Car finance v's Personal loan - which would you do?

Murray

Hi all

I'm buying a new car and have been looking at finance. I've been offered a personal loan and car finance (which I assume will be a hire purchase agreement because he said that the loan was secured against the car). I'm not sure which one to go for!

The car finance is £80 more over 3 years which, although £80 is £80, its not a lot over 3 years or as a % of the amount borrowed. I've been told (by the car finance people) that because the car loan would be secured against the car, it will have less impact on my personal borrowing capacity than another personal loan would - is that true? Now I'm not planning on taking out more credit in this period but would like to be able to if I absolutely need to. There is also a lot to be said for the convenience of the car finance becuase the money will be there ready when I collect the car without having the faff of timing the loan payment to pay for the car on collection (time is tight!).

What would you do?

M

CLAPTON

how much are you borrowing
what is the APRs of the two alternatives
what are the monthly repayments

have you actually been quoted (i.e. credit checked) for these loans?

Murray

£15k borrowed
Personal loan 6.9% APR (M&S Money) - £461.02 pm over 36 months. No fees and overpayments/early settlement allowed. (upto) one month interest can be applied for early payments.
Car finance 7.2% APR?? (not sure, was driving when he gave me the figures so only remembered the repayment amounts!) - £460.42 pm over 36 months. £90 fees and lumpsum overpayments allowed.

The plan is to pay it all back within 2 years so flexibility is important.

Approved for both loans.

Thanks

ETA that I also had a Zopa loan approved - £467.08 pm (7.8% apr) but 100% flexible. I'd dismissed it becuase the rate was too high but its still an option if there are any benefits of taking that one that I havent considered.

jamesd

The car deal seems to win on convenience but it's more expensive over two years than it seems because the APR for the initial fee is spread over all three years and it'll really only be spread over two.

Have you considered a 0% credit card deal with a 4% balance transfer fee from a bank account, like that offered by the Virgin and other MBNA cards? Virgin currently does that deal for 18 months so the APR is under 3%. That could save you some interest on the car loan. Or you could get a 0% for spending card, put all normal spending on the card and use the money spent to overpay on the car loan. Once the 0% deal ends you could do a balance transfer to extend it.

Tesco and RBS/Natwest do a 0% for spending card for 13 months and has quite a low minimum payment, 1%, so it's convenient when you're trying to put all you money to repaying the loan you're paying interest on.

The Zopa loan has the same shorter term increased APR effect as the car loan and any other loan with a fee.

I suggest that you go with the M&S Money loan and as soon as you're accepted for that, go for one of the 0% for purchases credit card deals then use that for spending and the money not spent to overpay and cut the interest rate cost.