Car Buying Guru
So let me ask you a question, the question is, do you really want to own a car?
Now that sounds like a stupid question for someone that is in the motor trade to ask. But the reason I'm asking is because a lot of people reading this end up buying cars and regretting it. And when I mean buying cars, I mean on a hire purchase, cash purchase, that sort of thing, which to me is a long-term commitment to a vehicle.
Let's face it, if you put £20,000 into a car, that is a pretty big commitment. People aren't willing to put 20k on a mortgage deposit, but they'll spend £20,000 on a car in an instant, to me that is just a bit crazy. The reasons I would say that you need to consider if you really want to buy a car is because in this day and age you end up losing a lot of money. How? Let me give you an example. When I worked in the car garage, there was an older man, I'd say he was around his 50s, probably 60s, and I imagine he saved up thousands of pounds over his time. Worked hard, good on him. He came into the dealership and he purchased a Ford Mondeo for around £22,000. It was a pre reg or ex Ford direct, meaning it was used by a company before and only had a few files of miles on it. So all in all a good buy, IF he was willing to keep the car for a long time.
I remember quite vividly when he came back to the dealership 18 months later and got upset with me because I valued the vehicle at around £12,000. That was a good offer because we were buying it to sell it for around 13 to 14K. Obviously have to prepare the car for sale, make a profit and take the tax man into account of course. So, I thought I gave him a good price. I could probably increase the offer by another £500 if needed. But we did not get that far, he got upset with me almost straight away. Why? Because he was telling me that he's lost £10,000 in just over a year on a vehicle and his anger was quite understandable but what could I have done?
If you are going to make a cash purchase on a car or even if you're going to get it on a hire purchase and pay over a certain period of time, you're going to lose thousands and thousands of pounds in that time period because cars depreciate on a monthly basis.
I would never buy a car. Why would I never buy a car? Because I'm the type of person that gets bored of vehicles quite easily and I'd want to change it on a regular basis. So, therefore I would look at something like a PCP or a lease.
Now PCP is better if you are going to go for a used car. I've said it before and I'll say it again, I would never ever recommend a PCP on a brand new car. It just doesn't make sense. Not when you've got the option to lease. The only reason I wouldn't recommend a lease on a used car is because the option isn't there. If you are going to go out and BUY a vehicle you need to be looking at it as something that you're going to keep for five years or forever. Something you are going to drive it until the wheels fall off. Take every penny out of that vehicle as possible. But if you are going to be looking to upgrade the car within two, three years time well thousands and thousands of your pounds will be dropping off that car on a yearly basis. The average depreciation of a vehicle is 15%. and majority of that's in the first few years of owning a brand new vehicle.
So, if you're doing the worst thing possible and going into a dealership because you're a bit flush and you're going to the new car section this year and you're buying a 20 plate or 70 plate car, you might as well take 20% of that money and put it on a bonfire in October and then another 15% of that and burn that right after, because that's roughly how much you're going to lose. 20% of your VAT, you're never going to get that back. You pay to the dealership and they obviously pay that to the government.
along with then you've got the 15% depreciation and that happens in year one and year two. Yes, the depreciation will slow down as time goes on but that's why I say if you are going to keep the car for a long period of time, then it's not a bad idea. But if you are looking to change it in years one, two, three or even four of that car's existence, you need to be looking at a PCP or a lease deal.
Now it is not all doom and gloom if you are a hire purchase buyer. Some of you will buy a car on a hire purchase agreement and have it for five years and that will be the five year agreement. The day that their finance agreement ends and is paid off, you will pay a £10 option to purchase fee, like an admin fee that you pay to the finance company, that is when you own the vehicle. Until you pay that £10 plus all 60 monthly payments and the deposit, if you put one down at the beginning, you do not own the vehicle. Why? Because the finance company has an interest in the vehicle until the point you've paid it off and they can seek a repossession on the vehicle if you miss payments on the car.
So, what usually happens next? You finally own the car after 5 years and you start thinking to yourself, “I need to swap this car. I don't like the model anymore. It's not fast enough. It needs to be bigger and more practical. The newer models come out, the government has changed the rules and diesel isn't as efficient as they used to be and it cost me £10 to drive down my road every day. Whatever it is, you are more than likely going to have a reason to change the car. If that is the case, you never really “owned” the car. You've done exactly what you do on a PCP. You've paid your finance payments. Then at the end of paying your finance payments, you exchanged it for the next ideal car for you and your circumstance at that point.
Difference is with a hire purchase lease and PCP is that hire purchase is 99.9% of the time the most expensive option is HP. Because on a PCP and on the lease, your monthly payments are always low because you're only paying for the depreciation of the car essentially. Not the full £25K of the car for instance which is essentially a mortgage on a vehicle. So, once again, if you are looking to purchase a vehicle anytime soon, ask yourself the question, do you really want to own that car?
Co-founder and managing director
Car Buying Guru
LinkedIn: Gavin Cameron