Car Buying Options

A few years ago Liz and I got the early train from Thurso to Inverness, changed for Kings Cross and, after a taxi ride across London with a rather right-wing cabbie, we got to Dover late on. We had a bar meal and a good sleep and caught an early morning boat to Calais where I picked up a suitably warm version of the Peugeot 106, threw the tent in the back, retrieved Liz who was happily chatting up a gendarme, and turned left for Belgium. We covered a good 4500 kilometres across Europe, including an utterly brilliant run over the San Bernardino Pass with a thundering alpine postbus clearing the way with the posthorn on the descent and two biking Vikings  on matching Ducatis following us. At the end of the trip we wanted to get to Dunkirk for a couple of days beach camp before heading home so I had to drive across Germany and well into Holland in a single day. It was very hot and the Autobahn was busy so after we camped up over the Dutch border I was delighted when it rained and I stood in the rain in jeans only. A Dutch chap stuck his head out of his tent, weighed things up and announced “ Typical. Scotchman. Free shower. Mean person” (or a word to that effect). Brilliant. We are planning another couple of road trips soon and the car is of course, for me, the major decision to make. Which brings me to today’s topic – car purchase.

Buying a new vehicle is, for most of us, the biggest financial commitment we are likely to make apart from purchasing a house so it is vital to get it right first time. Years ago we had very little choice as to how we would pay. There were only really three options – cash, hire purchase or a bank loan. Today things are very different and there is such a wide range of financial arrangements on offer that it can get confusing so it might be worth going over them all and getting a clearer picture, along with the advantages and disadvantages.

First of all of course we have the “old-fashioned” way of saving up and paying cash, but for most of us this is not always possible. The advantages are that you own your car outright, you have no monthly payments and it is yours to do as you please with if you want to sell it. I know one or two people who do this and run the vehicle for 10 years or so and then simply sell it privately and buy another. Just remember that depreciation is a massive factor – a new car can easily lose half its value in three years – and you need to take this into account when doing your sums. There was a time when the loss of interest on your savings was also significant, but nowadays that is not so likely to be the case with interest rates the way they are. And finally, always bear in mind that once you have paid for your car you do not have any of the protections which exist when you buy on credit – more on this later.

Then we have” Hire Purchase” and “Conditional Sale Agreements” and people sometimes get confused regarding the difference. Put simply, in both cases you put down a deposit and pay up the balance – along with the interest – over a set number of years and at the end of an HP agreement you have the option to purchase, usually for a small fee, whereupon the car is yours and in the case of a Conditional sale then it is yours automatically. As the name implies however, you are technically “hiring” the car or buying it “conditionally” and it remains the property of the lender until you have cleared the debt. You cannot therefore sell the car without the written permission of the lender and you cannot carry out any modifications without permission (think different wheels etc). And here is another useful piece of information for you, which is not widely known - If someone buys goods that are subject to a pre-existing hire purchase agreement, s/he does not get good title to the goods (i.e. does not own them) because the goods belong to the finance company. There is one exception to this, which relates to vehicles. If you are acting as a private individual (not as a dealer), and do not know about the finance and pay the market price for the vehicle, you will get good title to it. In such a case the finance firm will need to pursue the person who took out the agreement and sold on a car, which legally did not belong to him/her. This can get technical so if you have bought a used car and find it is on HP or a CSA then contact CAB and we will help. It is always worth doing a check before you buy – motoring organisations and one or two other firms will do a check for you (for a fee) to make sure your prospective purchase is not on finance or listed as damaged / repairable or stolen. This is very worthwhile.

One of the most popular ways to buy nowadays is via a “Personal Contract Plan”. There are numerous different names for this arrangement, but they are all basically the same – you put down a deposit and pay a set sum per month for a set time at the end of which you will have a “Guaranteed Minimum Future Value” and you can either pay the agreed sum and own the car outright, return it to the dealer without any further cost (so long as you haven’t exceeded the agreed mileage or failed to keep it between the ditches shiny side up), or to trade it in, trying to get as much as possible above the minimum value towards your next deposit. There are clearly many advantages – usually the deposit will be lower and so will the payments, because what you are actually paying for is the depreciation and the interest only. The car remains the property of the lender (usually the manufacturer’s finance arm) until the agreement is terminated and they obviously want you to buy another one at the end so will try to make it attractive to you to sign up. But again remember that there will be costs – this is simply a variation on HP so all the usual caveats apply and if you choose to keep the car and pay off the GMFV on another finance deal then it can prove expensive. You will also see a number of “Lease Purchase Plans” appearing now along with other types of lease arrangements. Can I suggest that you study these very carefully as they can be complex and you need to know exactly what you are signing up to – again CCAB will advise.

Finally, we have Credit Cards – and I am not suggesting that buying a car on a credit card is always a good idea (although some years ago I did just that on a 0% card and switched the balance to another 0% card after a year and ended up paying no interest at all) – but remember that if you buy something priced between £100 and £30,000 and put £100 of it on a card then the card provider has equal and several liability (for the entire sum) with the vendor, so if things go wrong you have another line of attack. A £100 of the purchase price on the card could be useful.

So there we have the basics and now I need to persuade Liz that a Mustang 5.0 is a sensible family car and ideal for shopping