buying a car: bank loan vs HP

pianowez

I am planning on buying a used car and just wondered if anyone had any thoughts on the best way of doing it.

I need to borrow about £9,000 and could do this via a bank loan over 5 years APR 9.9% or purchase it through a finance company Hire Purchase with similar (or in some cases higher) %APR.

Are there any benefits in choosing one over the other? Any ideas?

Thanks

hazyclaire

HP you have specific rights with regards to your car, allowing you to hand it back to the finance company once you have paid half of the total amount payable, however if you default on payments the finance company can take the car back from you if you have paid less than a third of the total amount.

Loan you can usually get a better rate and the finance isn't secured on the car, so you are not committed to keeping the car for any length of time. However the interest would be front-loaded so if you settle the loan early you are likely to have already paid a big chunk of the interest and don't get this back.

PCP is good as you are only paying the depreciation on the car so keeps your monthly payments down.

I am currently deciding between these options at present. I am thinking of going for a 2nd hand car with a loan so that I am not committed should I need to change cars...

CLAPTON

hazyclaire wrote: »

However the interest would be front-loaded so if you settle the loan early you are likely to have already paid a big chunk of the interest and don't get this back.

...

this is confusing and incorrect

pianowez

A bit of back detail: we have 2 cars at the moment. Car 1 is owned outright and car 2 was bought on HP with around £4,000 left to pay on it so we are hoping to sell both, repay the finance on car 2 (it's a 5 year HP contract with around 2 and a bit years to go) and use what's left to put towards the loan/HP (whichever I decide to choose) and buy a decent used VW Golf!

Thanks for your comments :-)

malkyh

Personally I always get a bank loan for a car as i tend to change them a lot and dont want the hassle of it being financed if i choose to sell.

pheonixrising21

I thought it was illegal to front load interest these days? Doesn't it have to be spread across the term or calculated monthly/daily?

PCP is a good way of keeping monthly, but you have to be careful there. Usually they you how many miles you do per year and work out the "guarenteed final value" based on that figure - i.e. you say you will 15k per year for 3 years and they calculate the GFV based on the car being 3 years old a with 45k or less on the clock. You pay montly payments for the difference between purchase price and the GFV (plus any interest). If you go over the stated mileage, they will charge you (usually 8-10p per mile!).

On a slightly different note (and this is purely personal opinion), I'd consider a different choice of car! Personally, I would go for a SEAT Leon over a VW Golf. they are essentially the same car, but the Leon is cheaper and in my opinion looks better. Depending on the model, it would save a few hundred £'s, maybe more.