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I'm currently leasing a vehicle and I like the way it works, especially since I got a really good deal on my current vehicle. However, it is due to go back in the next few months so I am looking at my other options. Unfortunately there are no good lease deals floating around recently.

The car I like will cost around £8000 over 2 years amortized, which is way overpriced. However, I found an ex-demonstrator (6 months old, 700 miles on the clock) for £14000. This is the best deal in the country by far, I don't think that the vehicle will lose more than £8000 in depreciation during my 2/3 year ownership. It will most likely lose around £4000-£6000. There I believe purchasing the car would be the best option. Correct?

Now, to buy in full (and essentially have zero savings), buy in part (£10000 deposit, followed by a loan of £4000) or PCP/HP more of the value?

Your thoughts on this would be appreciated, for more information I am based in the UK, 21 years old and have a good credit rating. Also worth mentioning that I can get a loan for £4000 for 5% APR or a loan for £7500 at 2.8% APR. Also, with this said; would it be wise to split the payments across 2, 3 or 4 years in order to lower the monthly payments and then pay off the finance in full before I decide to sell the car? (Assuming there are no early termination fees, which there aren't).

  • Borrowing to buy a quickly depreciating, such as a car, asset compounds your loss in the transaction. There are times it is better to rent such assets, others where it is better to own. There is almost never a good time to borrow to own. – Pete B. Mar 27 '17 at 14:29
  • @PeteB. I completely agree and understand. However, the £8000 or so it'll cost me to lease (rent) is almost certainly more expensive than the depreciation of the £14000 asset. – jto Mar 27 '17 at 14:36
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    Are you sure the loan and APR amounts are correct? It doesn't make sense that 7500 has a lower APR than 4000. If that's correct, even if you only want 4000 you could just take the loan for 7500, then pay off 3500 the next day and you would be left with a 4000 loan at 2.8%. (Assuming no prepayment penalties.) – TTT Mar 27 '17 at 19:27
  • @TTT Yes, TSB offer 2.8% (I currently bank with them too), that's a good shout regarding the loan. – jto Mar 28 '17 at 7:24
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Now, to buy in full (and essentially have zero savings), buy in part (£10000 deposit, followed by a loan of £4000) or PCP/HP more of the value?

So, you are assessing if the car is worth having with either none or only 4,000 in savings. This is the most critical information you have provided.


My outright opinion is to always buy a mildly used car as I hate the idea of loans and interest. With the amount of money that you currently possess, I believe the "Buy-in-part" option is best as it reduces your interest liability; but, I don't believe you should do it currently. 4,000 is a rather small cash fund for if something were to go boom in the night.
As for your question of interest:
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This is completely dependent on the amount you are able to pay per period and the total interest you are willing to spend, rows four and seven respectively.


Closing comments

This is your money, and no one can tell you what's best to do with it than yourself. Keep looking for good leasing deals or if you think you can survive financial strife with 4,000 then follow your heart. "Depreciation" fluctuates to the buyer, so never assume what the car may lose in the next 2-3 years. Hope it all goes well my friend.

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