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+--- Thread: Payment options (/Thread-Payment-options)
Payment options - Devonian - 08-04-2012 02:25pm
I'm due to collect my Evoque mid to late May. Am unsure about how to fund it though. I can borrow money on my tracker mortgage at a very cheap rate at the moment (1.29%) so I was going to just borrow on that and buy it outright. The PCP deal LR offer is at 9.9% so I thought it was a no brainier. A couple of people have made me question this recently so I thought I would ask for some advice on here.
If I trade my car in after 3 years, factoring in likely residuals which is going to be he cheapest option? My mind says this is a simple decision but perhaps I feel I need some reassurance!!
RE: Payment options - ED209 - 08-04-2012 02:32pm
I wouldnt want to borrow on a mortgage to pay for a car, long term borrowing for a short term purchase. Unless of course you can be disciplined to pay it all off in 3/4 years. Also when interest rates rise, which they will at some point it wont look such a good deal.
I paid cash for mine and to be honest i wouldt buy a car unless i could afford to pay cash. I dont like getting credit and I am quite good at saving up. I also went from 2 cars to 1 when buying the evoque which helped. (im not rich by anymeans)
RE: Payment options - mark_n - 08-04-2012 02:44pm
The interest rate is attractive, at least for now, but the likelihood is that you will use whatever residual you get to part fund the next car and you'll be paying interest and capital on this initial loan long after the car has gone, long after even than the car going in the crusher.
You need to think about how secure your employment is, what your future commitments might be (how's your pension looking?) and whether you can continue to fund the payments if, in your mid 40s, you are dumped into the unemployment lines.
My view is that is it wrong to borrow long term for short term consumption as ED209 says. You should only ever borrow to invest and by no stretch of the imagination is the purchase of an RRE an investment. Otherwise, you are only buying short term material gratification now at the expense of a financial hangover tomorrow.
I paid for my car on a debit card; I've never borrowed to buy one.
Edit: Another way to look at it is to sacrifice extra net income over the period of ownership of the car so that after 3 years, you are even. So, if the car costs £35k and you think you might get back £17k after 3 years, you need to sacrifice £6k a year - £500 a month - in addition to the loan interest from net income so that you are repaying the capital lost in the period of ownership. If you only pay the interest, say £1500 over 3 years, you are deluding yourself how much the car is costing and you will be £18k further in debt by the end of it.
RE: Payment options - Devonian - 08-04-2012 03:36pm
I will be able to clear it in full within 3 years so it won't be left on the mortgage longer than that. I guess that the bonus of doing it on the mortgage is that the equity in the car will be mine to put towards a trade in later down the line. Although the amount I'll be paying off each month will be higher as a result of this.
RE: Payment options - bluebear - 08-04-2012 03:51pm
To me it depends on the flexibility of your mortgage. If you can make unlimited overpayments from income or bonus, for example then paying your car at a rate of 1.29% makes complete sence. All the other factors that have been mentioned are of course important but the difference on 1.29% and 9.9% is significant and worth considering
RE: Payment options - Devonian - 08-04-2012 04:12pm
It's a flexible mortgage, so I can pay off whatever I want at any time.
RE: Payment options - smayo - 08-04-2012 04:29pm
Job security in my opinion makes not a jot of difference to the type of finance you go for. If you lose your job you are up the creek without a paddle regardless if it is a loan or on the mortgage.
That said, in my opinion it then purely comes down to how much you will have to pay out in total, which is going to be significantly higher at 9.9%.
To make a like for like comparison, the Mortgage option is relatively easy as you will be paying the full amount and can work out the total, plus a bit for interest.
For the PCP option add the final value to the total cost of the credit.
Comparing the 2 figures, will clearly show that the PCP option is the more expensive.
You can effectively ignore the final value, because with the mortgage option you have that as equity, and you have nothing with the PCP. If the final value ends up higher then you gain to the same degree with both options.
For one of my previous cars I borrowed against my mortgage (Barclays offset) and just set up a standing order back to the mortgage for the monthly amount I could afford and the whole amount was paid up pretty quickly. The standing order ensures discipline in paying it back.
I agree, that in my opinion if you can go down the 1.29% route then it’s a no brainer.
RE: Payment options - RacingSnake - 08-04-2012 04:44pm
Can't help on your suggestions, but the OP was asking questions on 2 different approaches to pay for the car, neither of which were in the pay for car outright approach.
I actually find the 'holier than thou' posts of those who "pay cash" or feel the need to announce they paid for it on "debit card" is very condescending.
I've had to finance to pay for my evoque, no way would I ever be able to afford near on £50k to 'drop' on a car, I just couldn't afford it.
I do however have no issues in borrowing to get what I want right now, as long as I can afford to pay for it, and understanding full well that it'll cost me an extra £x,000 over the next few years, I struggle to understand why I must be made to feel like I am not worthy to own such a car.
Bluebear seems to have offered the only constructive response here.
The PCP deal from LR is not great, but there are others around if you would wish to use a regular finance deal, though they do seem to vary between 7.9% and 9%.
Some even allow you to overpay too which could also be useful if you do get extra income from investments or bonuses.
RE: Payment options - smayo - 08-04-2012 04:56pm
RacingSnake, I'm sure the replies were not meant to be condescending.
Personally I have never been able to buy my cars outright and have always financed them and been able to pay them off in the 2-3years I have chosen. In this instance I can't afford to do that and have gone down the PCP option, much to my regret, but that’s the only way I can afford one, and I didn’t take them as condescending.
Just consider ‘them’ to be lucky beggars!
Devonian has indicated that he can pay the full amount in 3 years via his mortgage, so my advice was purely to look at the total costs involved with either option.
RE: Payment options - RacingSnake - 08-04-2012 04:59pm
I'd agree with your advice.
