Dingdongler

I know we were discussing this in another thread, but I thought I'd start another one. As mentioned before in the last 10 years or so I have more or less bought my cars outright.
I asked the finance guy at BMW for a few examples, this is the one he said was most popular. I wanted to leave a bigger deposit than most because I wanted to leave the whole px value of my present car.

1) Purchase price after discount £45,599. (Just an example, actual price will be £50k)

2) Deposit (px value) £18000

3) 36 monthly payments £431.93p @ 10,000 miles/year.

4) Future value £22,258.

That means after 3 years I will have paid £33552, and if the car is worth a bit more lets say £25k then I'll have £3k of equity so in effect will have paid £30552.

If I pay it all in cash and the car is worth £22,258 I will have paid £23341 in depreciation, if it's worth £25k then I will have paid £20599.

That means the finance for the £27599 (purchase-px) will have cost me £7-£10k over three years.

How would I make more than £10k from £27k over three years??? (after 50% tax). Answer is I couldn't.

I can only conclude from this that it is better to buy cars without finance, or have I missed something? That extra £10k I will have paid BMW is £10k less I'll have to put towards the next car, or another car. Actually, it would buy my wife a small run around, I think it's how much I paid for my Mums Honda Jazz!

LG John

I can make this super, super, super easy for anyone that thinks that financing will work out cheaper than paying for a car outright:

FACT: Finance companies are there to make a profit.
FACT: 99.99% of cars will depreciate
FACT: The finance company will absolutely ensure they factor the depreciation in, and will most likely model it on a worse case scenario (i.e. you aren't a very good owner and it looks like pig-sh*t when you hand it back)
FACT: Over and above doing the numbers to account for depreciation and wear, the finance company will also charge you for the lost revenue by lending you the money.
FACT: After all that, the finance company will then factor in a further profit edge.
FACT: Finally, they will probably sneak some more 'admin' charges in here and there.

CONCLUSION: In 99.99% of cases it will be cheaper to buy a car with your own money and to sell your depreciated asset at the end. You'll get more back for the car, you will have lost no edge to profit, and the opportunity cost is negligible assuming you take no risks (which you shouldn't).

Those that say, "ah but I could make £10k from £30k in 3 years are speculating pure and simple.

/thread

Reffro

Your calculation is pretty much spot on. Though you need to ignore the £3k, the calculation is simply the total payment monthly payments & final payment = £37810. That means you are paying £10211 interest. The killer is that you are paying interest on the final payment and thus of the £15k you pay in monthly payments, 2/3rds of that covers the interest. Ouch!!!!

If that was HP finance that works out at about 24% APR........Is that guy taking the ******* ****. The actual APR will be less but only because my calculation means you should be paying back the capital, which in the BMW example you aren't.

Someone was trying to leg you up there.

Trout

iTrader: (1)

Ding - based on your numbers the APR is 13.1%. Your pants are being taken off, no lube and you ain't getting your pants back!

Trout

iTrader: (1)

Here is a good calculator to work out either interest rates or payments.

Best fixed price deal I can get at the moment is 5.9% Best variable is 4.1%.

Dingdongler

Thanks, agreed.

Reffro, yes he must think I'm an idiot, but then I did play the fool and say I didn't really understand finance

I only asked so that when I try and wrangle extra concession on the purchase price they may go for it because they think they'll make some extra money on the finance deal. Not sure if they work like that though.

Trout

iTrader: (1)

Not quite /thread as there are other factors for some people as their money may be tied up somewhere which has costs to move (tax or penalties).

Dingdongler

Hi Trouty, didn't see your post when I made my last reply.

To be honest I'm not really interested in finance unless the deal is fantastic, I just wanted to see what they would offer me. I'd be happy to pay about £2000 over three years in interest for the facility to keep that £27k in my pocket, no more than that.

R 14NS R

what if the car is worth 17k after 3 years which is entirely possble on something lumpy like a 50k car after 3 years?

Dingdongler

No it's not possible. You only have to look at the previous used values to get an idea of that

Myles

iTrader: (40)

No, he can have his pants back, for a £2500 admin charge.

Mitchy260

Cash buyer takes the hit, the finance guy is laughing.

It is possible to offset capital generated income against interest costs, in the case of the O.P, him, being a 50% income tax earner, along with the finance charges being horrendous, it's a most definite no, cash wins in this case.

In my case with the car Ive just bought, the figures work out fairly even both ways as shown in the other thread. In Trouts case with Porsches that keep value then he's onto a winner by leasing.

john banks

Since finance houses took the hit with high balloons from about 4 years ago I don't think they'll do that again.

Mitchy260

How about this 1, who can pick faults in this plan....

BMW M3 as bought from BMW = £53,275 http://www.bmw.co.uk/bmwuk/pricesand...%3D%3D,00.html

Now to the lease option....

http://www.nationwidevehiclecontract...M3-leasing.htm

35mths @ £704.94 + £2350 deposit = £27,022

Now let's see what 3yr old examples are selling for...

http://www.autotrader.co.uk/search/u...price-to/30000

£27k and Im not taking into account negotiation and selling costs that will bring this figure down further. This is a cash loss of £26.3k minimum over 36mths, but yet finance wise, it's only cost you £27k to finance over the same term.

Can you invest £50k to turn £700 over 36mths? Im sure you would earn more that alone from a savings account, never mind investment into gold/property etc.

This is where you can beat the finance companies in my opinion, the M3 will continue to depreciate heavily, it's got a big thirsty engine, it's expensive to run and tax and it will no doubt be superceeded by a new model within the next 3-4yrs. This will make it a bad buy as a cash buyer but an excellent 1 as a finance buy.

Add into that fact that VAT is away to rise thus making the purchase price rise by an additional £1k+ so an even heavier depreciation figure to contend with.

Study the market

john banks

That is not a bad deal (although you've not included the VAT rise in your rentals, options prices and probably ~8 or 9% discounts on purchasing new - and why would you purchase an M3 new when there are so many lightly used depreciated examples?), but I would rather be poked with a sharp stick than pay all that money to run such a torqueless underbraked Bavarian Machine of Wonder again, I'd take a 335i and save a wedge of cash.

Mitchy260

I didnt include discount on new because I didnt include options, therefore both you can argue, cancel each other out to a degree. Most will spend a few £k on options, and most will get a few £k off the total meaning the price remains fairly static at that £52-53k figure, it's just the options that you are getting free if you like. If you have a look at the autotrader cars, they have a good list of options.

VAT, I never really took into account with the initial figures, although yes you're right, if the base model price rises by 2.5%, the monthly payments would rise by 2.5% too.

Agree with you though, 335i and 135i are the better buys, remap makes them just as quick if not quicker than their bigger brother but at a fraction of the cost. Still, if anyone out there is after a new M3, please have a look at the lease option and do your maths.

Butkus

Just in quick reply to the original poster, there are cases where not having your capital tied up in a car is beneficial, because there are ways in which you can return a good percentage on that capital. This is usually in the form of a business venture of some sort.

Your example is not ideal because of the high APR etc, but the M3 example given above shows how leasing can compare favourably with owning outright.

By the way, don't the leasing companies pay the RFL too? I might be wrong.

R 14NS R

Quote:
Originally Posted by R 14NS R
what if the car is worth 17k after 3 years which is entirely possble on
something lumpy like a 50k car after 3 years?

No it's not possible. You only have to look at the previous used values to get an idea of that

Of course it's possible, I would say 99 out of 100 cars that are on PCP have been over valued as they are depreciating more than the manufactures are predicting.

There are obviously exceptions to the rule but looking at used values now will only hint at values for what you are purchasing now when you come to sell it in 3 years.

Dingdongler

What are you talking about? I can tell you that a 535 d msport will not drop in value by 70% over three years. On the basis of what you are saying I should be able to buy a 3 year old 335d or 335i for £12k or a three year old 997 C2S for £21k. Funnily enough you don't see many at that price do you?

There are some cars with catastrophic depreciation but even my M5 wasn't that bad. According to your numbers it should have been worth £21k after three years, it's only reached that value after 5 years, and that's a car that depreciates very heavily

Trout

iTrader: (1)

7 series - now they depreciate like a rock (fall).

And the Dodge Nitro

Mitchy260

Yes, that is correct. I forgot to take that into consideration.

In the M3's case, £435pa in year 2 and year 3 and a whopping £950 first year. (Although 1st year is part of the OTR price so in this comparison, irrelevant)

Mitchy260

I have just noticed this on BMW's website, It's a better deal than the lease deal....

http://www.bmw.co.uk/bmwuk/pricesand...tion=showOffer

35 x £659 + £2151 deposit = £25,216

3yrs worth of depreciation as a cash buyer will cost you ITRO of £27k in addition to the missed investment opportunity on the capital. Finance wins by a country mile on this 1 Where are all those that said cash was king

john banks

Does it? I work that out as costing £1k under list price over 3 years when you include VAT and company car tax.

Rather you than me to pay out about £52k for such a rubbish car and then not own it after three years.

Mitchy260

Well spotted John, admittedly I hadn't read the small print that this was open to only business users. Back to plan 1, the lease deal clearly being better than the BMW business user only offer. (Factor in the free £870 road tax into the lease deal also)

Dingdongler

Mitchy, I hope you read the small print a bit better when you are buying stuff on the never never!

Matteeboy

LOL at Mitchy!

What finance company in their right mind would offer such services without making a big chunk of cash? However they try and sweeten it, they are charging you a lot of money to borrow a lot of money. End of.

I will only buy cars outright or at the very worst, on 0% finance - which is never offered on decent cars anyway.

If I need finance to get out a car, I can't afford it, so won't buy it. Same with anything really.

Silly finance is why the country is in the **** and why every housing estate has at least one brand new flashy car bought on the never never parked in it. Next to the discarded box for the 100" plasma TV. And brochures for mega bucks holidays. Etc, etc.

Sad state of affairs.

Mitchy260

Cant agree with you there Matt as looking at the numbers on the lease deal it makes far more sense to lease than buy in the case of the M3. (Factor in the free £870 road tax and missed returns on the £50k capital and it is clear cut, that finance is cheaper than buying outright)

The figures in the case for the lease were for personal use not business use. (It was just the BMW deal that was open solely to business use)

Then factor in a new model M3 in the next 3yrs or so that will make the depreciation to the cash buyer even heavier.

I get what you are saying about spending on the never never but sometimes you just need to sit down and do the maths Just like buying a house makes more financial sense over the longterm than leasing, 20-25yrs worth of mortgage payments vs 50/60/70yrs worth of rental + inflation and then no appreciating asset when you're 6ft under.

Mitchy260

Cash buy cost of M3 over 36mths = £26.2k depreciation + £870 RFL for 2yrs = £27,070
Lease costs of M3 over 36mths = 35mths @ £704.94 + £2350 deposit = £27,022 (No RFL)

Lease buyer is better off to the tune of a whopping £48. However, he is generating an income with the £50k he has invested and he doesn't have to sell the car and have the hassle of the buyer bartering him down a thousand or two, nor does he have the hassle of heavier depreciation caused by a new release of a model, or even by the government upping the C02 bands to more extortionate levels.

Cash is not king, prime example with evidence above

EddScott

Lookers are doing a good deal on Clio Cup 200

£1000 deposit and £200 a month for 24 months. Limited to 5K a year but over its 6p a mile so not bank breaking.

You either pay the final value or hand the car back. The dealerships want the sales figures and they want you to give the cars back so they have decent used car sales figures too.

Its expensive compared to buying 2nd hand or not purchasing the car but if you need a little sporty car as a run around its ideal. I do under 5K a year so it would suit me. However, you are pretty much paying for the new car depreciation and after £6K you don't have a car to show for it. You could sell private and pay off the dealer. Going by todays 2nd values you'll have at least 1.5K equity to go towards the final bill.

Matteeboy

I get what you are saying about spending on the never never but sometimes you just need to sit down and do the maths

I have done the maths - paying no interest and rental charges = cheaper than paying them plus you own the car. So can flog it if needed. No ties.

Your depreciation figure is also plucked out of the air - what if you do super low mileage?


I can guarantee that you have left some charges/penalty clauses out of your lease costs just like you did above. You are too easily fooled by smart **** finance companies. They are there to make money. Leasing is renting. So your TTRS will not be yours. It will be your leasing companies. At the end you have no car. The cash buyer has a car to sell on.

Just like buying a house makes more financial sense over the longterm than leasing, 20-25yrs worth of mortgage payments vs 50/60/70yrs worth of rental + inflation and then no appreciating asset when you're 6ft under.

We don't intend to rent forever - we will simply buy an place outright with no mortgage interest payments. For the time being we pay far less than an interest ONLY mortgage on this place in rent and our business gets an extremely cheap and very nice office to boot. Because it's so cheap, we save a decent amount regularly; so far we can buy a smallish house. Soon it will be a big house - possibly this place that we rent. At the same time our little boy (and soon to arrive 2nd kid) get a nice place to grow up and don't suffer because Mummy and Daddy are SOOOO desperate to be on the property ladder. So one size does not fit all.

Your broad sweeping statements smack strongly of yet another brainwashed soul. Yes you are doing well at a young age but open your mind a little to other ideas. It can save you a fortune and make you richer. The housing market will be on it's knees in two years time - I guarantee this. It's about as safe an investment as buying shares in an American Insurance company.

This I have learned from people far, far wealthier than any of us on SN. Even Trout, Zip and John B ;-)