I noticed an advertisement in a supplement of the local (free) newspaper for a shiny, new Mercedes:  The New C-Class Saloon.  Pure Luxury, it proclaimed, for only £355* per month. 

So, only £355 per month and you, too, could look wealthy and successful. 

Does that sound reasonable, or even affordable, to you?

Perhaps. 

But that little * is the important bit of the whole advertisement.  If you go to the bottom of the page you’ll find another *, along with the smallest writing in the whole advertisement to explain:

“On the road price is £29,472.  48 monthly payments of £355. All finance subject to status.  £7,368 deposit with final balloon payment of £11,800.  Terms and conditions apply.”

It is only when you look into this small print that you begin to see the real cost:

Deposit £7,368 + Payments £17,040 (48 x 355) + Final Payment £11,800 = £36,208. 

You’ll pay £6,736 interest, which is just over 30% of the amount that was financed (£22,104). 

Plus, you’ll have foregone the interest you would have accrued on your deposit money over the period, which could (@6%) be £1,998 (before tax). 

And, you’ll have foregone the interest you would have accrued on your monthly payments, if you’d saved the money instead, which could (@6%) be roughly £2,216 (before tax). 

So, lost interest on your money amounts to another £3,792 (after tax of !0%)

The real cost now looks like this:

Deposit £7,368 + Payments £17,040 (48 x 355) + Final Payment £11,800 + Lost Interest £3,792 = £40,000. 

This means you get to keep the car for a net cost to you of a little over £833 per month, over the period.

Of course, this is just to own the car.  We’re not even considering the cost of taxing it and insuring it for the road or for actually driving it…

In addition, those car payments are made with money from earnings after tax and national insurance has been taken off.  So, you’re looking at having to make earnings in excess of £51,000 just to finance the purchase.

What about the second hand value, after those 4 years?  Well, Mercedes tend to have reasonable deprectiation but, even so, you could realistically expect only half the new cost price.  

So, the car that you had to work and earn £51,000 for will only be worth, maybe, £15,000. 

I don’t think that’s such a good deal.

What do you think?

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