Pay cash or use finance to buy a car?

**swamp** · 13 April 2009, 13:40

No. If the APR on the loan is higher than your (flexible) mortgage then put the debt on the mortgage. That said I'd rather have my car repossessed than my house

I actually bought a car for 15K last year on ~6% APR hire purchase. It's a cheap loan, but I wish I'd bought a cheaper car for cash. The depreciation on top of the loan was hard to stomach. Also think that paying cash for cars is a sensible habit

Oh, and don't buy any 'extras'. I received the hard sell on stuff like GAP insurance (big con IMO), Payment Protection insurance (ha!) and full valet should be expected and not an extra £250...

**FarmerPalmer** · 13 April 2009, 14:05

Under normal circumstances I'd keep debt on the lowest APR - so use your cash on offset.

However it depends on how deep this recession goes.

Would you rather have access to your money if you need it, in which case take out a loan.

Personally I'd take out a loan just in case

**Fred Bloggs** · 13 April 2009, 14:06

"Lend yourself the money" and "pay it back to yourself" each month just as if it was finance. That way you make the profit, not the finance company.

**ruth11** · 13 April 2009, 16:33

Hmm.. it's a tough one.

This is the Mini Select PCP scheme I'm looking at.

Pay x deposit, x amount each month for x number of months. I'd be looking at either 2 or 3 years. You get a guaranteed final value figure, which they deliberately set low, so you look like you have "equity" in the car when you come to the end of your term - ie your car is worth more than the GFV. You can use the "equity" on a new car, or take the cash and take it elsewhere. If your car ends up worth less than the GFV you just give the car back owing nothing.

But my brain tells me that paying £400 a month over 2 years costs way more than the depreciation of the car over that time and so I just can't see the point. Except that by lowering my mortgage by £15k would save an awful lot of interest payments over the remaining 23 years I've got left on it! But then I'll be paying interest on that amount anyway over the time I keep buying newish cars.

I think I'll just pay for it up front, I will probably take out the GAP insurance because that seems like a no-brainer (I know some say it's not worth it, but you will never get back from an insurance company what you pay for the car so you'll easy get your money back on it should you need to use it). If it was only valid for one year I wouldn't bother, but as it lasts 3 years, I'll take it.

Thanks for the replies.

**TykeMerc** · 13 April 2009, 17:35

Originally posted by ruth11 View Post

I think I'll just pay for it up front, I will probably take out the GAP insurance because that seems like a no-brainer (I know some say it's not worth it, but you will never get back from an insurance company what you pay for the car so you'll easy get your money back on it should you need to use it). If it was only valid for one year I wouldn't bother, but as it lasts 3 years, I'll take it.

Thanks for the replies.

Correct me if I'm wrong, but isn't GAP insurance supposed to cover any shortfall between what you have financed and the asset value of the car in case of some weird write off?

If you're paying for the car up front in cash there's no financed amount therefore no potential GAP to insure surely?

**ruth11** · 13 April 2009, 17:49

Originally posted by TykeMerc View Post

Correct me if I'm wrong, but isn't GAP insurance supposed to cover any shortfall between what you have financed and the asset value of the car in case of some weird write off?

If you're paying for the car up front in cash there's no financed amount therefore no potential GAP to insure surely?

No, it covers the shortfall for any insurance payout and the invoice amount you paid for the car. So if in 2 years and 11 months my car gets written off, anyone's fault, I get my insurance payout of the value of the car at that point and then the Gap insurance gives me the rest up to what I paid for the car!

Means that it almost makes writing off my car deliberately a good idea!

**Peoplesoft bloke** · 13 April 2009, 20:40

Originally posted by TykeMerc View Post

Correct me if I'm wrong, but isn't GAP insurance supposed to cover any shortfall between what you have financed and the asset value of the car in case of some weird write off?

If you're paying for the car up front in cash there's no financed amount therefore no potential GAP to insure surely?

I thought this, so I looked it up - it appears there are (at least) two types of Gap insurance - "return to value" and "return to invoice"

**ruth11** · 13 April 2009, 20:42

Originally posted by Peoplesoft bloke View Post

I thought this, so I looked it up - it appears there are (at least) two types of Gap insurance - "return to value" and "return to invoice"

Yep, Mini's is "return to invoice".

**Peoplesoft bloke** · 13 April 2009, 20:42

Originally posted by ruth11 View Post

Hmm.. it's a tough one.

.....
But my brain tells me that paying £400 a month over 2 years costs way more than the depreciation of the car over that time and so I just can't see the point. ......

Depends on the car - I've had cars where that would've been true (£400/m depreciation)

Pay cash or use finance to buy a car?