Saving money on buying and running a car can be a very important step to ensure financial freedom and bolstering your net worth. In the UK it has been on the news recently that car finance deals have soared to record levels. Motorists have spent £3.6 Billion on car finance deals in March 2017 alone! That is a 13% increase when compared to March 2016. This is not surprising considering the number of new cars visible on the streets.
I find this quite shocking as I think that buying a brand new car is overrated and not necessary. A lot of people enjoy the smell of new cars and taking the plastics of the seats but it is the marketers, salespeople, banks and manufacturers that go smiling all the way to the bank.
How to buy a car and save money
The first step to take before purchasing a car is to do as much research as possible. Find out what the value of the vehicle is expected to be at a certain age, mileage and condition. A number of free car valuation resources are available online for example the Autotrader tool. Also investigate any common faults which the car model has experienced in the past. Reviews and common faults for most car models are available on Honest John’s website.
If something keeps on cropping up as a major fault, that should be a red flag. However, in some instances you may want to factor in the cost of the potential fault when buying the car or negotiating a price if you are really after that particular model. It is better than getting a nasty shock in future.
Buy used and avoid leases
According to the Millionaire Next Door book, more than a third of real millionaires tend to buy used cars. Of those that buy new cars, the majority buy their cars outright and do not lease. New cars lose their value by thousands of pounds the moment they are driven of the forecourt. Car finance companies take advantage of consumers’ needs for instant gratification and unwillingness to save upfront by offering car finance products such as Personal Purchase Contract (PCP) or Hire Purchase (HP) at high interest rates.
With these so called deals, the buyer “rents” the vehicle for a high monthly fee over several years. Although there may be no initial payment, many strict rules of use are applied for example the driver may be penalised if they exceed a certain annual mileage. This is not my idea of owning a car.
After the period of payments options available to the driver are to own the car by paying a very large “balloon” payment on the heavily depreciated vehicle, leave with nothing or continue on the payment treadmill by leasing another new car.
The following table shows a comparison of costs for buying a Ford Fiesta 1.25 Zetec petrol using HP, PCP or simply buying a 4 year old used one.
|Hire Purchase||Personal Purchase Contract||4 Year Old Used|
|Cost of car (new)||£14,839||£14,839||£14,839|
|Monthly Payments||36 x £325.57||37 x £423.06||None|
|Annual mileage limits||9,000 (6p a mile surcharge)||No limit||None|
|Cost of buying car outright||£16,513||£16,173||£6,000|
Clearly the third option is best for those willing to save money as the car would have lost 60% of its value but be still in good condition. It is difficult and unreasonable to pay about £400 a month for a depreciating liability that you do not actually own. Save upfront and make the purchase with cash.
Most cars lose value over time. You do not want to be the one to take the biggest hit! Even if the older car has problems, these would be rectified for relatively low cost. A thorough inspection prior to purchase of the used one is critical.
Another benefit of buying used is that you will be able to acquire a more prestigious better engineered vehicle which would otherwise be unaffordable when new. I used this strategy to purchase a fuel efficient BMW which has had a few faults in more than 5 years of ownership.
How to keep running costs low
Keep up the maintenance
“Prevention is better than cure”. It is vital to maintain the vehicle regularly to prevent any major problems occurring. Ensure that the oil is changed every year or at most within 10,000 miles. Oil is the lifeblood of the car which ensures that all the mechanical moving parts are well lubricated.
Other fluids to keep an eye on include brake fluid, coolant, power steering fluid and screenwash. Also change other service parts which are expected to wear out such as the timing belt, filters, brake pads and clutch.
Check the tyre treads and pressures for safety and improved fuel efficiency. Use of high quality tyres by Michelin, Bridgestone or Pirelli is ideal. It is also important to not ignore any fluid or oil leaks, strange noises or movements from the car. This is usually a sign that something may go wrong and needs to be looked at before things get worse or costly.
Use specialist independent garages
You can purchase car diagnostics tools which plug in to the car’s OBD port to try and resolve certain issues. For any work that you cannot do yourself, I recommend using local specialist independent garages for any repairs instead of the main dealers or fast fit centres. Main dealers are very expensive and not worth it if the car is no longer new.
From personal experience, fast fit centres tend to be incompetent and want to rip off customers by recommending additional unnecessary work.
Independent garages specialising in particular car makes deal with common problems all the time and have superior knowledge while offering dealer level service at much lower prices. UK drivers can also use the council run centres for their annual MOT test. They have no incentive to fail the car and can be relied on to give an honest assessment.
These are the top tips for getting the most benefits from car ownership while ensuring that is does not impact your finances significantly.