Need advice - Best way to pay for new car?

Glitter_Girl

Hi all,

Im new to all of this so please be gentle

Ok, so i have been driving a wee runaround since i passed my driving test in 2008. The car is now 10 years old and is starting to cost me more than its worth (it has been in the garage every month this year for different reasons, each time costing me upwards of £200) so, as much as i dont want to (my first car = i love it), myself and my partner agreed that now is the time to get rid and purchase a newer one in the hope that it wont have as much trouble.

We have been casually looking at different cars for myself for around 2 months now and i finally narrowed down the search and found the perfect second hand 2009 plate car last weekend. Bonus to this was that the garage i'd be buying from offered a good trade in price for my old car and i managed to haggle a couple of hundred off the car to make the cost a nice rounded £6000.

Now, over the 2 months, i've also been looking at all my finance options and best things to do in order to pay for the car. We're quite lucky in that we have a small mortgage (in my partners name) and no outstanding loans/credit cards together, plus we both work full time in (we hope) secure jobs and have no responsibilities apart from the house, so we decided we can afford to repay £6000.

We turned down the option of Hire Purchase in the garage that day, put a deposit on the car and went away to apply for the best loans. I had also signed up for Experian and had been checking my credit score, which was 997 - so i thought getting the loan would be simple!

I was so wrong! Because ive never owned a credit card or loan before, both the Post Office and Sainsbury's turned down my loan application (only thing i've ever had is a phone contract!). I went about applying for the next one and they also turned me down (Santander). By now, my credit score was shot down to 700-odd due to these applications. So because i've been careful with money and have never been tempted by store cards or credit cards, and instead saved up my money for things, i was now being penalised.

I went back to the garage, tail between my legs, and they tried to set up a Hire Purchase, but it was now also declined due to credit score at this point.

On hindsight, i should have just went to my bank (instead of being lured in by the amazing APR offers, which i now know are quite strict and hard to get) as RBS have now offered me a loan at 20.9% APR (might have got better if i had applied there first).

My other option is putting the car on my partner's credit card. The APR he gets is 11.9%. But this worries me - is a credit card any different to a loan? We've tried to work it out but its really confusing. If we make sure we pay the minimum payments on the credit card (trust me - we'll be paying more than the minimum) - will the amount go down or will we be stuck in a cycle of neverending interest and balance going up?

My thoughts at the moment are put it on the credit card, make the payments, then in 6 months time when my credit score is better, get myself a credit card and get my score up and then re-apply for loans in a years time in the hope of getting a better APR, then pay off remaining credit card balance and then i have my own loan?

Sorry if this sounds confusing - we're really stuck now! Thanks for any advice!!

Tixy

Hi

First does partner have a limit in excess of £6k on his credit card currently? What card does he have (which bank)?
Have you asked the garage if they would accept payment by credit card and if so is there a surcharge (sometimes they will charge a % of the debt which can add up).

The downside of using the credit card is that in theory they could put the interest rate up - the good side is that if they wanted to do this they would have to notify partner first and he would have the option to opt-out. This would mean he could continue at the current APR for the balance but could no longer use it for new payments etc.

The other thing is that it is possible that the credit card company could try to close the credit card or reduce the limit while there is a balance on there - this is very unlikely but it is possible according to the T&Cs on credit cards.

Has OH considered applying for a loan instead to see whether he could get one and at what rate?

Putting in on the card at 11.9% does seem a better deal than the loan at 20.9%. Only do this if you are certain you would pay it off in a structured manner (not just paying minimum payments etc).
Certainly you could try going for a card yourself to build a history and then trying for a loan - but don't count on being able to get one, its possible you might not be able to get one even in 12months so partner should only put on their card if they are happy to take the risk that it might be on their card for years (until you have paid it off).

Obviously partner also should be aware that should you split up they would be wholly responsible for repaying the credit card. If the car is in your name and you decided to not pay him the repayments then that would be his risk (obviously hopefully this won't happen but legally the car would be yours and the debt his, looking it as a worse case scenario for him).

Idiophreak

Tixy wrote: »

Has OH considered applying for a loan instead to see whether he could get one and at what rate?

This is what I thought...having a mortgage, at least, would your OH have a better shot at getting the finance?

Also, as a complete aside, have you thought about leasing a car, rather than buying? You can get some quite nice run-arounds for 150-200/month on a 2 or 3 year lease. It's an adjustment of your mindset, but at least you never have to drive a car that's out of warranty

Glitter_Girl

Hi Tixy - thank you for replying!

My partner's credit card limit is £6000, we'd only be putting £5750 on it as i've already paid the £250 deposit. The garage said they'd waive the credit card charge (they're being really nice about it all actually). He works for the bank he has the card with, so i cant really name it incase he gets in trouble! The rate should stay the same though this way and im sure they wouldnt close it on him.

We definitely would be paying off in structured manner. The quicker the better to be honest. I was also thinking it would be easier to chuck extra money each month into a credit card, as you can't do this with loans? I'm due a bonus from work in July so i'd probably just throw the whole lot into the card to get the balance down. I'd still pay the same amount each month, even if the minimum went down etc.

So is a credit card just the same as a loan? Repayment wise? We were worried there would be extra charges on a credit card? Why do most people opt for a loan over a credit card? (Im guessing its because most people can get an APR for a loan which is lower than an APR for a credit card?)

Thanks again!

Glitter_Girl

Idiophreak wrote: »

This is what I thought...having a mortgage, at least, would your OH have a better shot at getting the finance?

Also, as a complete aside, have you thought about leasing a car, rather than buying? You can get some quite nice run-arounds for 150-200/month on a 2 or 3 year lease. It's an adjustment of your mindset, but at least you never have to drive a car that's out of warranty

We hadnt thought of the loan for him to be honest. Definitely an option though. We had been focusing on me getting the loans etc.

With the leasing, would i have to hand the car back? I'm a typical woman who gets attached to things quickly lol. Already breaking my heart to hand over my 10 year old rusty go-kart! Nah, in all honesty, i'm looking to keep the car for as long as possible (until it costs too much to run). I'd keep the one i have if i could!

Simon11

Not really useful advice, but it would have been easy to guess this would happen so could have started saving a 1/2 yrs ago and have some form of savings so purchasing this car is cheaper

Glitter_Girl

Simon11 wrote: »

Not really useful advice, but it would have been easy to guess this would happen so could have started saving a 1/2 yrs ago and have some form of savings so purchasing this car is cheaper

Possibly could have, yes, but we went to Florida instead :rotfl:

Plus, my current car has never had any problems until January of this year, when it never recovered from the harsh snow. Ever since then its been in and out the garage so the time has definitely come for it to go to car heaven (or if it does sell at auction then the next person can hopefully give it a new home). Like i said before, i'd quite happily have held on to this car for another 10 years if i could. Its been a great wee thing!

We dont take things like this for granted though. I have seen how debt can affect a family first hand. Hence why i have always saved for things (how do you think i got my wee runaround?) and always avoided credit cards/loans before now. But i am thankful that we are in the position where we can afford something a little bit more special and i know that not everyone is as lucky.

We want to make sure we do it correctly though and dont get ripped off!

Tixy

Glitter_Girl wrote: »

So is a credit card just the same as a loan? Repayment wise? We were worried there would be extra charges on a credit card?

Yep essentially should be no problem. In fact in the unlikely event that you did have any financial hiccups then arguably the card is better as if finances were tight on a particular month you are more able to manage by just paying the minimum - obviously not a recommended plan but something thats there if you should ever need it.

Only extra charge might have been the credit card charge, which as you've said they are waviering that then thats great.

Glitter_Girl wrote: »

Why do most people opt for a loan over a credit card? (Im guessing its because most people can get an APR for a loan which is lower than an APR for a credit card?)

Thats about the size of it. Usually you'd expect to be able to get a cheaper loan than the APR on the card. Partners card at 11.9% is pretty good for a standard apr and his credit limit is sufficent so your case a bit different.

There is a case where cards are recommended as loans anyway for short term loans of say a year or so where people have 0% cards.

Ferdy147

You can't afford a £6k car and clearly getting a loan for £6k is proving difficult.

Why not spend a little less? You can get a good car for under £2k which would be more sensible for you whilst you sort yourself out and save up some money.

Idiophreak

Ferdy147 wrote: »

You can't afford a £6k car

OP clearly states that they *can* afford to repay a £6k loan...

NeverEnough

Ferdy147 wrote: »

You can't afford a £6k car and clearly getting a loan for £6k is proving difficult.

Why not spend a little less? You can get a good car for under £2k which would be more sensible for you whilst you sort yourself out and save up some money.

Rubbish. OP has clearly stated she can and is in stable employment with no monthly payment issues. She did not ask for your judgemental comments, she asked for advice on financing the car, not your opinion whether she should have it or not.

I don't know why this forum seems to have a multitude of judgemental characters who creep out the woodwork whenever financing a car is mentioned. It is a perfectly normal transaction to finance a new car - not everyone wants to own or drive a banger or a piece of rusting ancient rubbish on wheels, and financing options are not all evil and to be avoided!!!!

GlitterGirl, ignore the "you can't afford xxxx, just save up" judgemental bunch like the poster above - they always seem to crawl out the woodwork when people like yourself ask specific questions about the best finance options for a car. You have clearly been careful about money and have simply fallen foul of the current somewhat haphazard manner in which finance houses assess creditworthiness. Tixy and others have made helpful comments and given decent advice in answer to your questions - hope you enjoy the new car and that it serves you as well as your soon-to-be retired one!!!!!