How to buy a car

[Ellem86]

My car buying experience to date is limited to handing over a few hundred to a private seller found on gumtree/autotrader in exchange for an old banger that lasts less than year. I now live further away from my family and need a reliable car so am thinking of doing it properly. I'm thinking of buying either a new Kia Sportage on PCP (4.9% APR) over a 3 year period or a two year old version with a personal unsecured loan (3.2% APR)over a four year old period. Interest rates aside, the main differences that jump out at me between the two options are that with option 1 the monthly repayments are lower and I won't own the car after 3 years but will have the option to buy it after 3 years or trade it in whereas with option 2, the monthly repayments are higher but I own the car from the start. A two year old Sportage is also going to be about ?2,500 cheaper. What i can't work out is whether owning a car outright from the start actually matters and whether getting caught up in the whole PCP 3 year cycle is a bad idea. The most expensive item I have ever purchased is a sofa so the maths and responsibility to make a good decision is driving me a bit mad!

So calling the financially savvy amongst you, which is the better option?

[DaveR]

There's not really a better option, but what suits you better - your finances, your intended use of the car etc.

I can't see the advantage of PCP over just choosing either to buy or lease. If you lease you pay a fixed amount every month and someone else takes all the risks of ownership. You could get a brand new Kia Sportage for about ?200/month for three years, and at the end of the period decide what you want to do next - lease another one, or something different, or buy something. During the three years the only restriction is a mileage limit - the cheapest deals limit you to 8,000 miles a year, but more miles will only cost you an extra ?10 a month.

If you buy you take on the risks of ownership, but over the long term its cheaper. Let's say you buy a two year old Kia Sportage for ?15,000, which you pay off over 4 years. You end up paying ?16,000 with the cost of credit, but if you keep the car for say 6 years, at the end of which it's worth ?5,000, the overall cost to you is ?11,000 over 6 years - ?150/month. It doesn't seem like much of a difference, but ?50/month over 6 years is ?3600 saved, and the longer you keep it the cheaper the overall cost. Kia cars come with a 7 year warranty and have a reputation for lasting a long time - buy a two year old car now and there's no reason why you can't drive it for another ten years.

[bobbsy]

DaveR, agree in theory but add to this you'll have servicing costs each year if you own. For lease cars do you still pay servicing (in which case its null for comparison)?

[Ellem86]

DaveR thanks for the calculations, they're really useful. I hadn't actually thought about leasing as I'd somehow assumed it was a waste of money but it looks like it has advantages over personal contract.

Bobbsy thanks for your input too. I'm pretty sure you don't pay servicing when leasing.

[Loz]

As always, Money Saving expert is a good place to look for info

http://www.moneysavingexpert.com/car-finance/personal-contract-purchase

[DaveR]

Also on leasing:

http://www.moneysavingexpert.com/car-finance/car-leasing

[Ellem86]

Those are both much better articles than the summary article I read (which made no sense to me)!

[Ellem86]

I bought the car yesterday on PCP. I liked the low monthly repayments and was drawn to PCP (instead of leasing) as I would have a decent amount of equity in the car after 3 years if I wanted to trade the car in as Kia's hold their value. The equity varies from ?1,500 to ?4,000 depending on how well looked after the car is and mileage. For anyone else interested in the new Sportage, I managed to get ?1,800 off the list price and claimed the ?500 dealer deposit contribution. I am sure someone with a stronger stomach for haggling could do even better!

Thanks to everyone for their input.

Now for the 12 week wait...