$pending mon£y

When it comes to my upcoming purchase of a new car I have had a lot of opinions in regards to not only what I should choose, but also how I should pay for it. This brings up a bigger argument which not only brings in cars but attitudes towards money and spending, and indeed society as a whole. Whilst I don’t wish to get too deep into differing opinions on how the economic crisis started or how we have become a nation deep in debt, I will say that the way I have been brought up is to save hard and spend what I can afford…not necessarily you might assume given I want to purchase a large ‘gas guzzling’ SUV, but then we all have our weaknesses.

Although my car history is a relatively short (and inexpensive) one, all the car purchases that have been made in my household have been with cash as far as I’m aware…partly because none have cost more than £15,000, but partly because we are a family who save for what we buy and if we can’t afford it we don’t buy it. The first (and only) car purchase made after my dad passed away has been my mum’s Honda Jazz, a car that was also the first brand new purchase that had been made. She briefly considered paying on finance but given the appalling interest rate in this country there seemed little point of keeping the money sitting in the bank collecting much lower interest than any finance offer that Honda could throw at us. But now it is my turn to make a purchase I am a lot more conflicted given the numerous payment methods, especially given what a slight difference in budget could mean for the cars I could get.

By far the most sensible and most likely option is to just spend the money I have saved on something I can afford. This is the approach I have used so far and means that nearly any penny I earn goes straight into my savings account and the car fund. To give me a bit more of a budget I have counted on receiving around £1,000 for my car in part exchange (maybe optimistic but it is a good example), plus my mum has offered to lend me a similar amount on the condition that I don’t bug her so much with constant updates about what I want to buy. I should also aim to haggle something off the listed price of any vehicle I’m buying, which by the way will of course be a used car. The problem with this approach is that I am constantly stretching my budget to include nicer cars, and when I eventually do buy one it will effectively clear me out (as many many people have pointed out). Spending a little less is a possibility, but buying an older X5 (the only car which is significantly cheaper to purchase) means I have to spend more on insurance, whilst cheaper versions of any of my other choices would incur even higher mileages!

An alternative to spending say £15,000 in cash all at once would be to buy a car on finance. Most used car dealers offer this option to customers, not many of whom have the inclination to save even £15,000 to spend in one lump. Seeing as that I already have a large amount of money, I could just keep this aside to spend on finance payments after spending a couple of thousand on a deposit. The only problem is that used car finance tends to charge extortionate rates of interest and often discourages early repayments. If I were to get a car on finance I would likely add another couple of thousand to my top line budget, but given the interest I would probably end up paying £19k for a car worth £17k (up from my budget of £15k).

A similar decision would be to get a small loan to cover the extra amount I’d want to spend on a nicer car; borrowing £5k from the bank would give me a much wider range of choice and in all honesty would mean a car that would be cheaper to run and likely be more reliable. In this situation I would probably end up behind the wheel of a 2010 BMW X5 and be much happier for it, but taking a loan out for such a purchase just doesn’t sit right with me and seems a little like spending more money to save money (although that is something that has been leveled against my decision to get a diesel too). Would I even get approval for a loan? I really don’t know. Of course I could just save up that money by myself but waiting that much longer seems too long after a build up that has been years in the making!

A radically different route would be to get a brand new car on a PCP offer; I can’t say that this is something I’ve seriously considered but when I have said I’m buying an SUV they assume I’m going whole hog and getting it factory fresh. The benefits to this are quite clear but don’t necessarily match my expectations in terms of the purchase; all I am really after is a reliable, well equipped 4×4 that gets semi-reasonable mpg. The fact it is a premium SUV is all I need in terms of image, I mean sure it is nice to have the newest car as possible but being the very newest doesn’t really matter to me at all. Looking at PCP packages and clearly these vehicles command high monthly prices, deposits and balloon payments, all of which put me off. Probably the cheapest is an ML250 which would be £479 a month for 3 years with a deposit of £8928…not an unmanageable amount for me all things considered, but with a final payment of £21,625 it means that I’d have paid out over £26k with nothing to show for it at the end unless I found the cash. Even jumping down a category doesn’t save me much money; a BMW X3 is £307 a month after a £9k deposit, plus another £15.7k to buy the thing at the end of the 3 year period. Probably the best option would be an XC90 which is £317 for just 2 years after a deposit of £11k; the final payment isn’t massive either at £17k but spending £35k in just years is not something I could afford to do unless one of my job applications comes off well sharpish!

HP/Leasing is the final option that I could use to buy a car, and again it would end up being a new one. Effectively renting the car for 2-3 years it gives a lot of the benefits of PCP but without the option to purchase at the end, plus it lacks the inclusive servicing (although this isn’t quite so bad).  The upfront cost is generally lower and there can be some very good deals at times; for example I saw the same ML250 for £501 a month but with a deposit of just £3189…that means that over 3 years it would cost me around £5k less than with PCP. Admittedly servicing isn’t included but I personally I think that is better value than a deal with the option to buy, however I still don’t reckon I will indulge on brand new car whims for the moment, or until I am properly financially independent and set up for that matter.

I hope this post hasn’t been a complete waste of time for whoever has read it and if it has I apologise…making such a big purchase is an important life decision for anyone and being my first one I feel it important to at least understand how these things work 🙂

 

 

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