Finance - pro's and con's if you please

[Facefirst]

Right, so I'd like to get something a little more upmarket than the £4-5k stuff I've been running around in (Clio 172 Cup, Audi TT, MR2 Roadster, BMW 320D to name but a few). I have so far tended to change my cars very quickly; 10k miles and then they're gone. In the past this has meant changing every 6 months as I used to do lots of driving for work.

The driving has calmed down a bit now but I'd like something decent to own and love (and thrap...). I am currently outing the MR2 as the end of summer isn't a million miles away, I've had my fun, and I'm off on hols anyway so won't be around for roof down thrills.

Now, I'll either sell it and have some cash to put in (around £3.5k) or I won't and will need to put the car up as a trade (£2.5k I'd guess). The car I'd really like is an R26 Megane and these start at about £8.5k. One from a dealer isn't much more so I might be tempted by one of their cars.

What I'd like to know is bearing in mind the amount of cash I have (or collateral counting my old car), what is the best way to make up the shortfall? What are the pro's and con's? Should I just save, or should I go in for a deal of some kind?

Many thanks in advance, and sorry if this has been done to death but the search function isn't working.

FF

[ludicrous speed]

Bank loan.

pros - money straight into your bank account. increase credit rating?

cons - there aren't really any, apart from being in debt. but if you feel you're job is secure and you get a decent interest rate with manageable monthly payments, then it shouldn't be a problem.

[wrighty78]

Bank loan might be your best bet.

The trouble with car finance is that you're tied into the car and will get royally rogered if you want to move on before the end of the deal. A straight loan, on the other hand, means the car is all yours, you can sell it on whenever you get bored, and you'll probably get a much better APR.

[mattmoxon]

wrighty78 said:

Bank loan might be your best bet.

The trouble with car finance is that you're tied into the car and will get royally rogered if you want to move on before the end of the deal. A straight loan, on the other hand, means the car is all yours, you can sell it on whenever you get bored, and you'll probably get a much better APR.

This.

[Zeonalarm]

http://www.quickquid.co.uk/

http://www.wonga.com

Avoid these.

[homerjay]

Avoid multiple applications from different lenders.

Try your bank 1st.

There is nothing typical about typical apr.

[Facefirst]

Aww, cheers guys.

I slept on it and am not sure that I want any more debt. Just bought a house, see, so the savings are depleted and the mortgage debt is the priority now. I guess I'll just have to live with cars at the lower end of the price spectrum for a while (runs off to peruse E36 M3's...).

Thanks for the advice,

FF

[stuckmojo]

Facefirst said:

Aww, cheers guys.

I slept on it and am not sure that I want any more debt. Just bought a house, see, so the savings are depleted and the mortgage debt is the priority now. I guess I'll just have to live with cars at the lower end of the price spectrum for a while (runs off to peruse E36 M3's...).

Thanks for the advice,

FF

well thought.

[Original Poster]

Facefirst said:

Aww, cheers guys.

I slept on it and am not sure that I want any more debt. Just bought a house, see, so the savings are depleted and the mortgage debt is the priority now. I guess I'll just have to live with cars at the lower end of the price spectrum for a while (runs off to peruse E36 M3's...).

Thanks for the advice,

FF

Good choice, finance is great, but if it only leaves you with a pot to piss in what's the point.

[Hoppelemine]

All very valid points!

I spent 4 years as a finance manager for a large dealer group, so here's my thoughts on financing with a dealer. Do your homework and don't go in blind or you will not get the best deal!

Go to your bank first. See what they have to offer but don't agree a loan. You now have a bargaining tool with the dealer. See what finance a dealer has to offer and if they can beat the rate. Remember to compare like for like, so make sure the rates being offered are on the same amount of money and over the same length of time. Be careful not to get so rate conscious that you forget everything else that's important. It's no good taking a really low rate deal that's over a such a short term that you can afford the payments.

There are some benefits to financing with a dealer. You are not using up an open credit line with your bank, so if you need funds in some other emergency situation you haven't just used it up on a car.

Also remember that dealer arranged finance is usually a Hire Purchase agreement, meaning the loan is secured on the car, which means if your life goes pear shaped you can give the car back to the finance company (provided you have paid more than half the total amount amount due, which with your good sized deposit won't be too long) and the debt is settled. You don't have that luxury with the bank. They want there money back regardless. The finance company also has financial interest in the car, so if your ever unfortunate enough to have the car written off by an insurance company, the finance company will be on your side to negotiate a decent payout. You also have some extra protection if the dealer sells you a lemon, for the same reason.

If you want to settle the deal early you will get a rebate of interest for all the unused months minus 2 (or 3, it's been a while and my memory is fading)so despite what others may say there is no 'huge penalty' for settling early and you wont have to pay anything out of pocket.

Unless it is totally necessary avoid a 60 month agreement, even if the rate is good you'll still pay stacks of interest and often the car depreciates at a faster rate than you are paying it off. Unfortunately many dealers will offer you a 60 month deal by default as this makes there commission higher. Try to get a 36 month term at the most. Do not ever, ever, ever take any form of payment protection for loss of life, unemployment etc, it's hugely overpriced and just a profit tool for the dealer. Do however consider GAP insurance, if you don't know what this is do some Google research. You'll probably find it cheaper online but a dealer can include it in your payments.

A note about APR. The APR is a complicated thing for just something with three letters and can cause more confusion that it solves. It's a hugely complicated formula design to allow consumers to COMPARE the total amount of charges on a different loans. The APR IS NOT THE AMOUNT OF INTEREST YOU PAY AND IS NOT USED TO CALCULATE PAYMENTS, but it is still very important to look at it. A dealer will often quote you an interest rate as a flat rate, 7% for example, because this is how they calculate the payments, with document fees (watch out for those too) added on the APR could be 15 or 16%.

There is no 'cooling off' period if you sign a finance agreement on a dealers premises so make sure you are happy before you sign. A dealer should agree to a deal on the car before you have decided how to finance it, so you have a few days to shop around even if you've already committed to buying.

Just a final point that I'm sure I don't have to say, don't ever finance a car on a mortgage!

[GreigM]

Hoppelemine said:

Just a final point that I'm sure I don't have to say, don't ever finance a car on a mortgage!

Why not? Absolutely no reason why you shouldn't so long as you understand what you are doing. If there's no charge to extend the mortgage and you can overpay to keep the term short then it could open the door to a very cheap loan.

[Celt]

I know of alot of people who take there car out on finance and pay it up over, usually, 60 months. I think you would need to be off your head to do so. I cant imagine being stuck with the car soame car for 5 years. Especially when its bought when people are 19 or 20. I would much rather use abit of self control and save up. I know if people have a mortgage and kids it can be difficult. But 2 of my friends have done this. One of them works 10 hours a week in a supermarket. The car is in mummy's name to save on insurance. I know its illegal and he will regret it when he is 25 and 0 NCB and a car worth fk all after spending a fair amount on interest.

I know of people with over 50k in debt take out a loan with horrendous intrest payments as its the only way they can get a car. No wonder the country is fked.

As said I would take out a bank loan. Alot more freedom than with finance. But save if at all possible.

[Hoppelemine]

GreigM said:

Hoppelemine said:

Just a final point that I'm sure I don't have to say, don't ever finance a car on a mortgage!

Why not? Absolutely no reason why you shouldn't so long as you understand what you are doing. If there's no charge to extend the mortgage and you can overpay to keep the term short then it could open the door to a very cheap loan.

I guess I should have said 'long to medium term mortgage'. If you have 15 years left on the mortgage then you'll be paying for that car for 15 years and have paid 15 years worth of interest. For most that is pretty hard to swallow on a depreciating asset, especially if you only keep the car 3 years....

[Hoppelemine]

Celt said:

As said I would take out a bank loan. Alot more freedom than with finance. But save if at all possible.

What freedom is that?

[Petrol Only]

Hoppelemine said:

Celt said:

As said I would take out a bank loan. Alot more freedom than with finance. But save if at all possible.

What freedom is that?

That you can chop and change to whatever car you want in that time.

[Hoppelemine]

Petrol Only said:

Hoppelemine said:

Celt said:

As said I would take out a bank loan. Alot more freedom than with finance. But save if at all possible.

What freedom is that?

That you can chop and change to whatever car you want in that time.

Good point and worth considering.

[mattmoxon]

The other thing worth considering with a bank loan is that most will not charge you for making the odd extra payment (TSB don't on mine) to bring down the total term of the loan. So if you are feeling flush one month you can pay the usual payment plus a bit extra.