Exiting a finance deal...
Discussion
I know finance on a car has its pros and cons but I am seriously considering it as an option for getting the car I desire. What I wanted to know is how do finance deals work if you suddenly decide you want to sell the car or money gets tight unexpectedly? Obviously the latter is part of the risk of taking out finance, but rest assured I will consider this option fully before entering into any sort of agreement.
PaulB81 said:
I know this doesnt answer your question directly but you will get more more flexibility with a personal loan (and a better interest rate)
Err, no.Rate yes, Payment? Probably not.
Flexability?
What about termination rights at 50%?
How about an interest rebate when you repay early without penalty?
Dealer funding has many upsides, do your homework and you'll get a cracking deal.
My lass uses a finance option when buying cars and had some cracking deals over the years, she does however read all the small print before agreeing.
One thing to be aware of is excess mileage, her current car has a limit of 24,000 over three years and if she goes over this mileage and decides to hand the car back she has to pay:
Under 5000 miles, 7p per mile + VAT
Over 5000 miles, 14p per mile + VAT
It doesn't sound like a lot but when you do the sums, it soon adds up.
Of course if you buy the car at the end of the deal then there are no worries.
One thing to be aware of is excess mileage, her current car has a limit of 24,000 over three years and if she goes over this mileage and decides to hand the car back she has to pay:
Under 5000 miles, 7p per mile + VAT
Over 5000 miles, 14p per mile + VAT
It doesn't sound like a lot but when you do the sums, it soon adds up.
Of course if you buy the car at the end of the deal then there are no worries.
It's a lot more complicated than most people appreciate. Keeping it simple, there are three different types of finance for a private buyer.
First is straight forward hire purchase. The hire lasts for generally two to four years. During that period, the car belongs to the finance company. You pay a monthly instalment. At the end of the period, the car belongs to you (although usually you have to pay an "option to purchase" fee of about £150). You are entitled to terminate the agreement at any time and keep the car by paying the aggregate of the future installments, less a rebate. If you want to sell the car or get out of the agreement, this is what you have to pay. You just ring the finance company for a "settlement figure". The agreement will bear some illustrative figures for settlement at various points. Unless you put down a deposit of about 25%, the settlement figure will usually exceed the value of the vehicle until about two thirds of the way through the agreement. The other little known fact is that if you get two thirds of the way through, you can just give the car back and be under no further liability. This is good for you if the value of the car is less than the aggregate of the payments during the last third of the agreement.
Second is a personal contract purchase. This is much like HP, save that there is a "balloon". This means that at the end of the hire period, there will be a large sum of money to pay, typically (and very roughly) one third of the car's value. At the end of the agreement, you can either pay the balloon and keep the car, hand the car back and walk away, refinance and keep the car, or (if the car is worth more than the balloon), put it in part-ex and take the difference between its value and the balloon. These agreements usually (not always) have an annual mileage allowance and a penalty of between 4p and 25p a mile for excess mileage. They are also swines about identifying defects in the event you give the car back. Early termination works just like HP.
Third there is a bank loan. Here a finance company lends you some money and you can spend it on whatever you like, in this case a car, which then belongs to you. There are myriad possibilities. Some loans are more flexible than others, allowing over-payments and early repayments and so on.
You can also lease a car, which is simply a long-term hire agreement. Leasing is good if you are using the car in a business because you can reclaim some of the VAT.
99% of new cars are bought on finance, usually a PCP. Unless you're very rich, it's impossible to afford a new car worth having. Personally, I buy old cars!
First is straight forward hire purchase. The hire lasts for generally two to four years. During that period, the car belongs to the finance company. You pay a monthly instalment. At the end of the period, the car belongs to you (although usually you have to pay an "option to purchase" fee of about £150). You are entitled to terminate the agreement at any time and keep the car by paying the aggregate of the future installments, less a rebate. If you want to sell the car or get out of the agreement, this is what you have to pay. You just ring the finance company for a "settlement figure". The agreement will bear some illustrative figures for settlement at various points. Unless you put down a deposit of about 25%, the settlement figure will usually exceed the value of the vehicle until about two thirds of the way through the agreement. The other little known fact is that if you get two thirds of the way through, you can just give the car back and be under no further liability. This is good for you if the value of the car is less than the aggregate of the payments during the last third of the agreement.
Second is a personal contract purchase. This is much like HP, save that there is a "balloon". This means that at the end of the hire period, there will be a large sum of money to pay, typically (and very roughly) one third of the car's value. At the end of the agreement, you can either pay the balloon and keep the car, hand the car back and walk away, refinance and keep the car, or (if the car is worth more than the balloon), put it in part-ex and take the difference between its value and the balloon. These agreements usually (not always) have an annual mileage allowance and a penalty of between 4p and 25p a mile for excess mileage. They are also swines about identifying defects in the event you give the car back. Early termination works just like HP.
Third there is a bank loan. Here a finance company lends you some money and you can spend it on whatever you like, in this case a car, which then belongs to you. There are myriad possibilities. Some loans are more flexible than others, allowing over-payments and early repayments and so on.
You can also lease a car, which is simply a long-term hire agreement. Leasing is good if you are using the car in a business because you can reclaim some of the VAT.
99% of new cars are bought on finance, usually a PCP. Unless you're very rich, it's impossible to afford a new car worth having. Personally, I buy old cars!
Hoink said:
My lass uses a finance option when buying cars and had some cracking deals over the years, she does however read all the small print before agreeing.
One thing to be aware of is excess mileage, her current car has a limit of 24,000 over three years and if she goes over this mileage and decides to hand the car back she has to pay:
Under 5000 miles, 7p per mile + VAT
Over 5000 miles, 14p per mile + VAT
It doesn't sound like a lot but when you do the sums, it soon adds up.
Of course if you buy the car at the end of the deal then there are no worries.
This is definitely something I've been told to keep an eye on. It's one of those things the financier doesn't always specify in the agreement so you've got to read the small print very closely. TBH, I often neglect to do that, but when it comes to a major financial commitment, I read every word!One thing to be aware of is excess mileage, her current car has a limit of 24,000 over three years and if she goes over this mileage and decides to hand the car back she has to pay:
Under 5000 miles, 7p per mile + VAT
Over 5000 miles, 14p per mile + VAT
It doesn't sound like a lot but when you do the sums, it soon adds up.
Of course if you buy the car at the end of the deal then there are no worries.
otherman said:
52%, 99% - either way, that's a lot higher then I'd expected. I had no idea people in general were so open to the idea of finance. Couple this this with the issues of mortgaging, it's no wonder the economy's in such a mess! But that's a whole different story...Biccaroo said:
52%, 99% - either way, that's a lot higher then I'd expected. I had no idea people in general were so open to the idea of finance. Couple this this with the issues of mortgaging, it's no wonder the economy's in such a mess! But that's a whole different story...
The country's more likely in a mess because people don't bother to understand when financing might be appropriate.I have my car on PCP. I could absolutely, comfortably afford the payments. It's new, nothing has gone wrong, so the cost is fixed and can be calculated in advance, very useful for budgeting purposes. It allowed me to keep the capital I would have laid out in the bank and across various investments, where it's appreciating at a rate that, averaged, almost meets the interest on my car payments. I've used less than half of the contracted mileage in three years, so the car will be worth more than the payment at the end, and have the capital in the bank should I need it.
It's certainly met my needs.
iphonedyou said:
I have my car on PCP. I could absolutely, comfortably afford the payments. It's new, nothing has gone wrong, so the cost is fixed and can be calculated in advance, very useful for budgeting purposes. It allowed me to keep the capital I would have laid out in the bank and across various investments, where it's appreciating at a rate that, averaged, almost meets the interest on my car payments. I've used less than half of the contracted mileage in three years, so the car will be worth more than the payment at the end, and have the capital in the bank should I need it.
It's certainly met my needs.
When the interest you make exceeds the interest you pay is the time to take out finance. Why pay more than you need, for an already depreciating (in most cases) asset, if you can afford not to. Just buy the car and put away(what would be) the repayment into your investments each month.It's certainly met my needs.
otherman said:
linky said:
52.1% of new cars bought last year were bought using dealer motor finance
other 47.9% may use non-dealer finance, personal loans, borrowed money from friends/family, loan sharks, etc etcGassing Station | General Gassing | Top of Page | What's New | My Stuff