Do you want to know the secret behind getting the most out of car finance? The secret to saving thousands of Pound in interest and much better cash flow?
We bet you do. Here it is: Drive your car instalment-free for as long as possible!
It sounds simple. And it is! Admittedly, it’s not entirely new. In the past, people just gave it a slightly less cool name: Driving a car until its wheels fell off.
Do we have something to add to that? We believe we do.
In this article, we’ll show you how to achieve what some consider impossible: Driving a car without having to pay interest on it anymore.
Driving instalment-free: The main idea
What is the idea of buying your own house? Sure, for some it’s an investment. But for most of us, being queen of your castle is great because eventually you’ll live rent-free. It’s going to take time, it’s going to require persistence. But once you reach that state of living rent-free, your entire life changes.
Just imagine not having to pay anything for rent at the end of each month. The savings you can make are truly incredible. It’s an act of liberation and anyone who’s ever made it this far can tell you how incredible it feels.
When it comes to houses, we all find it perfectly natural to live rent-free. So why don’t we find it sensible when it comes to cars?
At CCC, we’ve always considered this a paradox. Clearly, this is where things become interesting.
From Ownership to Flexibility
It all has to do with our changed attitude towards ownership. In the past, buying a car, similar to buying a house, was a question of pride. It showed you had ‘made it’. It was a sign that you were financially strong and self-reliant.
Today, these demonstrations of wealth feel out of touch with reality. Flexibility, rather than ownership, has become the buzz word of our time. We want to be able to use things, but we no longer necessarily need to feel that sense of proprietorship.
Instead of renting videos, we take out a subscription to netflix. Instead of buying CDs, LPs or downloads, we prefer to stream music. We can even rent household appliances.
Cars are no different here. Over the past decades, we can observe a clear trend towards supposedly more flexible finance models:
- Leasing has gone mainstream. As part of your contract, you pay a monthly fee and can use the vehicle for a period of about three years.
- New subscription services make it possible to lease cars for even shorter periods of time. Imagine being able to rent a car for a mere month and then handing it back!
- Services like Flinkster even allow you to pay on an hourly basis. If you never drive a car on a day-to-day basis but need one to pick up some furniture, these services are fantastic.
Compared to this, outright ownership can seem outdated.
The new standard
The thing is that ownership does have its benefits. One of them being that it is still the cheapest way to drive a car, often by a long shot.
So you would expect that the majority of drivers in the UK would avoid expensive options and go for a straight-forward car loan.
This, however, is not what’s happening at the moment.
Instead, most people than ever are opting for PCPs. In fact, PCPs have become so popular for new cars that they’ve become the new defacto-standard!
As part of these contracts, you make a small down payment and fairly small monthly payments for about three years. At the end of the term, you can then either make one final lump payment or return the car to the dealer.
As you’d expect, most consumers decide to return the car and set up a new contract. So what started out as a convenient way of financing your car has turned into leasing in disguise. With the small sidenote that PCPs are often still a bit more expensive!
The modern disease: Switching cars too often
It is easy to see why doing things this way is very attractive. Both with leasing and PCPs, you’re getting a new car every three years. Which means: The hottest designs, the latest gadgets, the most current safety technology and the best-performing engines. (At least in theory. Quite a lot can go wrong with new cars, as we all know from experience.)
With leasing, you’re also getting free servicing and, mostly, free repairs. This adds an unprecedented level of luxury and comfort to our otherwise so stressful lives.
But is this constant switching of cars really a blessing?
In our opinion, it’s quite the contrary: A veritable modern disease. Comfort always comes at a price. And despite all its benefits, a PCP deal is not ideal.
The main disadvantage of these models boils down to this: You’ll always pay. You’ll always be a customer and never an owner. And while you can usually end a car subscription on a short notice, the same does not apply to leasing or PCPs. Once you’re in, you’re in for the long ride.
The benefits of ownership
Ownership already has its advantages:
- You can pretty much change the car any way you like. This is particularly relevant if you have special needs.
- Ownership is still by far the cheapest option of driving a car. Sure, PCPs may have lower monthly rates. But in the end, the overall costs of all these fancy new finance models are still notably higher.
- You can sell your car at any given moment. This is an incredible benefit if you suddenly find yourself short of cash. But it also means that you’ll have something to trade in when it comes to buying the next car.
But of course, for as long as you’re paying off your loan, you still have your monthly contributions – and they can be quite sizable.
This is where driving instalment-free comes in
Once you’ve paid off your loan in full, however, things suddenly change. Now, you can still use the car just like before. But you are no longer making any payments.
Depending on your instalments, this can mean you now have between 150 and 300 Pounds more disposable income each month!
But that’s not all. Taxes will go down on older cars, too. Plus, the longer you drive a car, the more you can prove your reliability as a driver. Insurances will sometimes reduce premiums for particularly safe drivers – but they are usually tied to a particular car. So by sticking to your old friend, you can make some handsome savings in insurance payments.
Find the right moment to sell
Some have suggested that there is a small risk to this strategy: What if, they argue, you drive the car for so long that the wheels literally come off and you can no longer sell it a reasonable price? Shouldn’t you rather sell it a little earlier and still make a decent profit?
Obviously, the main issue with this idea is that you can never know when, exactly, your car is going to break down. Especially since, these days, most cars easily drive fine until the 300,000 mile mark. Sure, you could lose out by selling too late. But you will also lose out by selling too early. In question of doubt, it probably makes sense to trust in the excellent build quality of most contemporary cars and simply keep driving.
That’s not to say you shouldn’t sell the car at the right moment. Because you should. But what it does mean is that driving your car for a long time is a really good idea.
After all, it’s not just a question of money. The longer you use your automobile, the deeper your relationship with it grows – and that, as corny as it sounds, is actually a deeply satisfying thought.