Funding a used car when can’t get decent loan...PCP?

[infernouk]

Hey all

So I’m looking into a car change and have kind of an odd situation occurred...the car I’m looking at is a £20k ish used M240i, my Initial thoughts was to split 50/50 cash and bank loan on the purchase...however it seems no bank will lend to me for less than 18% APR (tried 4 times which has inversely effected my credit rating now so I’m holding off)

I’m not sure why this is but believe it’s because I’m not a home owner (by choice) and move addresses every year (for work) my income is very solid, high, and secure and I have no dependants, or any debt or negative marks against me (apart from not having debt?)

But nether the less, this means that my only route is new car PCP which I don’t like due to depreciation speeds and negative equity, or PCP a used car, which is my current leading plan.

Does anyone have experiences of this? I had a GT86 once that was 2 years old on a 2.9% PCP and it actually held value so when I wanted to sell it after a year I was in positive equity...I assume a 3-4 year old 240i has some way left to go and so I may not be as fortunate.

Appreciate any tips on this kind of scenario as I was all set on the 3% bank loan everyone talks about, but that isn’t materialising for me...

[HaroldB]

For the credit, I’d suggest getting Clear score and Experian apps to check how they rate you, the score isn’t directly used by lenders but gives tips on what’s wrong if there is something. I’d suggest getting on the electoral role, and getting a credit card that you use each month and pay off in full. These should help build a credit file that shows you are responsible borrower.

PCP rates are now so uncompetitive vs bank lending.. can you hold off by building some credit and retrying in 6 months?

[Wagonwheel555]

Assuming you have tried your own bank?

I find they are far more willing to lend me money and rates are good.

Surely PCP would still do a credit check?

[infernouk]

HaroldB said:

For the credit, I’d suggest getting Clear score and Experian apps to check how they rate you, the score isn’t directly used by lenders but gives tips on what’s wrong if there is something. I’d suggest getting on the electoral role, and getting a credit card that you use each month and pay off in full. These should help build a credit file that shows you are responsible borrower.

PCP rates are now so uncompetitive vs bank lending.. can you hold off by building some credit and retrying in 6 months?

I have all the apps and have done for years, and have done al mentioned as this isn’t new to me, hence the surprise, they only show the lack of credit currently as a negative!

I’ve had limits up to 15k managed monthly for years, I just closed them to get rid of all the paperwork and spam a while ago, in reflection an error, but nothing I can do now. I don’t believe that 6 months will make a major difference when the cause of the issue isn’t clear

[infernouk]

Wagonwheel555 said:

Assuming you have tried your own bank?

I find they are far more willing to lend me money and rates are good.

Surely PCP would still do a credit check?

My own banks give me the worst rates! PCP will check but from what I’ve seen in the past + almost all the population driving cars they can’t afford, the checks seem to be less stringent as they are secured against the vehicle anyway

[nickfrog]

How long would it take you to save the £10k shortfall? It may be the most cost effective way if you can't source cheap finance.

You could also consider a (cheaper) M235i. Not very different. No oil filter housing issues. Slower depreciation.

Edited by nickfrog on Friday 19th March 09:32

[nickfrog]

infernouk said:

almost all the population driving cars they can’t afford

Are you sure?

[J1990]

infernouk said:

...almost all the population driving cars they can’t afford, the checks seem to be less stringent as they are secured against the vehicle anyway

There seems to be some irony of you claiming people can't afford what they're driving whilst you seemingly can't afford the car you're trying to buy.

If people can afford the repayments, even if it is a horrendous deal, they can afford the car. This goes back to the argument of just because you can't buy outright you somehow can't afford to 'have' it - How many people buy their houses outright? I know it's an appreciating asset vs depreciating asset but it's the same logic, you either can or cannot afford the repayments.

I'm also not so sure about the PCP checks being less stringent, the sizeable depreciation hit the cars take in that first year and the risk of default if you're handing out PCP too readily would be a bad business model.

[infernouk]

nickfrog said:

How long would it take you to save the £10k shortfall? It may be the most cost effective way if you can't source cheap finance.

You could also consider a (cheaper) M235i. Not very different. No oil filter housing issues. Slower depreciation.

Edited by nickfrog on Friday 19th March 09:32

Yep I’d be happy with the m235i I just thought it might be worth reaching to the m240 for the engine!

I can save 10k in about 5 months so that’s a leading option, I also already have all the cash I just don’t want to take that hit in 1 go and was happy to pay some APR for some liquidity

[infernouk]

J1990 said:

There seems to be some irony of you claiming people can't afford what they're driving whilst you seemingly can't afford the car you're trying to buy.

If people can afford the repayments, even if it is a horrendous deal, they can afford the car. This goes back to the argument of just because you can't buy outright you somehow can't afford to 'have' it - How many people buy their houses outright? I know it's an appreciating asset vs depreciating asset but it's the same logic, you either can or cannot afford the repayments.

I'm also not so sure about the PCP checks being less stringent, the sizeable depreciation hit the cars take in that first year and the risk of default if you're handing out PCP too readily would be a bad business model.

I have the cash to buy the car, this is a question about liquidity and using financial products to better make use of the capital I have for other things...hence the 3% loan dream, but at 5.9% or higher it starts to become less possible to monetise the cash that would otherwise go into the car...

The PCP checks in my experience are less stringent, at 21 I had a 20k car on pcp but couldn’t get more than a 4K limit on a credit card, because it’s secured vs unsecured

[fflump]

OP-do you not even have a credit card?
This is usually a definite plus having 3 years of paying the balance off each month.

FWIW PCP will probably have a lower credit rating threshold that a bank loan.

The bank loan is an unsecured cash loan and so high risk. They give you the cash, you buy the car with cash, you own the car.

With PCP you don't own the car unless you pay the balloon payment at the end, and the finance is tied to the car so its lower risk for the lender. Also dealers offer attractive rates as they get a lot of business and commission from repeat PCP'ers that move onto another car when their plan ends.

FWIW I believe it makes no financial sense to buy a depreciating asset on credit, but appreciate for some the benefits outweigh this.

[Largechris]

infernouk said:

almost all the population driving cars they can’t afford

Think I'd also respectfully suggest you can't afford it.....

[infernouk]

fflump said:

OP-do you not even have a credit card?
This is usually a definite plus having 3 years of paying the balance off each month.

FWIW PCP will probably have a lower credit rating threshold that a bank loan.

The bank loan is an unsecured cash loan and so high risk. They give you the cash, you buy the car with cash, you own the car.

With PCP you don't own the car unless you pay the balloon payment at the end, and the finance is tied to the car so its lower risk for the lender. Also dealers offer attractive rates as they get a lot of business and commission from repeat PCP'ers that move onto another car when their plan ends.

FWIW I believe it makes no financial sense to buy a depreciating asset on credit, but appreciate for some the benefits outweigh this.

Nope no credit card, I had some Amex cards for the points but canned them when I couldn’t use them in a lot of the use cases I needed them in and didn’t open any more as I just don’t need to use them...prior to this I have almost a decade of monthly usage across 3-4 cards just buying petrol on each. Doesn’t seem to count for anything! Perhaps becuase they are all settled and closed accounts which seems to be a negative

And yeah my opinion on the secured asset and PCP is what I mean by it’s easier to get, I generally agreed on the depreciating credit, I think having the cash in the bank just lets me sleep easier and I can offset some of that APR with investments

[infernouk]

Largechris said:

Think I'd also respectfully suggest you can't afford it.....

I mean, I can, but this is an Internet forum and I don’t have to post my last 3 pay slips...

[J1990]

You've said you can save £2k/month, I guess the question is would you rather have the car now and rebuild that £10k safety net from paying cash upfront or would you rather stick with your current car and wait 5months to buy the 240 outright?

Evidently you're not struggling financially so I wouldn't be compromising on the car if I genuinely wanted it and could actually afford it.

[nickfrog]

infernouk said:

Yep I’d be happy with the m235i I just thought it might be worth reaching to the m240 for the engine!

I can save 10k in about 5 months so that’s a leading option, I also already have all the cash I just don’t want to take that hit in 1 go and was happy to pay some APR for some liquidity

Test drive both perhaps, when possible. The "old" engine is actually excellent and proven. Better value IMO. I would save up in your situation and spend perhaps £16k in a M235i, by which time test drives will be back on.

[PH User]

nickfrog said:

infernouk said:

almost all the population driving cars they can’t afford

Are you sure?

I do love comments like this, they make me smile.

[infernouk]

J1990 said:

You've said you can save £2k/month, I guess the question is would you rather have the car now and rebuild that £10k safety net from paying cash upfront or would you rather stick with your current car and wait 5months to buy the 240 outright?

Evidently you're not struggling financially so I wouldn't be compromising on the car if I genuinely wanted it and could actually afford it.

This is probably the smart decision either way, my role is actually from home covid agnostic so I don’t need a car, this is just a toy, just my current car is a VW up! and I’m wanting something more fun now I’m in the position to do so

[infernouk]

nickfrog said:

Test drive both perhaps, when possible. The "old" engine is actually excellent and proven. Better value IMO. I would save up in your situation and spend perhaps £16k in a M235i, by which time test drives will be back on.

Thanks yeah I think these are the right steps, wait it out and do the tests in April and then if the 235i is sufficient then just cash purchase. I do wish I could get that 3% APR though!

[GregK2]

The B58 is a better engine, but the N55 is still great, and sounds better (which is probably more important more of the time anyway)
so the 235i appears a better value buy in your circumstance.
The constant changing of address is probably the biggest factor I would say in your struggle for best rates.