Tuesday, April 09, 2013

Buying a car - 3 options

Here's an idea. With two out of three cars typically bought on some kind of finance plan, you have to wonder how many people are doing the maths behind making their decisions? Let's say you buy a brand new, simple little run around for £10,000 on a 5 year finance plan with an APR of 8% (kind of typical). That leaves you paying back almost 50% above face value once you take full ownership. It's likle a mortgage but on a depreciating asset and with a much higher interest rate. True, you'll get a care package making it dead easy to look after, but you still have to pay up for tires etc.

I tend to go for second hand cars around the £1.5k mark, a price point where you can get reliable old cars that you don't need to worry about too much. If lucky, maintenance costs will be minimal, and even if you were to scrap the car after a few years, the yearly costs will be relative peanuts.

If you are really motivated though, perhaps the best option should be to not have a car for a few years or have a really cheap runabout, and instead save a pot of money to fund all future car purchases for the rest of your life. For example, if you put some effort in and saved £15k this would give you £2,700 every five years if you earned 4.5% (a reasonable long-run rate of return). Then in terms of capital outlays for cars, you are done. You have effectively purchaed your own virtual car factory, enabling you to order the likes of the following every 4-5 years:

This BMW Z3 can be had for £1,750:

Or this Mercedes SLK for £1,800:

Food for thought.


FX said...

"You have effectively purchaed your own virtual car factory" that is brilliant idea/sentence :)

Christopher said...


Side angle - the rich get richer...

Amazing how when you've got money, everything else gets cheaper. Our last three cars where bought and paid for in full. No extra cash in interest payments spent.

Your common sense approach begs to be turned into a product.

The Bank of Riz Car Lifetime Car Plan.

Another side note - fascinating to see in the UAE how Toyota sell their cars. Perfect mix of finance, maintenance, guaranteed resale price and peace of mind. Photocopier salesmen perfected this years ago - and it applies to everything.