We have been looking at getting a new car recently as we have two cars one is a Honda Civic the other is a Citroen Picasso. Both are over six years old in fact one is approaching ten years old. Both are still running well as far as I can tell but the older car will probably need some money spending on it soon. So I thought I would look at the different way I could finance a new car.
There are several ways to buy a car now a days from paying for the car out right or using a loan from the company you are buying the car off or getting g a loan from your bank.
Let’s look at a new car such as a 1 series BMW in the U.K. first, this costs about £24,160.00 for a mid range spec. If you haggle I am sure you could get this car a bit cheaper than the list price but this would be down to your haggling abilities, the attitude of the local sales person and how far they are off their local sales targets. On offer at the moment you can get this car on finance with BMW for a monthly price of £259.00 for a 48 month term with a customer deposit of £4,299.00 with BMW dealer adding £1069.28 to make an overall deposit of £5,368.28. The customer is then borrowing £18.791.72 if at the end of the 48 month term you no longer wish to keep the car you would have spent £16,731. If you wish to keep the car you would need to pay an additional £10,738.38 giving a total spend of £27,469.38. Buying this car in this way costs and additional £3,309.38.
If we were buying the same car using a bank loan first let’s assume that as we are paying cash the dealer may knock off £1069.28 and we will pay the same deposit leaving a balance of £18,791.72. You will then pay off the loan off over the 48 months and keep the car. This will cost £418.82 per month giving a total pay back of £20,103.36 plus the deposit of £4,299.00 giving a total payment of £24,402.
Recently I have seen an article about paying a monthly fee to hire a car for about £700 per month for two years. At the end of the two years you give the car back and start a new hire agreement. To me this all seems a bit off a strange and expensive way to own a car over the period of owning the car you are paying £16,800. You have paid a lot of money for a car that you do not own.
We should not forget that this car in the UK is worth more than a whole year of income for the normal person earning an average salary.
Recently I have noticed quite a lot of people driving around in new cars I am not sure how these people have paid for the new cars however this has also been noticed by the Bank of England who have become very worried about cars being purchased or hired under a number of different financing arrangements from car dealerships. The Bank of England has become worried about people loading themselves up with unsecured debt of this type.
In the USA there is no similar car to the 1 series but a 2 series is available for $32,850. You will notice that in the USA this is just under a full year’s salary of the normal person?
Again in the USA the way people buy cars is very similar to how people buy cars in the UK. We must remember that a lot of value in a car is lost in the first two to three years of its life. This is why I do not recommend buying or hiring a new car. Rather than buying a new car it is a lot better if people start looking at a purchasing a good quality second hand car with low mileage and good reliability. This should mean that the car will have lost the vast majority of its value and should not lose as much value over the coming years.
Cars will never stop losing their value but at least after the first two to three years the largest drop in price has already happened.
A second hand BMW 1 series can be bought for around £11,000 less than half the price of buying a new car. . I think I will be buying second hand.
One thing I forgot to mention is my current car is a dirty diesel and therefore a might be able to get some money off a new car as part of one of the new scrappage schemes. Maybe I should look into this?
Let me know what you think.
The Normal Person