A personal blog about life, business and money – not to be regarded as Financial Advice

Why finance a car? Is it not better to pay cash?

This week we made the decision to replace my car – a trusty Volvo V40, which I’ve had less than a year.

I’ve been finding that the manual gearbox and driving position is playing havoc with my shoulder, and I cannot face the thought of unlimited trips to my chiropractor and massage therapist – despite them both being lovely people and amazing at what they do.

After a week with no school runs and limited driving this week, the penny dropped as to the cause of my pain, and the necessary solution – an automatic gearbox = no gear changing = no more pain (I hope!!)

We bought our existing car as a low mileage ex-demonstrator direct from the dealer less than a year ago, and got an amazing deal compared to buying new and wouldn’t normally look to change a car so soon!

Cars are something that usually depreciate over time, so despite us only having bought it last year, we knew that we’d need to add some cash to the value of our part-exchange in order to buy something suitable, and thought that we should go and investigate the available options.

In the end, we decided to put the replacement on finance – which is not what we’d planned, but I had a really good reason why – and I’m going to tell you what happened.

First Stop – Audi Dealer

The last few cars I’ve had have been Volvos – safe, reliable and due to an excellent relationship with the dealer, always good value.  I’d always fancied an Audi, and I’ve never had a convertible so we thought it was worth us popping into the dealer to see what they had to offer – seeing that they’re on the road opposite the Volvo dealer anyway.

We looked at the A3s but soon came to the conclusion that although the convertible looked amazing, there was such a small boot, that it really wouldn’t have suited us given our penchant for holidays. We’d have never got the big suitcase in the boot!

They didn’t have a lot of used car stock and we were concerned that some of those on the forecourt had too high mileage, or that a lack of service history meant we couldn’t be sure how the previous owner(s) had treated them! The only car that looked mechanically to be good, was a ‘de-badged’ black car, tinted windows and top spec, but not really my style – more suitable to a Gangsta Rapper!

We looked at their new car range and the salesman explained the ‘amazing deal’ they could offer if we put it on finance.

Now finance is my thing (obviously) and so, although we had the funds to pay for the car, I thought that I’d hear him out. Audi would add a £3500 deposit contribution (effectively reducing the price) if I took the car on finance – and when I did the maths, this was more than the total interest charged over the 3 year period of the Personal-contract-plan (PCP) that they were offering.

So if I’d been determined to have the Audi, it would have made sense to take the finance, and then after 6 months repay the agreement in full, pocketing the £3500 discount, being that there was no penalty for settling the finance early after this point.

But it just didn’t make sense for us to be putting £12k of our money into a new car at this point when all I needed was a car that was an automatic – I’d rather save it towards my Aston Martin!

So we went over the road…

Second Stop – Volvo Dealer

We were greeted warmly by our trusty contact at Volvo, although he was a little surprised that we were back after only 9 months of car ownership – we typically keep them 2-3 years.

When I explained the issue, he showed me the details of their used cars and pointed out a low-mileage ex-demonstrator that was extremely good value for the number of miles that it had done. We’d need to top up our part-exchange by about £4800 – which seemed a lot more reasonable.

I took it on a test-drive and returned to the showroom confident that this was the right choice.

But, then he said –“I have something special to show you…” and produced a glossy leaflet…

“Next weekend, Volvo are offering a 0% finance deal on their whole used car range – which is practically unheard of – they usually reserve 0% deals to new cars only”

“It just means you’ll need to wait until next weekend – but then you can pay half and the rest interest-free over 3 years”

Bingo!

What it means is that we can part-exchange our car, get £3500 paid back to us as cash and then pay £11,500 interest-free over 3 years.

But why borrow the money if you don’t need to?

  • Because the money is better in my account earning interest.
  • Because we can then use some of this money for something else if needed
  • Because we can use this to repay some of our mortgage
  • Because then we don’t need to give them £4800 out of our savings in one lump.

Effectively they’re giving me the opportunity to leverage the money, by being able to use it more than once.

But the key thing is that I was only able to do this because I understand how the numbers work.

If numbers are not your thing, and you need help working things out – get in touch and we’ll help you work through it!

And I’ll keep saving towards my Aston Martin!

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