Good evening all and welcome back for another Bywater blog post.
As per my last post I was writing about the different ways to fund a vehicle and when I got to cash I thought it would be short and sweet.
I then kept typing and typing and decided maybe it’s best to make this a post of it’s own.
This is unfortunately the second version of this post as I accidentally deleted the original after spending a week on and off writing it.
So anyway, as per the title, Cash is king, right? well wrong actually, not for a long time has cash been king. First of all take leasing out of the equation, you go to buy a car from just about anywhere and tell them “I’ve got cash so I want your best deal!” it’s not going to happen, dealerships make commission on finance just like any other business, the more finance commission they make the more discount they can give you on the vehicle.
You go in and your opening line is “I’m a cash buyer “ and all the dealership hears is “you won’t make a penny out of me in finance commission”. They will offer you a much smaller discount right off the bat with a lot less willingness to improve the deal as you’ve halved their earning potential straight away. Forget what James Corden says on the Tele, of course a company who earn a fortune buying peoples old cars are going to tell you you’ll get a better deal by selling to them and going into your next purchase with cash.
Secondly we all know cars only go one way. Down! Cars will always depreciate unless you buy a very rare classic to sit and look at but when’s the last time you did that?
Let me ask you a questions, if you found your next house and I told you it’s only going to go down in value would you buy it or rent it? Exactly so why do we pay our hard earned cash for cars when you can just chip away at the depreciation monthly or lease them and in 3 or 4 years time when they’re worth considerably less you hand them back and it’s not your problem.
It’s no secret that car finance attracts interest and people are against paying it.
If you take your next car on finance instead of paying cash you are almost certainly going to pay interest unless you get 0% but is it really an issue? Yes you may pay a little bit extra over the next 4 years than if you paid cash but there’s a reward for doing so. First of all you can keep your cash in the bank, interest on your savings or not that’s a nice feeling to have a nest egg especially when we can be talking £20,000-£100,000 maybe more. Secondly there is no risk of negative equity as you either hand the car back (Contract Hire/Lease) or you have the option to sell, swap, hand back if in negative equity (PCP).
People say to me all the time “I don’t like monthly payments!” You’ve got enough money in the bank to buy your car outright, how did that get there? Because each month you put X amount away in savings. You take let’s say £40,000 out of your savings to buy a car, over the next 3 or 4 years you have to put that money back or at least most of it so you can change your car again when it needs to go, usually around MOT time funnily enough.
So £40,000 divided over 36 months is £1,111.11 you have to save each month. You could have put it on a 36 month PCP with no deposit for £500 a month.
I had a customer call me last week and he told me he always pays for his cars cash as he does 40,000 miles a year and the payments are too high for that sort of mileage on a finance agreement. We had a look at the car in question and did some digging as to what it would roughly be worth in 3 years time with 120,000 miles on the clock. We also looked at what it would cost him to lease it with no deposit over 36 months and 40,000 miles a year.
He saved £3700 by leasing over buying outright. Now I’m not saying this is going to be the case everytime but it happens a lot more than you’d think. Next time you’re going to pay for a vehicle outright be it car, van, bike, lorry, speedboat etc just have a look at a finance option before you do. Don’t focus on the interest as everyone does as this number is irrelevant. you have to look at the big picture and calculate which is best for you, if that’s still cash then fair enough.
Everything is going onto monthly payments wether we like it or not. Hardly anyone goes out and spends upwards of £1000 on the latest iPhone, they put them on a contract at £50,£60,£70 a month. You can’t buy computer software outright anymore, it’s a monthly subscription, road tax and insurance is usually done monthly, that never used to be an option. Even video games are going down that route and will soon be treated like mobiles where you pay a monthly amount for your console and online access.
To sum up, you will do what makes you comfortable at the end of the day and most people are reluctant to take advise or change their habits and thats fine. This post isn’t to convert people who pay cash into leasing or tell you from now on you must take finance.
The intention of the post was to simply suggest that you look at things in a different light and consider your options. Sometimes cash is better, if you buy an older car and run it into the ground then cash probably will be better for you as depreciation is less of an issue, the car costs significantly less to start with and what you pay in interest won’t outweigh the downsides like it would with a new/nearly new car.
If anyone has an opinion on this or would just like to weigh in at all please do so either in the comments or you can inbox me on my Chris Bywater account. Thank you for reading and please give us a like and share as it really helps us out.