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      01-08-2013, 02:54 AM   #12
SteveC
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United Kingdom
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Drives: M135i
Join Date: Jan 2009
Location: North East

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Cash vs. finance

The biggest difference between cash and finance is the number of negotiables.

In cash you have the list price, trade-in value and discount. Lean pickings for anyone who likes to negotiate.

In finance you have list price, trade-in value, customer deposit, discount, dealer deposit contribution, manufacturer contribution, residual value, interest rate, monthly payment amount, contract type, service packages, dealer commissions etc.

Let's say a manufacturer wants to move a particular type of car.....if customers pay cash, their only option is to give a big across the board discount, which they will resist because it massively increases depeciation, undermining residual values and all used car values.

If customers finance, they can hide the discount and juggle the numbers anyway they like, offering dealer and manufacturer 'contributions', attractively low APRs, unrealistic guaranteed residuals etc. without affecting list price or depreciation.

This is why its often cheaper to buy a new car on finance than one a couple of years old for cash.

If you look at some of the finance deals around today, you'll find that the sum of the deposit and monthly payments is considerably less than the depreciation, making finance actually a lot cheaper than cash.

These days, the only place for cash is in the private used market, where there are some phenomenally good deals for cars with large thirst engines and high tax brackets.

Finance these days is highly regulated. Early settlement and interest charge calculations are all laid down by law and are all fairly consumer friendly so as long as you're buying from a reputable manufacturer you should be ok.

The 2 things you've got to figure into your finance is good gap insurance (usually between 100 - 200) and great maintenance including all minor damage to wheels, paintwork and windscreens. With manufacturer SMART repair, this is usually under 100 for minor scapes, bumps and kerbings.

Its anyway advisable to keep a good car in tip-top condition because what you save on repairs you'll lose on trade-in