ESM’s 2012 Car Buying Predicament #3

The rather stylish looking MINI of Chicago dealership.

So after all the hours spent researching cars that would fit into the £8k used budget, ESM’s mate Steve threw a spanner in the works. As you’ll discover later this week, he’s just got a cracking deal on a brand new MINI Countryman for his better half. Given the state of the economy, car dealers are not having the best of times. Consequentially, there are good deals to be found out there if you know where to look and are willing to bargain hard.

But could a brand new car really be cheaper than a second-hand one? Well, yes. Potentially. Having mulled over the previous shortlist, I’d pretty much settled on a used MINI Cooper; hopefully with air-conditioning and a 3-spoke steering wheel.

To buy one of the used cars I’d been eyeing up on AutoTrader, I’d need a loan. The banks are not really up for lending anything to anyone at the moment, still reeling from the fallout of breaking the economy back in 2008. So interest rates are high, even if you can convince your “account executive” to unlock the doors to the vault. Over the course of a three-year borrowing period, the amount I’d need would cost in the region of £170 per month. That would secure a decent used MINI Cooper, probably on an 08 plate, with around 35,000 miles on the clock.

Having considered this, I travelled over to the MINI website, and checked out their current finance offers. Traditionally I’ve always been against buying a car on finance. My mantra was always from the “if you can’t afford to buy it, then you can’t have it” school of thought. Buying a car on a PCP or hire purchase deal means it isn’t really yours; the finance company is the legal owner until you make that last payment. But then look at the house I purport to “own”. A substantial chunk still belongs to my mortgage company; it’s certainly more theirs than it is mine.

Trying to keep my new open-mindedness in sight, I clicked and slider-ed my way through the MINI finance options. On a Mini Select deal, I could trade in the Polo and run a brand new Cooper hatchback for £160 per month over the next three years. Which is less than buying a used one. So was Steve actually right? Quite possibly, and then some.

It also struck me that there is more than just the hard finance aspect to consider. A new MINI would have a “tlc” pack; ergo, no servicing costs for those 36 months. It’ll also not need an MOT for 3 years; £120 saved even if the used car passed without issue every time. Oh, and let’s not forget the warranty and roadside assistance the new model would have those for – yeah, you’ve guessed it – 3 years. Realistically, buying a fresh out the packet model could save me hundreds of pounds compared to an unreliable used car.

This really had me thinking. Could I finally, for the first time in 11 years of motoring, actually consider using an online car configurator for real to spec the car I could actually buy? And, on top of that, let me justify it to myself financially?! Well yes, quite. Even ESM’s Father, the font of car-buying knowledge did not immediately counsel against such an idea. This had blown my mind just a little, and tipped all my car-buying research and knowledge on its head. The used car was always meant to be the cheaper option compared to new; not the other way round.

There had to be a catch though, surely? I guess the catch with any of the Personal Contract Purchase  type schemes are these:

  • The final “balloon” payment is the elephant in the room. Whilst it makes your monthly payments cheaper than hire purchase (or a loan), the final payment hangs over your deal until the end. You could always pay it off and keep the car, but who realistically has several thousand pounds just sitting waiting? Alternatively you can hand the car back and clear your debit, but this leaves you with nothing of value; by contrast, at least with a loan against a used car you have the intrinsic worth of the car left at the end (whatever it may amount to).
  • There is also the option to trade in your current PCP’d car against another one from the same manufacturer. With MINI this would also allow you to cash in against a BMW, but it still limits your choice of options. The world is not your oyster; unless it’s stamped Bayerisch Motor Werken.
  • In addition, for me, there’s still the niggling doubt over who the car belongs to. Legally it’s the finance company, even if you’re the one specifying it, driving it, washing it, fuelling it, taxing it and insuring it.
  • Finally, there’s the risk of “something going wrong” which means you can’t make your monthly payments. With a used car loan you can simply sell the car and use the cash to clear the debt. A car on finance adds many further layers of risk and penalty.

So the question is relatively simple. Do you a) take a loan on a used car, being able to have the greater security of owning it out right, but at the same time knowing it may cost more financially and isn’t exactly what you’d want? Or b) go for the finance option; design a car exactly to your taste but in the knowledge it doesn’t quite belong to you, and could leave you with nothing, even if it costs less per month?

It’s a tough call, especially for someone who likes to play it safe when it comes to money (to the point where people presume I’m of Hebrew descent) most of the time. The thought of being the first person to drive a car is alluring; knowing somebody else hasn’t abused it, spilt coffee in it (or worse), and that every option was picked by you personally. But this is countered by that inherent financial risk; the car you specced might end up being taken off you.

This predicament started with weighing up the used car options. It’s now a whole lot more complex…

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