Financing a car...

[JulesB]

Hi guys,

I was hoping for a bit of advice about financing a car..

Really keen on buying a Toyota GT86 and I have found one which is the right spec for me. It's up for sale at a main dealer for £20,975, no doubt I will be hoping to get a bit of a discount on this..

I have got around £2,500 to play with for a deposit and could manage £250-£350 a month payments. Am I being unrealistic with these figures and how would you go about getting finance? i.e. straight from main dealer, via a third party etc.

New to the whole thing so any experiences/knowledge that anyone can share would be greatfully received!

[Herminator]

If I had just £2500 savings and could afford £350 a month maximum, I wouldn't be buying a £20k car.

Looks like your budget should be closer to £10-15k.

[dalenorth]

get a tescos personal loan - cheap as chips at the minute!

[mcflurry]

Herminator said:

If I had just £2500 savings and could afford £350 a month maximum, I wouldn't be buying a £20k car.

Looks like your budget should be closer to £10-15k.

Or a PCP to cover the depreciation as the car falls in value from £20k to £10k?

[Guvernator]

Herminator said:

If I had just £2500 savings and could afford £350 a month maximum, I wouldn't be buying a £20k car.

Looks like your budget should be closer to £10-15k.

First post and the affordability\finance bashing starts already . Do you know what his earnings vs outgoings are to make that kind of assumption? At the end of the day only the OP can decided what he can afford. Obviously if he has a mortgage, a wife and two kids and is on £20k a year than he may struggle but if he is single with few outgoings then what's the problem? In fact I'd say thousands of people go the 10% down and then £300 a month route every year on stuff a lot less interesting then a GT86.

OP a 10% deposit is fine, I'd put down £2k and keep the £500 for a rainy day. Take it on a PCP deal with a guaranteed future value (GFV) where you hand the car back at the end (and hopefully get some money back to put towards your next car) and that £300 a month figure is more than achievable. Just make sure they don't try to screw you over on the APR rate, anything much higher than 6% ish and I'd walk.

[leemanning]

As a rough guide:

Purchase Price: £20,975
Deposit: £2,500
Monthly Payments: £352.33
Term: 4 Years
Final Balloon Payment: £7,341


If you could get the car for £20k instead of £21k, then the payments would be about £335 per month.

This is only a rough guide and depending on your credit history and negotiation skills you could get it a little cheaper.

It will definitely be towards the top end of your monthly budget though with £2500 deposit

[JulesB]

Thanks for all the responses so far guys, certainly does help!

Balloon payments are what scare me, I can see myself struggling to have £7k or whatever it is sat to one side to pay off the remainder of the car. How does it normally work with balloon payments?

[Muzzer79]

FWIW. All figures are very approximate.

I bought a Golf back in 2007

£18500 purchase price
£1000 deposit
£340 a month IIRC on 3 year PCP

GFV was circa £8k IIRC.

Come the end of the 3 years, the car was worth more than the GFV so I got a personal loan over 3 years and paid it off with that, leaving me with the same circa £340 a month payment.

18 months into my 3 year personal loan, I wanted to sell. Sold for circa £8500, paid off the loan, pocketed the balance.

I'm sure someone will be along shortly to say that the above was madness and I should have bought a 2002 E39 5 series V8 for a grand and pocketed the rest instead but it worked for me at the time.

[P-Jay]

JulesB said:

Thanks for all the responses so far guys, certainly does help!

Balloon payments are what scare me, I can see myself struggling to have £7k or whatever it is sat to one side to pay off the remainder of the car. How does it normally work with balloon payments?

Depends on the funder, if set sensibly and you don't wreck the car or do 100k miles a year in it you shouldn't be saddled with negative equity at the end of it.

So you've got a car worth 10k and you owe 7k, you can sell up or trade in and walk away with £3k and no car, find the money to settle it and keep the car or refinance the balloon - most funders will allow give you two year deals to pay it off.

Things to consider - if it's not a 'Guaranteed Final / Future Value' the funder is NOT liable for it - if the Car's not worth the balloon, tough titties, you'll probably be able to VT so you won't lose money, but there's no point in moaning to them because it's not worth what they said it would be, plus balloons are quite interest heavy because you don't pay any of the principle, you'll often pay less over-all by going for a 5 year deal rather than a 3 year deal with a balloon.

[Tino]

JulesB said:

Thanks for all the responses so far guys, certainly does help!

Balloon payments are what scare me, I can see myself struggling to have £7k or whatever it is sat to one side to pay off the remainder of the car. How does it normally work with balloon payments?

You need to look at it on a larger scale. If you can put aside £150/month, and not touch it, that should cover your balloon should you want to keep the car.
If not, you can just hand it back and walk away.

[leemanning]

Alternatively (assuming the car is worth more than the balloon) sell it, pay off the balloon, pocket the difference and take that money as a deposit for a new car.

To be clear, you can sell at any time, you don't have to wait until the end of the agreement. If you sell, then you settle off the outstanding balance.

[JulesB]

Brilliant, everything seems a lot clearer/less intimidating now! Never really understood the baloon payments but clearly they are a bit more flexible that I thought!

Great advice guys, really appreciate the help, I think I might be making a few phone calls this weekend!

[S10GTA]

I don't mean to be a spoil sport, but 21k debt for a car at 21 years old would scare me.

[kiethton]

S10GTA said:

I don't mean to be a spoil sport, but 21k debt for a car at 21 years old would scare me.

This, I did the same at 21 but for a 20k BMW E92 335i M-sport and now regret it, just thinking about the house deposit I would have otherwise had by now annoies...

[Mobile Chicane]

S10GTA said:

I don't mean to be a spoil sport, but 21k debt for a car at 21 years old would scare me.

Agreed.

The insurance is going to be ruinous as well.

[skahigh]

P-Jay said:

you'll often pay less over-all by going for a 5 year deal rather than a 3 year deal with a balloon.

Can you give an example of this? I'm not sure how thats actually possible assuming the same interest rate for the two options (3/5 years).

I.e. Lender lends 20k at 5% APR. You make payments including interest on this for either 3 or 5 years, you are paying interest on the full outstanding balance owed to the lender (GFV is irrelevant). So over 5 years you are going to pay more in interest than you would over 3 years.

When you eventually sell the car, be it by handing it back, trading in to release equity, etc. you will still have paid more overall than had you got rid of the car 2 years earlier. When divided between the years you owned the car the cost per year may be less at 5 years than 3 years but that would be due to reduction in depreciation as the car gets older, nothing to do with the way the car was financed.