approx. £60k new 3 years ago!!
(36.67% depreciation). We have always felt proud of the fact they we don't owe money on our cars. 
The couple we were dining with run a new Porsche 997S and an Audi A3 3.2. They were trying to say that the very cheap finance options they had on both new cars meant that their money was working better for them invested in instant access savings accounts. In 2 or 3 years time when the balloon payment is due they simply change cars and start again.
Has anyone got any idea what Porsche & Audi finance deals are available and at what APR etc.?
Anyone work their own cars on finance like this?
In our situation, both myself and the wife have cars that are fully paid for and currently worth approx. £38k. These cars were approx. £60k new 3 years ago!!
(36.67% depreciation). We have always felt proud of the fact they we don't owe money on our cars. The couple we were dining with run a new Porsche 997S and an Audi A3 3.2. They were trying to say that the very cheap finance options they had on both new cars meant that their money was working better for them invested in instant access savings accounts. In 2 or 3 years time when the balloon payment is due they simply change cars and start again.
Has anyone got any idea what Porsche & Audi finance deals are available and at what APR etc.?
Anyone work their own cars on finance like this?
25 April 2006, 10:37 AM
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So to summarise, although they had better cars than you.....you feel better as you don't have finance 
I bet they have a bigger house too, thats wrth more money, but you console yourself in the fact that you don't owe as much as them
I bet they have a bigger house too, thats wrth more money, but you console yourself in the fact that you don't owe as much as them
25 April 2006, 10:46 AM
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I doubt their instanct access saving accounts are giving them a better rate of interest than what they are being charged by Audi/Prosche finance agreements.
Doing it the way they are doing it, is usually done so the person can drive a car much better than they could afford to buy outright, and change it every three years so your just losing the interest and depreciation, youd lose the depriciation anyway so you paying the interest on say 30k over 3 years to drive a car 30k better than you could any other way.
With interest rate so low at the moment i dont think its a bad way of doing it as long as you can afford the monthly payment, but if they do have the saving to pay for their cars outright i dont see why they wouldnt do it.
Mark
Doing it the way they are doing it, is usually done so the person can drive a car much better than they could afford to buy outright, and change it every three years so your just losing the interest and depreciation, youd lose the depriciation anyway so you paying the interest on say 30k over 3 years to drive a car 30k better than you could any other way.
With interest rate so low at the moment i dont think its a bad way of doing it as long as you can afford the monthly payment, but if they do have the saving to pay for their cars outright i dont see why they wouldnt do it.
Mark
Last edited by NWMark; 25 April 2006 at 10:50 AM.
25 April 2006, 11:52 AM
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davyboy,
First off, you don't know the cars we drive, so how do you KNOW they have better cars than us?
Also, just to point out, we don't feel better or superior as a result of owning our cars outright. We do however feel more secure in the knowledge that these assets could be realised on if need be. 
And, funnily enough, we moved into a house very similar to theirs last Nov. and only required a 45% mortgage to do so.
This isn't a case of keeping up with the Jones's, far from it in fact. Simply a sensible financial discussion on management of ones hard earned for best return.
We did use a bank loan when originally purchasing 1 of our cars but this was paid off long ago.
First off, you don't know the cars we drive, so how do you KNOW they have better cars than us?
Also, just to point out, we don't feel better or superior as a result of owning our cars outright. We do however feel more secure in the knowledge that these assets could be realised on if need be. And, funnily enough, we moved into a house very similar to theirs last Nov. and only required a 45% mortgage to do so. This isn't a case of keeping up with the Jones's, far from it in fact. Simply a sensible financial discussion on management of ones hard earned for best return.
We did use a bank loan when originally purchasing 1 of our cars but this was paid off long ago.
25 April 2006, 12:03 PM
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Originally Posted by Remster
First off, you don't know the cars we drive, so how do you KNOW they have better cars than us?
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25 April 2006, 12:33 PM
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Originally Posted by davyboy
People like you think more expensive is better don't they?
OK what cars do you have........
OK what cars do you have........
My wife has a Boxster S and i'm glad you approve of my Audi
(oooh Audi A4 oil burner)Better cars is not and was not the point of this topic. Lets get back on track. (pun intended
)
25 April 2006, 12:39 PM
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i've always thought that those PCP type schemes whrere you owe a final payment after 3 or so years are a bit of a waste of money. You throw a deposit on the car, the few hundred a month payments for 3 years then still owe a few £K at the end or trade it in for a new one and start again? Plus all your maintenance etc. Why not just get the same car on a lease plan if you don't actually ever want to own the car, must be cheaper surely?
Nothing wrong with good 'ol straight HP though with the really cheap rates around at the moment, at least the car is yours after 2/3 years then.
Like lozgti said though, all cars are money pits that deprciate (unless you get lucky on whatever car is about to become the latest **** car of the moment and sell when 6 months old for a proffit but you could get stung there easily and lose money e.g. RR Sport, Cockster, new SLK) massively so whether you pay in cash or on HP you'll be losign money as soon as you drive off the fourcourt.
Nothing wrong with good 'ol straight HP though with the really cheap rates around at the moment, at least the car is yours after 2/3 years then.
Like lozgti said though, all cars are money pits that deprciate (unless you get lucky on whatever car is about to become the latest **** car of the moment and sell when 6 months old for a proffit but you could get stung there easily and lose money e.g. RR Sport, Cockster, new SLK) massively so whether you pay in cash or on HP you'll be losign money as soon as you drive off the fourcourt.
25 April 2006, 12:40 PM
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I was right, but lets move on anyway
Personally I don't see it matters too much, I've been in both situations.
If I'm not paying for a car, I've got a bigger mortgage, once I get used to the Mortgage payments, I usually end up getting another car with at least some finance.
But I'll soon end up with a 3 year old car, a 6 year old car and a 16 year old car......what will the new neighbours think
Personally I don't see it matters too much, I've been in both situations.
If I'm not paying for a car, I've got a bigger mortgage, once I get used to the Mortgage payments, I usually end up getting another car with at least some finance.
But I'll soon end up with a 3 year old car, a 6 year old car and a 16 year old car......what will the new neighbours think
25 April 2006, 12:42 PM
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Remster
You can work it out
Option 1)
Buy car for £50k cash.
Sell after three years for, say £25k (50% depreciation, not a bad bet)
Total cost (lets make it simple and ignore running costs, etc) = £25K plus the interest you could have earned on the £50k for the three years.
Lets assume 5% per annum interest rate (if you can get that), that would have been a return of £7,881.25.
So total cost of owning that car for three years is £32,881.25.
Option 2
Finance the car on a ballon payment deal for three years. Lets be kind and assume the interest on the borrowing carries an APR of 7.5%
If the car has a residual value of £25,000 after three years, it is likely that the balloon will be lower than this to avoid the dealer having a retuned car worth less than the balance payable. I'm guessing at £22,500 balloon payment, so the amount to be financed is £27,500.
At an APR of 7.5 % (reasonable car finance these days?) the total repayable on the financed amount over three years is £30,795.16
So in this example, its cheaper to finance.
But there are loads of assumptions, not least the interest rates, the final payment amounts, the best guess of residual value after three years, the fact that the financed cars are simply handed back, the hidden finance charges, zero deposit, etc, etc, etc.
Every example is different, and the only way to work it out is to know:
1) What your car genuinely will be worth at the end of the term
2) What interest you can earn on your cash
3) The finance costs of borrowing
And then you can figure out what is cheaper.
You can work it out
Option 1)
Buy car for £50k cash.
Sell after three years for, say £25k (50% depreciation, not a bad bet)
Total cost (lets make it simple and ignore running costs, etc) = £25K plus the interest you could have earned on the £50k for the three years.
Lets assume 5% per annum interest rate (if you can get that), that would have been a return of £7,881.25.
So total cost of owning that car for three years is £32,881.25.
Option 2
Finance the car on a ballon payment deal for three years. Lets be kind and assume the interest on the borrowing carries an APR of 7.5%
If the car has a residual value of £25,000 after three years, it is likely that the balloon will be lower than this to avoid the dealer having a retuned car worth less than the balance payable. I'm guessing at £22,500 balloon payment, so the amount to be financed is £27,500.
At an APR of 7.5 % (reasonable car finance these days?) the total repayable on the financed amount over three years is £30,795.16
So in this example, its cheaper to finance.
But there are loads of assumptions, not least the interest rates, the final payment amounts, the best guess of residual value after three years, the fact that the financed cars are simply handed back, the hidden finance charges, zero deposit, etc, etc, etc.
Every example is different, and the only way to work it out is to know:
1) What your car genuinely will be worth at the end of the term
2) What interest you can earn on your cash
3) The finance costs of borrowing
And then you can figure out what is cheaper.
25 April 2006, 12:53 PM
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There seems to be a lot of stigma attached by some people on here with regards to buying a car on finance, (not mentioning anyone in this thread, talking about previous threads).
I think with a lot of dealerships now doing 0% apr deals over 3 years it can make a great deal of sense to go the finance way
I think with a lot of dealerships now doing 0% apr deals over 3 years it can make a great deal of sense to go the finance way
25 April 2006, 01:00 PM
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If you can get cheap finance then go for it. Your money is better off in the bank in a good savings account. Money is fairly cheap to borrow just now so make the most of it.
Also, the cheapest way to own a car on finance is thru' a PCP. APRs around 3% and heavily subsidised means it can actually work out cheaper than paying cash (Renault PCP).
Also, the cheapest way to own a car on finance is thru' a PCP. APRs around 3% and heavily subsidised means it can actually work out cheaper than paying cash (Renault PCP).
25 April 2006, 01:04 PM
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Originally Posted by ewanrw
If you can get cheap finance then go for it. Your money is better off in the bank in a good savings account. Money is fairly cheap to borrow just now so make the most of it.
Also, the cheapest way to own a car on finance is thru' a PCP. APRs around 3% and heavily subsidised means it can actually work out cheaper than paying cash (Renault PCP).
Also, the cheapest way to own a car on finance is thru' a PCP. APRs around 3% and heavily subsidised means it can actually work out cheaper than paying cash (Renault PCP).
25 April 2006, 01:34 PM
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Originally Posted by Diablo
Remster
You can work it out
Option 1)
Buy car for £50k cash.
Sell after three years for, say £25k (50% depreciation, not a bad bet)
Total cost (lets make it simple and ignore running costs, etc) = £25K plus the interest you could have earned on the £50k for the three years.
Lets assume 5% per annum interest rate (if you can get that), that would have been a return of £7,881.25.
So total cost of owning that car for three years is £32,881.25.
Option 2
Finance the car on a ballon payment deal for three years. Lets be kind and assume the interest on the borrowing carries an APR of 7.5%
If the car has a residual value of £25,000 after three years, it is likely that the balloon will be lower than this to avoid the dealer having a retuned car worth less than the balance payable. I'm guessing at £22,500 balloon payment, so the amount to be financed is £27,500.
At an APR of 7.5 % (reasonable car finance these days?) the total repayable on the financed amount over three years is £30,795.16
So in this example, its cheaper to finance.
But there are loads of assumptions, not least the interest rates, the final payment amounts, the best guess of residual value after three years, the fact that the financed cars are simply handed back, the hidden finance charges, zero deposit, etc, etc, etc.
Every example is different, and the only way to work it out is to know:
1) What your car genuinely will be worth at the end of the term
2) What interest you can earn on your cash
3) The finance costs of borrowing
And then you can figure out what is cheaper.
You can work it out
Option 1)
Buy car for £50k cash.
Sell after three years for, say £25k (50% depreciation, not a bad bet)
Total cost (lets make it simple and ignore running costs, etc) = £25K plus the interest you could have earned on the £50k for the three years.
Lets assume 5% per annum interest rate (if you can get that), that would have been a return of £7,881.25.
So total cost of owning that car for three years is £32,881.25.
Option 2
Finance the car on a ballon payment deal for three years. Lets be kind and assume the interest on the borrowing carries an APR of 7.5%
If the car has a residual value of £25,000 after three years, it is likely that the balloon will be lower than this to avoid the dealer having a retuned car worth less than the balance payable. I'm guessing at £22,500 balloon payment, so the amount to be financed is £27,500.
At an APR of 7.5 % (reasonable car finance these days?) the total repayable on the financed amount over three years is £30,795.16
So in this example, its cheaper to finance.
But there are loads of assumptions, not least the interest rates, the final payment amounts, the best guess of residual value after three years, the fact that the financed cars are simply handed back, the hidden finance charges, zero deposit, etc, etc, etc.
Every example is different, and the only way to work it out is to know:
1) What your car genuinely will be worth at the end of the term
2) What interest you can earn on your cash
3) The finance costs of borrowing
And then you can figure out what is cheaper.
25 April 2006, 01:38 PM
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But.......
If you put all your money in the bank, it wouldnt be 5% interest that you would acually see...it would be 5% minus tax at your highest rate (40%?) on that amount.
Also getting a 0% deal from a dealer means you cant go through a broker or similar, and get 5% (or sometimes a lot more) off the RRP of your car. The dealers are only offering a very low (or zero) % rate, to atract a sale - It costs them money to do this, so that has to cme from somewhere. Taking the 'oil burning' audi thread...Broadspeed or NU cars will get approx £2500 off a £30k audi...cant see you getting that at a dealer that is also offering 0%.
If you put all your money in the bank, it wouldnt be 5% interest that you would acually see...it would be 5% minus tax at your highest rate (40%?) on that amount.
Also getting a 0% deal from a dealer means you cant go through a broker or similar, and get 5% (or sometimes a lot more) off the RRP of your car. The dealers are only offering a very low (or zero) % rate, to atract a sale - It costs them money to do this, so that has to cme from somewhere. Taking the 'oil burning' audi thread...Broadspeed or NU cars will get approx £2500 off a £30k audi...cant see you getting that at a dealer that is also offering 0%.
25 April 2006, 01:46 PM
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Originally Posted by SKYMAN
Further option to enhance the finance route. Why not use the £50,000, or a proportion thereof, to buy into an appreciating asset (e.g. buy-to-let property)? Never understand why anyone would want to own a car outright. But for the very odd exception, they all depreciate.
25 April 2006, 01:58 PM
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Hi Remster,
Ive often had these discussions / thoughts and never really knew what was the best. An ex g/f's father was a financial adviser and he told me never to buy a car out right, as if you invested the money, the interest earnt could pay for the car if brought with load / hpi / or whatever. Obviously this only works with expensive cars or where you can invest a lot of money.
Im someone that doesnt actually buy unless I own out right, but I can certainly see this man's point of view. Each year he gets a new car, where as I keep mine as I dont want to loose cash on it.
I brought my M3 evo new in 98, paid around £44K for it then. Now its worth £10K tops, so IVe lost £34K. Now if I had invested that money, and used the interest to pay for / contribute to a car, I would be in a better position, with a new car each year. I suppose this is where the saying Making your money work for you" comes in.
What ever the case, each to their own, dont worry about it, and enjoy your car.
SBK
Ive often had these discussions / thoughts and never really knew what was the best. An ex g/f's father was a financial adviser and he told me never to buy a car out right, as if you invested the money, the interest earnt could pay for the car if brought with load / hpi / or whatever. Obviously this only works with expensive cars or where you can invest a lot of money.
Im someone that doesnt actually buy unless I own out right, but I can certainly see this man's point of view. Each year he gets a new car, where as I keep mine as I dont want to loose cash on it.
I brought my M3 evo new in 98, paid around £44K for it then. Now its worth £10K tops, so IVe lost £34K. Now if I had invested that money, and used the interest to pay for / contribute to a car, I would be in a better position, with a new car each year. I suppose this is where the saying Making your money work for you" comes in.
What ever the case, each to their own, dont worry about it, and enjoy your car.
SBK
25 April 2006, 02:38 PM
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Originally Posted by sbk1972
Hi Remster,
Ive often had these discussions / thoughts and never really knew what was the best. An ex g/f's father was a financial adviser and he told me never to buy a car out right, as if you invested the money, the interest earnt could pay for the car if brought with load / hpi / or whatever. Obviously this only works with expensive cars or where you can invest a lot of money.
Im someone that doesnt actually buy unless I own out right, but I can certainly see this man's point of view. Each year he gets a new car, where as I keep mine as I dont want to loose cash on it.
I brought my M3 evo new in 98, paid around £44K for it then. Now its worth £10K tops, so IVe lost £34K. Now if I had invested that money, and used the interest to pay for / contribute to a car, I would be in a better position, with a new car each year. I suppose this is where the saying Making your money work for you" comes in.
What ever the case, each to their own, dont worry about it, and enjoy your car.
SBK
Ive often had these discussions / thoughts and never really knew what was the best. An ex g/f's father was a financial adviser and he told me never to buy a car out right, as if you invested the money, the interest earnt could pay for the car if brought with load / hpi / or whatever. Obviously this only works with expensive cars or where you can invest a lot of money.
Im someone that doesnt actually buy unless I own out right, but I can certainly see this man's point of view. Each year he gets a new car, where as I keep mine as I dont want to loose cash on it.
I brought my M3 evo new in 98, paid around £44K for it then. Now its worth £10K tops, so IVe lost £34K. Now if I had invested that money, and used the interest to pay for / contribute to a car, I would be in a better position, with a new car each year. I suppose this is where the saying Making your money work for you" comes in.
What ever the case, each to their own, dont worry about it, and enjoy your car.
SBK
You are certainly on my wavelength.
Might be something to do with our similar age if the 1972 part of your username is valid. I agree that it's each to their own and enjoyment of the car is paramount in all situations. However, as I will be changing my car this year and will have funds available to go and buy cash, I wondered whether I should bank it and try a PCP for the 1st time.
I was advised that the OPC finance is pretty favourable which may fit in with my next car purchase.
25 April 2006, 02:47 PM
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It makes me wonder where I will be in 8 years [i am 25]. Hopefully I will have my Porsche by then [won't specify, wouldn't want to burn my bridges ] maybe a holiday place in da Caribbean, maybe a PHAT boat.
It does make you wonder though. £4k + / annum in residuals alone is no laughing matter !!
] maybe a holiday place in da Caribbean, maybe a PHAT boat. It does make you wonder though. £4k + / annum in residuals alone is no laughing matter !!