Residual Values

[derick]

There is another way ! Cash v Finance

If you have the cash to make the purchase but are lucky enough to be offered a good flat rate of interest (timing and negotiation is all important, bearing in mind the dealer wants the sale and the manufacturer already has the money at an arranged rate ) you could finance the purchase instead.

Put your hard earned in the right account at a better interest rate and after 36 months take the profit.

eg borrow say £18K @ 3.6% flat over 36 months (18000+3.6% flat per annum)
=Principal+((principal*interest rate)*years) total re-payble 19944.

For comparison put 18K in the bank at the same rate of interest but on a monthly compound basis.

=principal*(1+(interest rate/12))^number of months - ('^' is to the power of just above 6 on the keyboard)
and at the end of the period you will have 20049 a meagre profit of £105.

It is however more likely that you will achieve a better rate of interest than that and at say 5.3% the profit would be around £1160. There is always a risk that interest rates will bugger about like they are now but generally your dealer can give you a far better flat rate on finance than you will get from a bank. If you pay cash you get nothing back !

You also have to take into account what discount you may be able to negotiate for cash but the dealer would rather see you finance the deal, and if he discounts for cash he will do the same for finance. Either way he gets the money up front.

Sounds complicated but what else are you going to do on a cold,windy rainy evening in mid summer.

[scramp28]

The final payment when I took the finance a year ago was £11750. I could give the car back after half way through the agreement if the depreciation is bad but its looking better to sell it on privately myself.

[gizmo]

My MO is, 1. Minimum deposit usually £500. 2. PCP 3 Years max 3. At 2.5 years into deal get trade in quotes and settlement figures. 4. Match against Private sale 5. Look for dealer/broker offers weigh each up. 6. If left with a gaping deprecation hand car back. I, like scramp28 generally find that selling private is best.

[BMEWS]

michaelr can you pm me an address I can contact you on? I'm trying to set up a similar enterprise here in the uk

[propus]

I'm confused, doesn't all this mean that at the end of the term you will 'hopefully' end up breaking even. Either by trading your car back in or selling private in order to meet the huge final payment?

Plus in the first example the credit (plus costs) is costing 6.5K, thats a heck of a lot of money for not owning a car at the end of it!?

Or have I got the wrong end of the stick?

Dealer offered me three or four deals trying to beat each one when I said no because I could find finance myself with the same monthly payments for a year longer, but with no final payment of about 10K. Plus at the end of it I would now have only paid about 3k in interest and own my car outright.

[gizmo]

Hi Propus,

in that extra year what happens if you have a hefty repair?( This has happened to me in the past) So you will need a good warranty to cover such an event or trust to luck. What happens when in year 4 if you want to change your car and the bottom has dropped out of the market? Do you sell at a real loss or hang on to it? (More potential cost implications) As I said this may not be for everyone but I like to change every three years and not worry over MOTs and repair bills. Parts for cars are the same cost whether the car is new or old.

[propus]

gizmo I see and agree with your point, but...

Say in the 4th year I am faced with a hefty repair, I have already saved 3k in charges and interest payments. Also as far as I know the 300c has one of the cheapest extended dealer warranties in the Chrysler range (I could be wrong).

Now say I decide to change my car. I simply put the car up for sale and take whatever the going rate is. Even if I get 2K for it at the end of year 4 I still walk away with a saving of 3K on interest/charges and 2K in my pocket leaving me with a nice 5K to use as a deposit on my next 300c.

I guess the reason I like this option better is because I hate finance and if I do have to take it I go for the quickest repayment possible, in this case 3-4 years.

I even sold my 7er to pump the cash into a new house because I didn't like the silly amount of money the banks were throwing at you 2 years ago! The way I saw it was if I sold the 7er and put the cash into the house then the interest savings I'd make over the course of the mortgage will far out weigh having to drive the wee Micra for a year. Turns out I got used to the Micra and have been driving it for almost 2 years and I'm keeping it. The 300C will be a weekend driver, unless it's sunny - then the Z4 gets some top down action

Don't get me wrong, as I said I do agree with your system and I know a lot of people who do the same thing. I think I'm probably the odd one out, but I like my way for me. I just wanted to let folks know where I was coming from.