8 March 2022 Concept Car
Wouldn’t you like a magic solution to the Covid car finance crisis?
A recent article in newspaper The Guardian seemed to promise just that. Titled “Car finance: how to get a deal on a new or secondhand vehicle,” it offered a handful of tips on how to make the best of a bad situation.
The article starts off well enough, outlining the key problem of today’s market:
“The price of secondhand cars has rocketed, rising at “unprecedented rates”, according to the AA – amid a shortage of new vehicles rolling off the production lines.”
The thing is: What follows is essentially a list of the typical run-of-the-mill solutions to car finance. And these simply don’t work anymore!
In this article, we want to show you how and why car finance is no longer the same – and what to do about it.
“Don’t pay the list price,” the article suggests, “Dealers will often be looking to hit targets and may be able to juggle figures to increase their chances of closing a deal.”
Instead, they suggest, you should negotiate with the salesperson.
This is what this look like in practise:
Sounds sensible? Unfortunately it isn’t!
All of this is wishful thinking. The article openly admits that car prices across the board have skyrocketed. In other words: It’s a seller’s market. Or, to put it even more bluntly:
Dealers can ask pretty much any price for a car.
Haggling assumes the that dealers face one of two choices:
But currently, cars are flying off the lot. Some dealers no longer even advertise them on the web because by the time the ad is online, the car has already been sold.
We hate to say it … But in 2022, haggling is something you should not waste your time thinking about.
Paying by credit card, the article suggests, is great for three reasons:
We’ve written about credit cards a lot on this blog, and we’re highly critical of considering them a serious alternative to traditional loans. This is even more so during the current pandemic.
For one, the 0% deals mentioned by the Guardian are rarely an actual option. They are only available for very attractive customers and they typically come with a lot of fine print attached.
In finance, if something looks to good to be true, it almost always is.
Secondly, many people with bad credit – precisely those who are currently facing the biggest issues – will often not be able to get a credit card at all. The reason is simply that many card issuing institutions consider them too risky.
Thirdly, for most customers, credit cards are probably the most expensive payment option when it comes to car finance. This is because every payment you make is essentially a micro loan. And it obviously becomes worse the higher the price.
This is not just because of the aforementioned buyer protection, which often extends well beyond the already quite excellent government protection.
But also because dealers will usually have to share in the credit card fees. This reduces their profit – especially if compared to a situation where they are the ones actually extending the loan.
Credit card payments during Covid? For most of us, it’s not going to happen.
PCP is by far the most popular car finance method in the UK. These payments plans are not usually directed towards ownership. Instead, you pay for the depreciation of the vehicle over the time of use.
For the majority of users, it’s simply a variation of leasing a car.
So, if you buy a £20,000 car and drive it for four years, you pay for the loss in value it experiences. Usually, this amounts to roughly half of its initial value (it obviously depends on the make and model). So, in our example, you would pay off around £10,000. Then, you’d be left with a balloon payment of another £10,000 at the end of your lease.
They quote a car finance expert as saying: “HP is the best option, as payments are spread evenly across the term – with PCP, you face paying the lump sum balloon payment.”
In other words, with a Hire Purchase plan, you actually become the owner of the car at the end of the contract – and you don’t face a nasty large repayment which you need to cough up at once.
This is all true in theory. We agree that PCPs are usually not a good idea.
However, ask yourself an important question:
What is so weird about the recommendation of HPs is that neither HP nor PCP are, on paper, particularly cheap options. In fact, they are among the most expensive financing options available to you.
The reason especially PCP has taken over from personal loans as the dominant car finance plan is that monthly payments are so low that almost anyone can afford them – and drive a fantastic new car to boot.
PCPs do tend to lock you into a cycle of new contracts every few years. But for many UK households, they are the only way to afford a new car.
HPs, in comparison, have the benefit of ownership. But monthly payments are higher. Plus, if you can no longer afford the loan payments, you will loose not just the car but also all the money you already invested in it.
This is also why we keep insisting that used cars are always the best options for those with bad finances.
In the opening paragraph, the Guardian article makes an important claim:
“Incredibly, some models now cost more used than they would new.”
This is not wrong entirely. But in no way does it reflect the usual price level of the UK car market.
And don’t forget that these truly outrageous prices only apply to the most popular models. There are plenty of fish in the water and by going for something older and less trendy, you can always still get a decent deal.
To even pretend that HP could ever be a more sensible option than simply being patient and waiting for the right second hand model to come around, is surprising to say the least.
We certainly wouldn’t advise it.
Towards the end of the piece, the Guardian puts forward leasing as viable alternatives to buying a car.
These deals, it says, are often “cheap and flexible”, allowing you to “sign up for shorter terms of only a few months to trial a car.”
Leasing, according to this logic, is a viable alternative, if you do not actually want to own a car. Although the feature doesn’t talk about possible reasons why this would be the case, the typical arguments are as follows:
Leasing does sound good. And it is, in many respects. But what it certainly isn’t is one thing: Cheap.
In fact, leasing is pretty much the most expensive option at your disposal, if we forget about renting for a second, which is more short term.
We are particularly surprised about suggesting leasing as a great option for the average UK driver.
Summing up, leasing remains a great choice for anyone with plenty of cash. For the average UK driver, it’s hardly the way to go.
So, if all of these recommendations are all problematic – how else can you get the best possible car deal under the current circumstances?
Before looking at specifics, let’s think about the bigger picture for a moment. Here are the key points:
This is what it looks like:
Now, let’s take at the concrete steps you can take to put this plan into action.
This is one of the recommendations from the Guardian article that are actually really useful.
When we say that it’s currently a seller’s market, that’s obviously not just bad news. It means that dealers all around the UK are looking to buy up used cars. They are simply running out of products to sell!
If you choose your car wisely, you can make the most of the situation by buying a cheap car and selling your own car at a good price.
It pays to wait just a little. Car prices are higher in the Summer, so you may be able to ask for more in just a few months’ time.
It makes a lot of sense to compare finance deals and cars on offer.
At this point in time it is not very sensible to split up the process among too many vendors. Buying your car at one place with money borrowed at another and selling your old model to a third party? It may look smart and sophisticated. But it’s not ideal at the moment.
Instead, try to get a great deal from one place. At CCC, our strength is based on our ability to offer you cars at affordable prices, while also taking care of finance and giving you a great trade-in deal.
At CCC, we don’t demand a down payment. Instead, we decide on this on a case to case basis. If we are confident you can keep up the loan payments, we don’t think it’s fair to deny you access to mobility.
Still, we do always recommend one.
Deposits have the big advantage that they reduce the cost of a loan significantly. Which means you’ll pay less interest and drive debt-free a lot sooner.
Down payments don’t need to be excessive. Most UK households can afford a 10% deposit for their PCP plan. If you can, too, then make use of this great opportunity.
Picking the right model for you is the most trivial recommendation when it comes to buying a car. Still, so many drivers get it wrong.
They will buy a car that’s too big, or not big enough. A car with a low purchasing price but high running costs. A car that does not have enough power or which has obvious defects.
In these trying times, the following considerations are vital:
Experts tend to give you recommendations based on an ideal world. However, as we all know, the world is anything but perfect. If you want to get a decent car finance deal during the pandemic, you need to be realistic about your options.
What this means is not to cast all expert tips aside.
Rather, it means that you may sometimes have to compromise to get behind the wheel.
At CCC, all we want is to get you behind the wheel again. If you’d like to find out more about our unique combination of car finance and car deals, get in touch with our team.
Call us at 0800 093 3385. Or send us a message using our contact form.
8 March 2022 Concept Car