I am not a fan of finance deals provided by car manufacturers.
I would say shop around for a personal loan. You own the car, not the other way around. No hidden extras like set up fees, final payments etc.
At the end of the 3 years, any equity in the car will be your's. You can also sell at any time without recourse to anyone.
I'm no financial advisor, but I would advise extreme caution going down KenL's suggested route of personal loan financing. Especially if you are buying new. If this works for Ken, good for him, however, you should be aware of the following.....
With personal loans there is absolutely NO protection under the consumer credit act if the car is faulty and you get into "rejection" territory. No-one wants to go there, but it DOES happen. Happened to us with our £20k Honda and if we didn't have Honda finance batting our corner against Honda manufacturing, it would have been a bigger battle. With a car financed, the finance company is jointly responsible for the quality of the goods.
You also do not have any protection under the halves and thirds rules on the consumer credit act. The halves being the most important rule in Scotland. Under this rule, once you have paid half the total amount payable under the agreement, regardless of whether it is a MINI Select or a straight finance deal, you are legally entitled to hand the car back and owe nothing more. With a personal loan you do not have this protection.
Balanced against this, as Ken says with a personal loan you owe the vehicle outright. But in my own humble opinion, this advantage does not outweigh any of the advantages of have the vehicle financed.
Lenore and I have bought and sold a good few cars the past few years, always financed, and we have NEVER been able to find a personal loan that beats the interest rates and monthly payment amount of a vehicle finance package.
All the above is my personal opinion, and from our personal experience. i am not in any way an accredited financial advisor. If you want this sort of advice, again I would suggest you speak to Mark Dryden. Top bloke.
A.
R60 Light White / Red Countryman All 4 John Cooper Works Auto
R57 Chili Red Convertible John Cooper Works Auto
You make some good points Andy, but if IMO if someone needs the protection of the halves thing that you talk about they should perhaps consider that they are spending too much on a car.
I am not keen on "buying" a car with more than 50% on the cost as finance, whatever the source.
Handing a car to get out of a credit agreement leaves you with nothing. Something I would not be happy with.
On "Select" type hire agreements, these are perfect for manufacturers as they can really tie you in to their brand. If you decide to change to another make of car, you won't have any capital to take with you, that would not be the case if you owned the car.
As to the backing of the finance company, that may be a worthwhile thing to consider. One small point however, is that any purchase is between you and the supplying dealer, not the manufacturer. I know this as I have rejected a VW, without too much difficulty, thankfully, in the past.
One final thing is that credit agreements often charge a set up cost and a final charge to release documents. This could be enough to make the overall cost more than using some other form of finance.
Ahh my sort of debate!!
First off, thank you to Andrew and to Craig for their kind words.
The PCP route (Hire Purchase with a Guaranteed Balloon) or Contract Hire is IMO the only way to finance a NEW CAR at the moment. Depreciation is running so high that it is pointless trying to own an asset that is in financial free-fall. With a PCP you do pay a higher APR than usual because you are asking the finance company to underwrite the risk of their product against the Future Value but you do have the safety net if the car is worth less than the Future Value. You can just hand your car back and start again. There are mileage clauses but as long as you are realistic then you should be fine. Contract Hire is the same but mainly used by businesses as they can claim back 50% of the VAT per month on the rental but they can never own the vehicle.
Put it this way, the only people changing their cars at the moment are the ones that are on PCP schemes or companies that have reached the end of their agreement or lease. Everyone else who has bought their cars can't afford to change as their asset is worth a lot less than they thought it would be. I have some very happy 4x4 customers who I persuaded to go this route and they are now protected from this ridiculous situation that the Motor trade is in at the moment.
Hope this helps.
Mark Dryden
Saltire Vehicles
01620 894040
I'm with Mark on this one. To go into a PCP, I aim to put down as small an amount as possible as deposit, ideally what's coming from the car I'm trading in and I've done that on the last 3 cars as I bought the right car, with the right spec, at the right price (ie, cheap!) and have a realistic GFV. That way I had more of a chance of having some money in it when I trade in.
I usually change mine 18-24 months into the deal when I can get enough to clear the finance and pay the deposit, but as Mark points out, everyone is screwed with values at the moment so I'm keeping it for 3 years this time. I fully expect to have to just hand it back, though I might consider buying it outright when it's finished to use as a motorway car, will see nearer the time.
Finally, I've never been tied with dealers on PCP, dealt with VW, BMW, MINI with no issues and always come out with money on the deal, though I don't use dealer finance as a rule (though we did on the Polo as it was dirt cheap).
I think Scottiedoop said in another thread now is a good time to be buying a car, but not a good time to sell a car. I don't see that changing for some time.
Ken I understand what your saying about only ever wanting to finance 50% of a vehicle. That's you just showing your age.The fact is, why do you want to take the risk on the value of your asset free-falling? Because 99.9% of marques are doing that right now. So no matter what you drive, hundreds are being wiped off the value on a monthly basis. If you've put 50% cash in on any vehicle, that's your hard earned deposit disappearing in front of you. If you've financed it at least that depreciation is partly shared with the finance company.
We PCP almost all our cars - occasionally we do a straight finance - and we never put more than £500 in as a deposit. Regardless of how flush we are at the time. That said, we paid the finance off on the red mini two weeks after we got it home. Just figured what's the point. But that was an exceptional circumstance.
A.
R60 Light White / Red Countryman All 4 John Cooper Works Auto
R57 Chili Red Convertible John Cooper Works Auto
I'm with Andy on this one, i PCP mostly to avoid seeing my hard earned disappearing, rather let the finance company take a hit as well
Mark,Originally Posted by mini saltire
Can I play devil's advocate here and ask how much commission there is in setting up these deals for dealers?
An old friend of mine used to run a wee independent. This was many years ago but he says he ALWAYS tried to get people to take cars on HP as that is what made him the most money, not the profit in cars!
Also, if depreciation is so high, are these deals not becoming more expensive as dealers predict lower GFV so you have to pay out more over the life of the deal?
Thanks
Hi Ken, transparency is the key to a lot of my repeat business so I have no problems at all telling you what can be made on a PCP. The dealers if they have business managers (finance manager) will try and maximize finance deals and bolt ons like GAP Insurance and Payment Protection. They will try and make as much as possible as they are employing someone to do just that.
When I set up a finance deal for a customer I don't need to take nearly as much as the dealer as my overheads are pretty much nil. My average profit on a finance deal is circa £100 vs a dealer that would be making £350 upwards. I also find it far easier to have a discussion when a customer is ready to change as they already know what they are due to the finance company.
You are right about GFVs getting smaller and a lot more conservative but if you go with a manufacture's finance company they can subsidise the GFV to sell new cars. BMW are doing a low rate plan just now on new cars of around 7% APR and the GFVs are still quite strong.
Hope this answers your questions,
Cheers
Mark
Much respect to you Mark
Great post
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