Finance - Is there someone here to teach me?

[Woppum]

I haven't been in the position to get finance on a car. I got my first car - an old 1.4 clio from the parents. My next cars were simply what were available in the company fleet...

I got the R32 as a company car, and also the CSL. The CSL is costing me an arm an a leg in tax (as its company) however it still works out better for me to pay the tax out my salary than it was to tie up the whole initial cost of the car up personally.

I have always avoided any source of finance simply because of fear it will effect my credit rating in the future if a payment went late for whatever reason.

However I was having a talk over dinner earlier about the benefits of finance.

The way I have understood it is people get finance for the following reasons:

1. They dont want to tie up a big chunk of their cash on a car.

2. If you get a good deal on finance for a car it is possible to beat depreciation. I.e A car costs you £50k. It depreciates £10 k in the first year. However if you get fiance it may only cost you 7k once you have paid the installments and the finance company takes the hit when selling the car?

Now I could be totally off here, as I have said I haven't had the pleasure of experiencing this. I have heard of balloon finance etc, but really don't know what the difference in all these packages are.

Is there anyone first hand who can help out a little?

Many thanks,

Sam

[CarMad]

Well .. if you want to get a car thats more than you can afford with the cash thats in your bank account then your going to have to use some finance.

My other half bought her car on finance, its only a nice Astra with all the toys but she put in say 4k and she pays the rest of over 3 years.

At the end of it the car is hers to do with what she wants. Keep it / sell it whatever. She only pays a small amount per month say less that £200 and when you calc the interst as she got a great deal at the time the cost to have the load for 3 years is tiny as well.

Its the APR that can get silly. If things got tough the car is worth about the same as the loan or what she has left so she could sell it and settle the debt. Nothing much more too it.

If she didn't do this she would have to have a rubbish car or save for X months years before she could. As her jobs going in leaps and bounds it becomes less and less of a problem financially as she moves up in the world but she is only young so don't really have any other options.

She actually was acutally in a PCP scheme on a Corsa before I met her but it was silly APR and costing almost as much as she is paying now for a car of a far lower value...

[Woppum]

Im not looking to buy a car, I just want to understand it.

Is it possible to beat depreciation through finance?

If we use a scenario that may help. Lets say £50k for an RS4.

What would I have to put down

How much will I have to pay monthly

How much will I have to pay as a final instalment.

And crucially, if I wanted to sell the car after 1 year, is it possible, through finance to beat depreciation. - If so how does it work?

Just to make it ultra clear - I dont want to buy an RS4, just would really like to understand it.

[CarMad]

Gotcha .. that type of finance is a bit more complicated than the bog standard HP deals.

Give this a click to see the potential deals. PCP car Finance

Can you beat depreciation.. on some cars and some deals yes possibly. If the car is in very high demand and isn't going to loose much money I.E. less than you are paying off then you could sell it for a profit. But not all deals allow you to leave early or some do and they have a penalty or limited to the miles you can do without it costing more.

Make : AUDI On the road price (£) £50,567.99

Model : RS4 36 Monthly Payments Of £882.24

Derivative : Quattro Saloon 4dr Optional Final Payment (GFV) £21,303.75

Term (months) 36 Amount to finance (£) £45,511.20

Annual mileage 10,000 APR 7.5%

Deposit (£)5056.79 (max 40% of OTR price Total Payable £58,121.18

Example on the RS4 above. I think Insurance Jon gets his motor in a similar way. Gets new very in demand motors and keeps them for a small amount of time and sells them hardly losing anything and only has to pay the loan off for the time he has the car. Nice easy way of getting a great car for comparatively little money.

[Woppum]

[ QUOTE ]

Gotcha .. that type of finance is a bit more complicated than the bog standard HP deals.

Give this a click to see the potential deals. PCP car Finance

Can you beat depreciation.. on some cars and some deals yes possibly. If the car is in very high demand and isn't going to loose much money I.E. less than you are paying off then you could sell it for a profit. But not all deals allow you to leave early or some do and they have a penalty or limited to the miles you can do without it costing more.

Make : AUDI On the road price (£) £50,567.99

Model : RS4 36 Monthly Payments Of £882.24

Derivative : Quattro Saloon 4dr Optional Final Payment (GFV) £21,303.75

Term (months) 36 Amount to finance (£) £45,511.20

Annual mileage 10,000 APR 7.5%

Deposit (£)5056.79 (max 40% of OTR price Total Payable £58,121.18

Example on the RS4 above. I think Insurance Jon gets his motor in a similar way. Gets new very in demand motors and keeps them for a small amount of time and sells them hardly losing anything and only has to pay the loan off for the time he has the car. Nice easy way of getting a great car for comparatively little money.

[/ QUOTE ]

Perfect - thanks mate, I will get out a pen, paper and calculator and work this out first thing in the morning!

Sleep well!

[CarMad]

[Booster]

You will never use finance to beat depreciation on a car. It may look like you are doing well on certain deals but believe me, finance companies aren't in it for fun you know!

Dealers may baffle you with figures to make things look very attractive and PCP deals can seem that way at first but they are a VERY expensive way of financing cars.

[sidicks]

Regardless of how you pay for the car - cash, loan, PCP, contract hire etc, you pay for the depreciation.

If you take out any sort of finance then you also paying for the interest on that finance as well as the depreciation.

Finance CANNOT help avoid depreciation except where there is some form of guaranteed future value written into the contract (e.g. on a PCP) - at the end of the chosen term, where the value of your car is less than this guaranteed value, you can hand back the car and walk aay without any further payments, thus saving you the difference between the actual value and guaranteed value.

However, most PCPs have large safety margins built in: a) this can good for the consumer as it leaves the prospect for some margin to be carried forward into a new deal and b) this ensures that the finance company is unlikely to be left with funding the difference between the actual value and the promised guaranteed value.

Sidicks

[Riz]

Also car finance ties you into a contract usually, so if you decide you want to sell your car early and there is still money outstanding, you usually have to settle this first before you can sell the car.... hence why I have always borrowed money on a loan etc.

But you can never really beat the hit you take on risiduals, unless your really clever.

Riz

[sitas3]

IMO you need to properly evaluate 'ALL' schemes out there. Balanced payments schemes like PCP used to be more attractive compared to traditional Lease Purchase schemes for example, however the consumer credit act was tightened last year to regulate loans under 25k making it fairer when paying interest/rebates and this has made a difference.

You also need to watch balloon payments as this can affect the level of interest at the backend.

A recent PCP (Balance Payments) quote from Lombard was £800 more expensive for me if I'd have paid back the loan after a year compared to other schemes.

Finally, and this isn't having a dig at anyone in particular, you need to watch the fees some agents charge and the way this is included in the loan adding to the expense..

[sidicks]

[ QUOTE ]

Finally, and this isn't having a dig at anyone in particular, you need to watch the fees some agents charge and the way this is included in the loan adding to the expense..

[/ QUOTE ]

Which is exactly what the APR allows you to do (assuming you run the contract to expiry).

sidicks

[gizze]

Sam,

This is what I was saying to you about owning it personally vs owning it through the company.

At the moment your company pays the car loan, insurance, tax and fuel.

The car will be costing around £875 a month for your company if it is written off over 48 months, but they will get say £15k back when it comes to sell it, so really it is about £550 a month.

If you do around 12k miles a year in it you are putting at least £250 a month in fuel in.

Insurance is what £100 a month??

So it is costing your company £900 a month to run that car.

You are then paying £850 a month in company car tax, based on the list price of your car at £61,000 with you paying 40% tax and the company paying fuel.

So at the moment you are paying £1750 to run the CSL between you.

You could redo it this way.

Finance the CSL, buy it off the company for say £35,000.

get a loan out like this.....

£35000

£0 deposit

£585 x 36

Final payment of £19200

You would need to pay the £100 a month insurance bringing the total £685 a month for you instead of the £850 you pay in company car tax.

You then get you company to pay you what it was paying for teh write down on the car and the insurance in wages, which is £650 a month, obviously you get taxed on that so you only see £400 of it, but already you are personally better off by £600 a month.

You still have fuel to consider though, I would charge the company 40p a mile, you only have to do 600 business miles a month to cover the fuel you are using, and obvioulsy you don't pay any tax on that, plus the comapny can claim the vat back.

This means you are £600 a month better off personally, and you campany doesn't have the hassle of owning another vehicle.

[Ari]

[ QUOTE ]

Is it possible to beat depreciation through finance?

[/ QUOTE ]

Wopps, who do you suppose is paying the depriciation if you're not mate?

A car will depriciate at the same rate however it is paid for. No finance company in the world is going to cheerfuly fund your depriciation for you, they're in it to make money, not generously cover peoples losses!

The golden rule is, no matter how a car is paid for there is a figure it's bought for and a figure it's sold for. The owner of the car pays that and if a finance comany is involved he still pays that plus the finance company will need to make money too (which he also pays).

[Mattchaps]

You may find going to your bank for a loan is cheaper than getting the stealer finance.

My bank recently ran a deal for good customers, where the rate was just 6.1% APR, and there was not interest and no payment for the first month!

IMO, you can't go wrong really

[hashluck]

I have used PCPs but need to get out of the trap if I can (the only logical thing to do at the end of the term is get another PCP, especially if you cannot fund the balloon) so I think a huge loan will be the way to go!

I have used every which way to buy a car in the past from cash to lease to contract hire to PCP and they all cost money.

Interesting one recently was my mate buying an M6 where he wanted to pay cash and the dealer moved heaven and earth for him not to do so finally offering him a finance rate much less than he could earn in the simplest of savngs accounts so he took it, that was money for free (though the M6 will depriciate nicely). So my plan is to be a cash buyer (even if I have borrowed the money to be in that position) and then get a very keen rate and use the money to work harder for me elsewhere, but of a gamble but what the heck

[sidicks]

[ QUOTE ]

So my plan is to be a cash buyer (even if I have borrowed the money to be in that position) and then get a very keen rate and use the money to work harder for me elsewhere, but of a gamble but what the heck

[/ QUOTE ]

Generally you can't invest money at a higher rate than the cost of finace so such an approach doesn't make sense. However, if the dealer is willing/able to subsidise the finance and offer you a cheap deal (obviously the extreme of which is interest free credit) then you are correct that this is a good strategy.

The key things to note are:

1) That you compare the APR that the dealer offers, NOT the flat rate

2) That the discounted finance is not replacing any other discount that you could otherwise get on the car - best to arrange the deal on the car first, and then when you are happy, then discuss financing options

Sidicks

[hashluck]

[ QUOTE ]

[ QUOTE ]

So my plan is to be a cash buyer (even if I have borrowed the money to be in that position) and then get a very keen rate and use the money to work harder for me elsewhere, but of a gamble but what the heck

[/ QUOTE ]

Agreed

Generally you can't invest money at a higher rate than the cost of finace so such an approach doesn't make sense. However, if the dealer is willing/able to subsidise the finance and offer you a cheap deal (obviously the extreme of which is interest free credit) then you are correct that this is a good strategy.

The key things to note are:

1) That you compare the APR that the dealer offers, NOT the flat rate

2) That the discounted finance is not replacing any other discount that you could otherwise get on the car - best to arrange the deal on the car first, and then when you are happy, then discuss financing options

Sidicks

[/ QUOTE ]

[Gareth]

[ QUOTE ]

You will never use finance to beat depreciation on a car. It may look like you are doing well on certain deals but believe me, finance companies aren't in it for fun you know!

Dealers may baffle you with figures to make things look very attractive and PCP deals can seem that way at first but they are a VERY expensive way of financing cars.

[/ QUOTE ]

Entirely correct.

[Gareth]

[ QUOTE ]

IMO you need to properly evaluate 'ALL' schemes out there. Balanced payments schemes like PCP used to be more attractive compared to traditional Lease Purchase schemes for example, however the consumer credit act was tightened last year to regulate loans under 25k making it fairer when paying interest/rebates and this has made a difference.

You also need to watch balloon payments as this can affect the level of interest at the backend.

A recent PCP (Balance Payments) quote from Lombard was £800 more expensive for me if I'd have paid back the loan after a year compared to other schemes.

Finally, and this isn't having a dig at anyone in particular, you need to watch the fees some agents charge and the way this is included in the loan adding to the expense..

[/ QUOTE ]

I think you're getting confused here Simon. First off a PCP (Personal Contract Plan) is not the same as a Balanced Payment agreement-they "look" similar but are entirely different in the way the interested is calculated. Therefore you cannot compare a PCP to a BP agreement as they are totally different when you look at the entire loan.

Also loans of £25k and under have always been regulated but the only change is regarding the settlement calculations. All these loans are subject to the Consumer Credit Act.

Also the arrangement fee's do differ between lenders and brokers but the advice/time/help that people get in that process could never come for free as no one would ever earn out of a finance agreement then and the market would have stick that onto the interest rate instead. At the end of the day it is a business, not a charity, of course

[sitas3]

Just to be clear (and admittedly I'm no expert)it was a balanced payments scheme (and not a PCP) that was offered to me proving to be more expensive.

However, totally agree Gareth, whilst your fees are resonable (and understandable), other brokers don't necessarily offer the best rates on car prices/px values in the first place then add their circa £500 'arrangement' fee to the loan amount.

My experience recently was that one supposedly specialist car finance broker tried to up the interest rate just because I wasn't buying a car through them despite also trying to charge nearly £500 'arrangement' fee! This is the point i'm trying to make.

[Booster]

On BP schemes and others over 25k there is no obligation on the lender to quote an APR so the figures need to be looked at very carefully!

[gizze]

That's very true, if you sit down and look at Audis rates at the moment they are shocking, a couple of people have showed me figures they have been offered saying it is around 5%, but it is actually flat rate, when you work it out it is nearer 12%!!

That means they were paying nearly £100 a month more just on interest.

[mark88]

So basically it's best not bothering with Audi finance at all it seems?

I'm never used finance previously and dug this thread up via the search to clue myself up a bit. My question is, if you go with another finance company who do you order the car through(if it's new), Audi or the Finance company? and is it as easy getting a PCP deal through a 3rd party finance company on a used car?

At the moment I 100% own my current car(paid cash) but I'm due to get another soon. I think PCP could be the way to go. I don't want £30k+ cash tied up in a car sitting in my garage, and secondly I like to change cars every 18 months. I guess it also means I have a much larger choice of car *if* I can afford the monthly repayments after a 20k deposit or so? which I almost have in the value of my current car.

According to broker4cars, a AM V8 with a £20k deposit would cost me £564/month at 7.5% APR to keep for 18 months with a baloon of £60k. After 18 months the car is say worth £75k(list 83k, deprication 8k), I sell it and pay off the balloon leaving me with £15k toward my next car.

It cost me £10k in repayments for the 18 months, and considring I put £20k deposit and only got £15k back after paying the baloon that means I've paid approx £15k to own an AM V8 for 18 months.

If I'd have bought the car at list in cash for £83k I'd have only lost the £8k in depreciation. But of course with the PCP I'd still have £63k cash(83-20k deposit) to play with and do with whatever I please, whether it be invested or simply gaining interest it would have made a dent in the £7k difference between the PCP and buying in cash.

Have I got this right?....

I guess a PCP deal would be benficial for company director who has more cash in their business but doesn't want the income tax hit that a large dividend would produce in order to make a cash purchase? that's kinda my situation.

[Insurance Jon]

your not far off. need any advice pm me or booster

[Oatz]

Excuse my ignorance as I've never had a loan (well apart from as a student) I did briefly look into this when deciding what to chop the .:R in for/before buying the V6 but decided against it. Basically out of interest are all high street style loans front loaded in terms of interest paid?

I’ll use the following example to demonstrate:

I want to borrow £15k over five years at 5.9% which equates to 60 monthly payments of £288.23, the interest charged over the 5 year period is a total of £2,294.

So lets say for theory's sake after 9 months/payments (£2594.07) I want out of the deal by my calculations I will have only just paid off the interest and just skimmed the top off the capital (ie front loaded). In this instance/after this 9 month period it appears to make sense in keeping the loan for the duration of the period as one has already paid the interest on the loan/term....

Am I also correct in this assumption too?

Many thanks