Morning All

I've been in the lucky position of never having any loans/finance/HP/PCP on any of my previous cars. Everything has been bought in cash for the screen price there and then (or the haggled price ) and I've simply driven away and got on with ownership.

This situation arose pretty much because the last 3 cars have been split between me and my partner and we've had no financial responsibilities or commitments elsewhere. However now being on the property ladder with a considerable mortgage the required thousands in "spare" cash for a new car is simply not there.

So how does one go about getting a new/newer used car when large chunks of cash aren't readily available.

I've seen HP mentioned, I've seen PCP, I've seen dealer finance, I've heard get a personal loan instead, I've heard leasing is the way forward all of which brings me no nearer knowing what I should be investigating!

Be gentle I know nothing!

Personally, I've bought my last three (maybe four?) cars with personal loans. The interest rates are better, or were better than the finance deals I was looking at, and in the event I lost my job or similar it would be far less likely that I'd lose the car as a result (as opposed to finance where they would have a legitimate claim over it and it could quite easily be "recovered" to settle the finance). Plus loans can often be paid off early as a lump sum with no penalties. My current loan is with Zopa (a kind of online regulated credit union thing between members) where as well as paying off the whole loan, I can also chuck any smaller lumps of spare cash into it so it still benefits me by reducing the amount of interest paid overall.

Edited 21 June, 201114 yr by gavinchappell

Circumstances alter cases, but in the main I'd go with an unsecured personal loan like Gavin above. The big advantage of this is that the car is legally yours, and the lender has no title to it.

OTOH, if you're the sort of person who "has" (for certain values of has) to have a new car every 2 years, leasing (PCP is a form of lease) has the advantage that you can return the car when/if it is worth less than the remaining payments. This isn't something I know all the ins and outs of though.

The options you have generally change who owns the car and who owns the debt (the money you still owe on it).

With HP you pay a deposit and then regular instalments until all of the debt is cleared, during the time you are making repayments the HP company (people who lent you the money) own the car.

With a PCP you pay a deposit and then regular instalments but only for part of the value of the car. After a set time you have the choice to give the car back, use any equity in it to trade it in for a new vehicle or pay off the remaining amount of the loan in a lump sum (sometimes called future value, but not related to actual value).

You take out a personal loan and just pay it back like any other loan with regular instalments until the debt is paid off. If the loan is secured and you default, the loan company can sell the asset you have secured against, if it is unsecured the loan company will try to recover their debt any way they can from assets you have.

You mortgage is essentially a personal loan secured against your house with a variable interest rate. Most of the loans above will have a fixed interest (and repayment amount) for the life (term) of the loan.

Edited 21 June, 201114 yr by hertsnminds

Worth noting as well is that some types of finance may limit you on milage. My ex had a car on PCP which was limited, and had charges of something like 11p/mile over the agreed amount (which IMO was pretty extortionate given that she was still directly responsible for the running and wear and tear costs as well, and why she sent the car back when the agreement reached halfway). I assume that agreeing a higher milage from the outset will just bump up the repayments so they get you either way. Leasing definitely has milage limits, not sure about traditional HP since there's no scope for returning the car with that?

Personal loan every time. Tell them how much you want, agree, they transfer monies to your bank account and you then pay for the car with your debit card.

HP, Options, Finance, call it what you will is a rip off. They offer 'attractive' 3% interest rates but these are just a marketing scam as this isn't the true APR. The true APR on dealer finance is usually 10-15% interest vs around 6% on personal loans. You can also be conned into these options schemes where you have a lease hire agreement and you have to either give your car back at the end of the period or pay back thousands to keep it.

I was lucky with mine with the fact that i did have straight finance from Skoda...but with the added advantage of the fact that it was 0%!!

You can also be conned into these options schemes where you have a lease hire agreement and you have to either give your car back at the end of the period or pay back thousands to keep it.

:wonder: You'd have to be pretty dopey to get "conned" into that.

Leasing/finannce/PCP isn't a rip off, it depends totally on circumstance. If you only intend keeping it for 2 or 3 years before swapping it for another new car and want to pay a low monthly amount, it's going to be better for you to go the PCP route than take out a bank loan - regardless of interest rates.

:wonder: You'd have to be pretty dopey to get "conned" into that.

Leasing/finannce/PCP isn't a rip off, it depends totally on circumstance. If you only intend keeping it for 2 or 3 years before swapping it for another new car and want to pay a low monthly amount, it's going to be better for you to go the PCP route than take out a bank loan - regardless of interest rates.

people do though.....I know of 2 people straight away that are on it and the one is trying to sell her car just to pay off the finance...She can't just give the car back as she isn't far enough into the agreement and the value of the car now will leave her in negative equity. A personal loan on the other hand, she could have sold car and paid off loan or if the value wasn't enough, just carried on making the monthly payments.

I never said leasing or PCP was a rip off but finance from a dealer is which encompasses these options schemes. How can a finance deal at 12% APR be a better deal than a personal loan at 6% regardless of the circumstance?

A personal loan will always be better:

Whatever term you want

Pay redeem when you want

not secured on the loan

no minimum deposit

no final payment

Edited 21 June, 201114 yr by jrw

:wonder: You'd have to be pretty dopey to get "conned" into that.

You don't deal with the public on a daily basis, do you?

You don't deal with the public on a daily basis, do you?

Or people that log IT related calls.....

How can a finance deal at 12% APR be a better deal than a personal loan at 6% regardless of the circumstance?

In the circumstance that your credit rating isn't the best? I would suspect that a bank rate of 6% isn't going to be given freely, whereas they'll give dealer finance to pretty much anyone. Not getting into whether that's a good thing or not, but that's a circumstance where taking the dealer finance would be an advantage.

Besides which, taking out a personal loan means you're buying a car and paying for all of it, and the thread topic is asking how to avoid doing this.

Oh, and I deal with members of the public on IT related calls, so :p .

:wonder: You'd have to be pretty dopey to get "conned" into that.

I can't find the thread now, but I think you should bear in mind the story of a guy on the OverclockersUK forums who got a car on finance. I don't remember all the finer details, but he bought a £4k Renault Clio for £12k over 4 years, with insane penalties for early repayment, and then defended his decision to the death because "it's the only way I can get on the credit ladder". If I find the link I'll paste it, it makes for equal measures of hilarity and desperation as you read through it...

edit - found it, the thread is here: http://forums.overclockers.co.uk/showthread.php?t=18019506

Edited 21 June, 201114 yr by gavinchappell

Full marks for getting your OWN house Cliff & Becks. As for buying future cars forget the PCP's for new cars, you pay what seems a good deal for hassle free motoring for the length of the contract and end up with nothing, unless you pay a large payment for outright ownership.

You can get a 2nd mortgage to buy a car, which is often at a very favourable interest rate as is your mortgage. As you should know the deciding factor in borrowing money is the APR, lower the better whoever you borrow from.

Be realistic with what you have now, the Fabia will see you through a good few years if you look after it. You have what probably seems a very expensive house bills for a few years yet, so don't get "Upgraditis" carwise for some time yet. Everybody goes through this period in their life setting up their Nest, babies next, who knows?

I've been all through this and it's only recently I can afford to do and buy what I want.

Take both of you.

You can get a 2nd mortgage to buy a car, which is often at a very favourable interest rate as is your mortgage. As you should know the deciding factor in borrowing money is the APR, lower the better whoever you borrow from.

No, no, no, this is the worst thing you can do!

Interest rate will be around 3% yes, but first off it will be secured on the house and secondly you will be paying it off long after the car has been scrapped. Factor in 3% over mortgage term (15, 20, 25, 30 years) and you will be paying around twice as much as you would need too....

In the circumstance that your credit rating isn't the best? I would suspect that a bank rate of 6% isn't going to be given freely, whereas they'll give dealer finance to pretty much anyone. Not getting into whether that's a good thing or not, but that's a circumstance where taking the dealer finance would be an advantage.

Besides which, taking out a personal loan means you're buying a car and paying for all of it, and the thread topic is asking how to avoid doing this.

Oh, and I deal with members of the public on IT related calls, so :p .

I read it as he wants to know how to buy a car without having the readies in the bank to pay for it, not buying a car without paying for all of it...... :S

yes, dealers will give finance to anyone, hence why they are usually the worst lenders (as in fees, penalties, high interest, early redemptions etc).....pretty much like the short term lenders who keep advertising on TV for 1500% APR rates!

You can get a 2nd mortgage to buy a car, which is often at a very favourable interest rate as is your mortgage. As you should know the deciding factor in borrowing money is the APR, lower the better whoever you borrow from.

No, no, no, this is the worst thing you can do!

Interest rate will be around 3% yes, but first off it will be secured on the house and secondly you will be paying it off long after the car has been scrapped. Factor in 3% over mortgage term (15, 20, 25, 30 years) and you will be paying around twice as much as you would need too....

+1 you have to factor in the length of time until the load will be repaid.

For those fortunate enough to be in a position that they have currently overpaid there mortgage enough to purchase the car then this is a good option - BUT ONLY if you repay the amount back in the term that any other type of loan would of been over (or ideally sooner).

If I find the link I'll paste it, it makes for equal measures of hilarity and desperation as you read through it...

He's not been conned or ripped-off though - everything was explained to him and he happily agreed to it. Which is probably worse than being deceived, thinking about it...

As for buying future cars forget the PCP's for new cars, you pay what seems a good deal for hassle free motoring for the length of the contract and end up with nothing

You end up with a car to use for the length of the contract - it's not really designed as a way of obtaining outright car ownership.

Interest rate will be around 3% yes, but first off it will be secured on the house and secondly you will be paying it off long after the car has been scrapped. Factor in 3% over mortgage term (15, 20, 25, 30 years) and you will be paying around twice as much as you would need too....

I think the implied bit is that you pay off the extra borrowing with the same installments as you would a personal loan, so you take advantage of paying less interest rather than spreading the payments over the terms of your mortgage!

I've bought most of my cars on the Hire Purchase loads from the dealer. If you get the right one they can be cheaper than personal loan rates.

they're more convenient but you don't own the car until the end of the agreement.

Be very careful when asking about finance rates at a car dealer. They love to quote a low rate but always ask if it's Flat Rate or APR. A

It works like this.

APR Rate: This is the interest you are charged on the outstanding debt. So borrow £5,000 over 5 years and in the first year you'll be paying interest on quite a hefty chunk. However, in the last year you'll probably only have around £1,000 left to pay off, so you'll only be charged interest on this.

Flat Rate: This means you are charged the interest on the original amount you borrow, no matter how much you have paid off. So with our £5,000 loan over 5 years, even in the last year you're still paying interest on £5,000 despite the fact you've paid most of it off.

So this means if you're offered a flat rate of 6%, which sounds very cheap, it's actually roughly equivalent to an APR of 12% which is way over the odds.

Always compare the total cost for credit so you don't get stung. Also dealers have more than one finance package available to them, they just offer you the one that pays them the most first. Sometimes they'll be making more from the finance than the car.

pretty much like the short term lenders who keep advertising on TV for 1500% APR rates!

Which actually proves just what a bad measure of the "cost of credit" APR actually is when you're dealing with very short term loans, and particularly when you're lumping any arrangement fees into the "total repayments" as well.

Which actually proves just what a bad measure of the "cost of credit" APR actually is when you're dealing with very short term loans, and particularly when you're lumping any arrangement fees into the "total repayments" as well.

Yep exactly - funny how dealers are always reluctant to give you APR figures. I went with a mate once when he was looking for a car as helpfully i used to work in Finance so know all the tricks they pull. I must have had to ask him about 7 times what the APR was and eventually relented, but had to go and see the manager to find it out. The rate on offer was something like 4% at the time which worked out to be around 14 or 15% APR over the term. This was when personal loans were about 7%. This was at a reputable VW garage too.

They DO try and con you unless you know what you are looking for by offering the attractive rates (ie Buy this car for only £120 a month @ 3% interest)....People will fall for this without looking at the total amount repayable compared to a personal loan over the same term.

Oh dear lord what have I started

Seriously though thanks guys this is exactly what I was after a hearty debate about finance options.

As said neither me nor my partner had ever had any debt/borrowing/credit cards until we took the not inconsiderable plunge of getting a mortgage; so this is all foreign territory to me/us. Even after we'd moved in it felt wrong to be taking the 4 years interest free credit from DFS to purchase the sofa!

She's had a pay rise and i'm due one and with the Fabia hitting 100k I'm attempting to reign her in from heading to the nearest Seat or Audi dealer (Leon or A3) and signing her life away; as as Sootie says the Fabia should be good for another 100k really!

My head says stick with it until the fixed term of our mortage is over (Oct 2012) see what kind of rise is caused by the new mortgage and then reevaluate then. I'd rather stay owning a Fabia and Ibiza that nobody is going to come take away than end up having both a house and car I can't afford!

If it's your first house, that sounds sensible. I've owned my place for about three years now, and it was a massive adjustment for me moving out of my parents as to how much everything cost. I'm quite sensible, don't go out much, etc, but it still surprised me how much I spent on things. I would say definitely hold off changing for now, meanwhile save as much as you reasonably can and whatever you don't need to spend on the house over the next year or so could just go towards changing the car in a year, meaning you borrow less and are in a better position that way.

IMO as a "new" homeowner anyway, it's a bit different for me as there's only my salary (and no more rises, boooooo!), but I still reckon that's the best way to go for you two.

I've always used personal loans as I found them generally cheaper over the full loan period. However with the recent deal (2.5% flat I think) Skoda (vw) finance was about £700 cheaper over 3years than any bank loan at the time.

I don't do pcp as I like to keep the car for longer than the lone period so there's little point

I've always used personal loans as I found them generally cheaper over the full loan period. However with the recent deal (2.5% flat I think) Skoda (vw) finance was about £700 cheaper over 3years than any bank loan at the time.

I don't do pcp as I like to keep the car for longer than the lone period so there's little point

Good rate - about 6.3% i think.

Not as good as my 0% though

...but it still surprised me how much I spent on things.

We've rented together for 10 years so can manage finances but am extrememly cautious of the fact that at the end of the fixed mortgage period that repayment could go through the roof!

Not as good as my 0% though

That's the other option however I'd imagine 0% finance deals on cars are a little thin on the ground at the moment (or only apply to poo models! )!