Quote:
Originally Posted by mgarvey
I get where you are coming from, I do the same every time I buy a car and have ended up with different approaches.
Historically, I've tended to go one of three ways:
1) Personal Contract Purchase (PCP) with a dealer, usually with around a 10% deposit and typically over 36 months. Rates vary and I'll only go with the dealer rate if they are competitive with what I can get elsewhere. I often don't keep the car for the full three years - once it gets £1000 or so in equity I'll chop it in for something else.
2) Lease Purchase, or a similar finance deal with a balloon payment, with dealer or a third party finance house (Lombard last time though I'm not sure they still do finance for private individuals). Only real difference to a PCP is that the balloon figure is not a guaranteed future value, so you accept a level of risk that your car is worth more than the balloon when you want to change it. Advantage is you can tune the size of the balloon and often get a slightly better APR. You also don't have to worry quite as much about mileage as you are taking the risk on depreciation.
3) Bank loan, normally over a longer period than I'll own the car, with the term tuned so that what I owe when I expect to change the car is less than the car's value. Advantage is that you own the car from day 1, but if you've cocked up your calculations over residual values you could end up stuck with it for longer than you planned. My Mini is bought this way and just over two years into the deal it is worth about what I owe on it if I sold it privately or got a good part-ex value.
A fourth option I've not yet done but am considering this time is an operating lease, where you effectively 'rent' the car for a period and then hand it back. On some cars, like Mercs at the moment, you can get lower monthly payments than a PCP or bank loan for a given car, but the downside is you'll never own it and never have any equity towards the next one, though of course depreciation is no longer your problem, as providing the car is in good nick and you haven't exceeded the agreed mileage there is nothing more to pay.
To put this in context, I went to look at a new C-Class the other day. My local dealer were pushing me towards a PCP and a basic C180 Exec SE auto saloon was coming out at £395 per month over 32 months with a £3.5k deposit (and £2k discount), plus a GFV of about £12k or something. I got back home thinking 'okay, but not great' - though the APR of 5.9% was good.
Then I went onto what appeared to be a fairly reputable leasing site, and they were offering a C220CDI Coupe auto for £370 per month on a 3+23 lease, so about £1100 deposit. I spoke to the company and challenged them a bit to ascertain if the quote was real or an unobtainable 'sold out' ruse to suck punters in, and it appears genuine. Both deals were 10k miles per year.
So, the lease is a lot cheaper, if I don't mind the fact that I have to keep the car for the whole period and will get nothing back at the end.
Whatever route I take I always give the dealer the chance to match the best deal I can obtain elsewhere, as they make a lot of money on finance and will discount the car more if you finance it with them.
Finally, timing is important. Dealers typically work in quarters and have sales targets for quarters and years, with manufacturer bonuses attached. If you go in right at the end of a quarter or year you can get more discount if they are close to target. For example, I once bought a car on 31st December and the dealer offered £2k over book for my part-ex and a good discount on the car. In fact, the deal was so good that the dealer principal tried to back out of the deal when I came to collect it. I don't think he realised his salesman had bumped the part-ex value and discounted the car!
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Very helpful - thank you.
