Best way to borrow £11K

VincentVega

Hello

I ordered a new car around a month ago (a VW Golf) - total price £21600 (a lot, I know). I am funding part of the purchase price through the P/X on my current car, part with some savings and the rest will need to be financed through some sort of borrowing (most likely a loan). I need a total of £11K.

I earn £30K a year. My only other debt is a £105 payment for my student loans: I have no credit card debt. My take home pay is in the region of £1700 per month - after outgoings (rent, fuel, etc) I am left with £1300 - £1400 per month to play with.

I am currently thinking of taking out a straightforward loan over two years, but with the intention of paying it off as early as possible. This works out at £490 per month, give or take. I do not want payment protection insurance - I've had it before but never had cause to use it (and, to be quite frank, I think it's a rip-off). If I reduce the term to eighteen months, payments go up to somewhere near £640 - £650 per month. I would like to leave some leeway in case of emergency, for holidays and whatnot.

Are there any other things I should be considering? Marks and Spencer do a loan especially for buying a car whereby part of the loan is deferred until the end of the term, thereby reducing the monthly payments. On the basis of a loan of £11K over one year, this would mean a deferred payment of £6600 (i.e. I'd need to put aside £550 per month) and a monthly payment of £413. Is this an option worth considering?

Another option would be a loan that offers a three month repayment holiday - Marks and Spencer and the AA offer this. Obviously, I'd incur a wee bit more interest, but I could use the intervening three months to pay off my student loans (around £1300) and get my post-car purchase finances in shape.

My final option is to use my credit card to reduce the amount I need to borrow. My Lloyds TSB card has a limit of £6K - there is nothing at all on it at the moment. Should I consider putting £3000 or £4000 on there, borrowing less (£7000 or £8000, say), apply for a card with a 0% balance transfer, transfer the £3K/£4K across and pay that off as well as the loan?

The simplest avenue open is the conventional loan. The M&S deferred option is somewhat tempting, as is taking a three month holiday before repayments start to pay off my other debt and get things in shape before trying to pay off the loan as quickly as possible.

I hope this makes some sort of sense and would appreciate any advice anyone could give.

nej

I'd just go for the loan as it's simpler... get the shortest period you can and pay it off quickly.

Or, put off the purchase for a while and save £1000 per month.

andymac746

Egg do a flexible loan at 6.9% you are able to overpay when you can with no penalty and can take repayment holidays too.

Rafter

Agree that a flexible loan from Egg or Cahoot might be your best starting point.

Without any credit card though, your credit footprint may not be good enough to get offered some of the best loans out there. If you get rejected don't keep applying or this will count against you too!

Once you have your (flexible) loan, you can then look at how you can use 'life of balance' credit card transfer deals to reduce your APR further.

Have fun with the new car!

R.

koru

I would try to stick it all on a 0% credit card. Apply for one that gives generous credit limits and has no balance transfer fee. (See Martin's recommendations) With the interest you save, you should be able to pay off the debt quicker.

Get a loan that can be repaid at any time without penalty and has no upfront costs. Then, as soon as you get the credit card set up, do a balance transfer to pay off the loan.

Bokken_2

Also be aware that some of the credit cards Capital One etc give higher limits but as you have not used the card to make the purchase you will have to make a Balance Transfer from your loan agreement/bank account to your new credit card with a high limit.This is likely to incur a BT fee if you did use Capital One their fees are uncapped so moving 11k could cost you £220 !
What ever you decide to do aim to disect the 11k loan down into managable lumps and get those onto LOB cards or 0% this will give you far more breathing space over the coming year.Of course you won't be paying any interest then.