Well, here's a surprise: paying up front for a car is increasingly falling out of favour with UK drivers, according to research from Close Brothers Motor Finance.
Apparently, the proportion of drivers saying they will opt for finance, leasing or renting for their next car has increased by 6% (from 37% of total buyers in the car market in 2018 to 43% now). This trend is driven by the young, 60% of whom will borrow, lease or rent to acquire their cars, with the majority saying this was for lifestyle reasons rather than financial ones.
Although paying for a car up front is the most common way of purchasing a car, the proportion planning to do this for their next car fell from 63% in 2018 to 57% this year. So, yes, paying with cash is going out of fashion and that is very understandable for those who want a simple, uncomplicated and rather more expensive life.
At our end of things, rather than stumping up an initial deposit and then finding the easy monthly payments, you know what to do. Buy affordably used. And £5000 always seems to me like a sensibly solid budget to play with.
The first thing I see is a Land Rover Freelander, which is becoming something of an obsession. To me, it is an alt-Defender, at least until we become either happy or sad about the new one. So £5000 for a 2008 2.2 TD4 SE with a panoramic roof, leather and Bluetooth seems very reasonable, even with 106,000 miles.
Probably the most sensible family hatch of all would be a 2011 Ford Focus 1.6 TDCi Zetec with just 57,000 miles. It has a full-up Ford service history and you will pay just £20 road tax. It may be evil diesel but officially you’ll get 67.3mpg, although anything near 60 is great going. This is a real no-brainer to buy.
Actually, if you need a cheeky little hatch that’s more recent, I’d steer in the direction of a 2015 Fiat 500 1.2 – a Pop Star model with 26,000 miles. Finished in white with air-con and service history, this is a pretty little thing to use on your daily commute.
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Car finance is changing - rightly so
Not to buy a 4 year old banger which is out of warranty for 5k (I.e the quickest way to shrink an investment is to buy a deprecating asset outright)
Not to PCP a 6 month/year old vehicle and pay through the beak on monthlies (regardless if it has £12k "off list) this is almost always a false economy.. I mean you're not going to pay the balloon payment to own a 5 year old car which is out of warranty... ARE YOU?
Leasing a brand new deprecating asset is often overall cheaper than the year old example above.. Road tax is included, provided you keep it 3 years only it'll never be due an Mot, it'll be under warranty for the entire time you have it. Want to cover consumables like tyres for extra peace of mind? ADD a reasonable monthly maintenance cost that covers EVERYTHING.
So many examples I've gone through and done the Maths of deprecation and monthly PCP payments on a year old car, vs leasing a brand new identical example and nearly every time factoring in included road tax etc you'd be cheaper monthly to lease... And seeing as you'd be NUTS to pay the balloon payment to own a then 4 or 5 year v old car which is out of warranty.. The end result is the exact same - you have a car for 3/4 years then get rid.
"What if I go over my miles?"
Pay a small excess at the end of the contract (5-10ppm) or if you know you're going to be significantly over or under then renegotiate the terms part way through for a slightly higher or lower monthly outlay
"But I'll get hammered when it goes back because they'll go over everything with a fine toothed comb?"
FAKE News! Car lease agreements are covered by the BVRLA "Fair Wear and Tear" guidelines, little scrapes are okay, small amounts of kerbing - fine.. Even a small parking ding. Zero to charge..
"But my wheels are Ruined?"
A friend of mine recently asked me about getting his wheels refurbed (20" diamond cut matte finish audi wheels), he was quoted 175 a corner to get them back to factory finish. I told him to wait and see how much the finance company charge and get fixed himself if too hard to stomach- they hit him with a bill for all 4... £35 per wheel, saving £560 vs getting repaired himself.
Take your £5k and invest it in something that's going up in value or gives you a passive income, not a shed.
Take advantage of finance rates being super low at the moment
Lease a brand new car under warranty and road tax included for LESS overall than PCPing a year old similar model over the same term. Its 2019, the car financing game has changed.
If you still think that buying an older car outright that has little peace of mind is a fantastic financial idea, you might just be one of those people living in the dark ages.. Not all finance and lease agreements are evil.
The concept of owning a deprecating asset is dying out, just like the dinosaurs.
Avoiding Debt
While I utterly dislike Ruppert's choices of second hand cars in this article, I completely agree that paying cash for an older car can be a better option for many of us. I have always taken the view that the only debt I want to incur is a mortgage on a home. For everything else, if I can't afford it, I won't buy it. My early cars were around the modern equivalent of £4000, and this allowed me to make huge savings on depreciation. Yes, it would have been nice to have driven around in a shiny new car in my 20s, but the money I have saved has been deployed to things like a bigger house which I can continue to enjoy many years after the car has been scrapped.
Just remember that, if you own the car, you can always sell it if times get hard, but debt will follow you around regardless of circumstance.
Sorry if this is rather old-fashioned, but it has worked well for me.
What a bunch of twaddle in this article!
"Probably the most sensible family hatch of all would be a 2011 Ford Focus 1.6 TDCi Zetec with just 57,000 miles"
Absolute rubbish.
Anyone who knows used diesels knows that under 12k miles a year means a clogged DPF, it simply hasn't done motorway miles on a weekly basis - as is required for a healthy DPF regen cycle.
Add to that, this is Peugeot's 1.6 turbo diesel engine - which is known to have turbo issues when you get soot in oil caused by a clogged DPF, and it's not a good or respectable bargain buy at all!!