Monthly
Total
+Maintenance
Total
Fiat 500
36m
8,000
£2,000
£326/m
£13,510
£364/m
£14,878
Audi A5
36m
8,000
£4,000
£679/m
£27,865
£703/m
£28,729
Audi A5
48m
5,000
£5,000
£571/m
£31,937
£608/m
£33,713
Figure 5: Car finance illustration
Let’s take a 1.0 litre Fiat 500 as a budget example and a nice 2.0 litre Audi A5 Coupe as one you’d probably prefer. Looking at some sample lease deals via Parkers price guide (summarised in Figure 5), the baby Fiat comes in at £326 a month over three years or £13,510 in total costs, or £14,878 in total if you have inclusive maintenance. On the other hand, the Audi looks more of a stretch at £703 a month, so you ask the dealer if they can do you ‘a better deal’ and after a bit of number crunching (and highly likely having left you for a while ‘to go and speak with the manager’) they come back having shaved more than £100 off the deal and we’re now looking at a more palatable £571 a month. Great deal, eh? And for the same car – what a bargain! Except you’re now in a four-year deal, only allowed to do 5,000 miles a year, have increased your deposit by £1,000 and don’t have maintenance included. And the (hidden) cost of this better deal? An additional £3,208 in the dealer’s pocket, plus 14p per mile for every mile you do over 20,000 miles.
Against this, a typical three-year-old model with similar mileage would cost you approximately £8k for the Fiat and £23k for the Audi. If you look at the higher depreciating models, you could get a dependable three-year-old (36k miles) Fiat Tipo for under £8k (list £22k) or Peugeot 508 for just over £16k (list £40k) and keep it for five or six years. I know this is a fairly dull option but when you’re stuck in traffic on the motorway, the only real difference is the badge on the steering wheel and a bit of the switchgear. When people say to me I’ve only retired ‘because I’m rich’, that’s not true. I could afford to retire because I’ve driven my fair share of second-hand cars: Toyota Carina, Honda Civic, Renault Laguna, Vauxhall Vectra, Ford Mondeo and Vauxhall Insignia. I’ve never had a leased or PCP finance deal but in my early days I financed a pure car loan to purchase a car outright and kept it for five years or more. I used the money saved to overpay on our offset mortgage. Aside from what you buy and how you fund it, keeping your car for longer is also a considerable factor and one that isn’t encouraged by the structure of many car finance products. One mechanism to reduce the monthly cost of a deal is to have a ‘balloon payment’ at the end of the term, which you can pay to own the car outright. Unfortunately, at the end of your deal, you might not think paying several thousand for a three-year-old car is such a great deal, particularly when the dealer suggests you could roll this over and be driving a nice new one instead. It’s easy to understand how tempting this is! You may be lucky and find that your car is worth more than the balloon payment and therefore, if you still like the car, it’s a good deal. However, my hunch is that many are lured into a larger balloon figure by virtue of lower monthly payments.
Aside from going to your local dealer, there are a couple of ways in which you could reduce the price of whatever car you decide to buy. I’ve used all three methods and saved around £20,000 in total against the market selling price. First is using an internet broker, who will buy the car direct from the manufacturer, skipping the dealer. You need to know what model you want and you can’t test drive the car but there’s nothing to stop you researching your choice at local garages to help you choose and then buying direct. This works particularly well for traditional (some might say dull) fleet vehicles. I bought my Vauxhall Insignia this way and saved £7,000 against the list price, where my local dealer only offered me a £2,000 discount. There are several brokers to choose from, with the discounts varying by model. You won’t get much off a newly released premium brand but you could find a bargain among more mainstream models.
The second option is a little niche but you might be lucky. It’s increasingly common for employers to offer ‘partner benefits’ alongside your pay package and this can range from gym membership and mobile phone contracts to new car deals. If you’re looking and you get an offer that matches what you want, you can get a great deal. I was extremely lucky as I was looking for my BMW when such an email with offers came through – the timing was perfect. I followed it up with a quote and bought the car. The discount was exceptionally generous. Together with the current trend of increasing second-hand car values, after three years it’s worth exactly what I paid for it – zero depreciation. I’ve been very fortunate with this deal, and while it won’t work for everyone, you could be lucky.
Finally, to negate the depreciation most new cars suffer, buying second hand is an option, with auctions being a cheaper way to buy. However, there is some risk in this and not everyone is comfortable with this approach. There are some companies who will broker this for you, help you find a car that matches your requirements and then bid, prepare and deliver the car for you. We did this for the Z4; we bought it under the price limit we’d set, the broker serviced it, put on a fresh MOT and delivered it to us, saving several thousand compared to buying a similar model from a dealer.
I also have to address the topic of electric vehicles (EVs), as they’re becoming increasingly popular, not least because of government legislation banning the sale of petrol and diesel-engined cars coming in the near future, but they’re often quoted as being cheaper to run as well as being more environmentally friendly. I don’t believe the technology is anywhere near mature enough, which is leading to some EVs depreciating heavily, although that could benefit you if you buy second hand. Due to the impact of battery manufacture, I’m also not totally convinced about their environmental credentials, nor is the charging infrastructure anywhere near ready to cope with all-electric traffic. However, if you do a lot of local urban mileage, have off-street parking, solar panels and a good charging tariff, I can see the attraction. We don’t have one, although we do have e-bikes, and as a result we use our cars much less; overall, we think this amounts to a bigger environmental saving. Buying an EV is a personal choice but it’s worth thinking about how you buy one.
As you may have gathered, I’m not a fan of the current car finance landscape, nor the current lifestyle marketing that promotes cars as a commodity you can change as often as your shoes. The choice is yours – do you want to spend a lot of your disposable income on impressing your mates or do you want to save a serious amount of money? There’s also a slight contradiction in that we have bought both new and second hand, when used is the cheaper option. We’ve chosen to buy new a couple of times when we knew we were going to keep the car for more than ten years or rack up a big mileage; in those situations, we felt it made sense. Plus, of course, we never paid full dealer price.
Mobile phones
Similar to cars, we’re encouraged to buy the latest phone or upgrade every time a new model comes out. It’s a phone, most apps are the same, there are limited differences but, like lemmings hurling ourselves off a cliff, as a nation we can’t seem to stop ourselves from spending way too much on mobile devices. As with mortgages and cars, we’re obsessed with the monthly payment, never the full cost. I did a quick internet search and found an Apple iPhone 14 Pro Max (the latest model at the time of writing) with 128GB capacity, 25GB data and unlimited minutes/texts at £42.99 a month and £199 downpayment. Over the two-year term, this works out at £1,230. Do you think this is good value?
I’m not a technophobe who still has a Nokia 3210; I have a Samsung Galaxy M31 (bought outright for about £200 in 2020) on a contract costing £4.95 a month (with a rolling one-month commitment) for unlimited calls and 5GB data. I have 11GB available from the 64GB storage and only ever had to top up usage data once. I will probably buy another Android in a few years, likely timed to coincide with Black Friday or another sale, and then resell my old phone on eBay. That said, always sense-check that the ‘discounted sale price’ is genuine, and not a marketing trick! I have Wi-Fi at home and most places I visit have it, so I don’t consume that much data. I was looking around for a new contract for Lou’s phone last year and from two major networks, the cheapest they offered when I gave them my usage and needs was £24/month and 20GB data. We ultimately bought a rolling monthly SIM for £7 and 6GB, much more in line with our usage. We’re constantly being talked into overbuying rather than getting a contract that suits our needs.
If you don’t have broadband at home and use your mobile data in its place, it might work out in terms of data usage but not the high capital cost of the phone. We recently took a trip to Iceland and were lucky enough to see the northern lights. They’re particularly challenging to photograph but the latest iPhone would have taken better pictures. I took some reasonable photos for social media, so I wasn’t too concerned about professional picture quality. Would I have paid £1,000 to get a couple of better photos? No.
