After many years of company car driving I'm opting out and looking at buying a nearly-new car over the weekend.
I was all set to raid my savings and pay cash but was amazed that the dealers opening offer on finance was at 3.6% flat. Considering that my money (in my wife's name, 20% tax rate) in an Internet account that pays 3.8% after tax, I'm wondering if I'm missing something here??
I know there are some charges involved and the APR is higher than the flat rate but even using the Intelligent Finance ad on this site with APR 6.1% the payments are actually marginally lower.
Anyone any thoughts on this, and how low might the dealer go?
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At my dealership standard rates start at about 5.5% flat but if we need to there are a couple of finance companies we can go to with rates as low as 3.5% flat.
I would say the 3.6% rate is probably about as low he can go unless the manufacturer has any special offers on the finance.
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Remember you need to weigh up the interest rate against the price being paid, you might get 0% from one manufactuer/dealer when paying full list price though get a discounted deal from another paying, perhaps, 6% that would be better overall.
Also finance through dealers can be quite complex, might be beter to talk to your bank re a loan and negotiate a cash deal on the car.
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Remember (as my old Dad used to tell me) "The big print giveth, the small print taketh away" Nil rate or Low rate finance = nil or barest of discounts on a new car. It is not set in stone though and depends how desperate the dealer is.
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Thanks for this - I though 3.6% was pretty low. As they?d opened with this I asked if it was negotiable and they didn?t say 'no' (so I took that to be 'yes').
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3.6% is great, unless you are paying full list price. I have noticed Renault have some 0% deals currently.
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3.6% flat isn't hugely great!
The APR compares the true cost and is comparable to the 3.8% you are getting in a savings account. There is an AA loan advert in the banner at the top offering 5.8% APR.
As a rough rule of thumb, the APR on a conventional loan is roughly double the flat. So this 3.6% flat is likely to be about 7%ish APR.
James
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Anyway boys, back to topic:
(oh oh ? some editing?s happened!)
JamesH ? I clicked on the AA link (as I did the Intelligent Finance that was there a few days ago) and bizarrely their website has the APR at 5.9%. Running my figures through it (borrowing £17800 over 3 yrs) it?s £3/mth cheaper than the dealer offered.
I originally asked: am I missing something (as borrowing seems as cheap as using savings)?
I believe the answer is that what I wasn?t considering is the ability to (hopefully) replace my savings. So, although I lose (assuming interest rates stay the same, and not compounding the interest) £2029 in savings interest vs paying £1944 in loan interest, if I paid cash I would gain savings interest by effectively paying back myself (interest free of course) at £494/mth. I can?t easily do the necessary compound interest calculation but I reckon I would earn something like £800 savings interest over 36 mths as I gradually repaid myself.
This means that paying cash only in fact loses me a bit over half the interest, and with the other loan charges makes self-funding around a grand cheaper.
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