Zopa - as a vehicle to finance a car

DireEmblem

Excuse the pun, however I am not 100% sure where this belongs.

I am looking at getting a car, and have made some inroads into saving up to help finance my first purchase(all done through Zopa).

Obviously if I take the money out to help pay for the car, I would have to pay the 1% rapid returns fee, however my thought is to take a loan out through Zopa over X years, and through a combination of my current loans maturing/paying interest, and my own monthly contribution, the car could be financed.

Now, my thought for long term is that I will overpay the loan, and once repaid keep up the same level of payments, increasing each year with inflation.

Would this be a sensible long term solution to help finance a car?

I'll try and explain my thoughs with numbers:-

The car I am currently looking at I can get for ~9K(new). I can see this current model being sold on autotrader for 6.5k(3 years old). For arguements sake, lets call it 6k.

3K Depreciation in 3 years is approx £83 a month, or 1k a year.

Obviously markets fluctuate, and situations change, however I figure to cover this depreciation, I would need to build up a minimum of around 15k in Zopa to cover this.

Now this would not happen overnight, however I think I could finance this over the course of a number of years.

Either way, I plan to make standard overpayments to a point where this has been achieved, however would this be the best use financially of the cashflow I have?

oldvicar

For a start, I would query the assumption about car depreciation. Autotrader prices are after all askng prices for buying a car, not what you could realise if you were selling. A small supermini (which it must be given a £9K new price) would typically depreciate by at least 50%, probably 60%, over 3 years if it is a popular brand, even more if it is a less well known model. You probably need to nearly double the amount (£2.5K to £3K) you allow for depreciation over the first 3 years.

Secondly, I simply cannot see the merit of the proposed complicated to-ings and fro-ings involving Zopa. Even with a 1% rapid return fee, my instinct tells me that this will be both safer and cheaper than taking out an equivalent loan.

cloud_dog

just as a comment...... although it carries a risk warning so be warned.

I have purchased our last two cars by using 0% balance transfer credit cards. Things have moved on recently and now most charge 2%-3% balance transfer charges but my previous 5 BT cards have a term ranging from 15 months to 24 months (most recent with Barclays).

The effect is that the charge is for the period, i.e. 2.9% over 24 months equates to 1.45%pa (roughly).

The BT cards either rely on you having a balance to transfer or provide the ability to transfer to an account (bank account). You need to be careful that the card will treat the transfer to an account as a BT and not as a cash withdrawal.

I find this method very flexible as I know the repayments (which slowly reduce each month), I can put away savings to increase the repayment (at the end of the card term) and reduce the next BT charge.

BUT - BIG RISK WARNING. HAVING LOTS OF DEBT ON CC NEEDS TO BE MANAGED AND NOT FORGOTTEN ABOUT.

ChopperST

Only problem with this is that many dealerships will now cap what you can pay with a credit card making this form of stoozing quite difficult, but agree with you it can be a cheap loan for low to mid-value cars if you are disciplined enough to save alongside meeting the monthly payment.

OP - I've not had chance to check but are ZOPA the cheapest for an unsecured loan in your circumstances? Wouldn't it be better to cash in your lendings on there, take the hit (1% if memory serves me) and borrow the short fall from the best unsecured loan on the market. Overpay as much as possible on the loan until it is cleared and then invest / save again when you have no debt.

Doesn't make sense to save at the same time as servicing a debt which costs more.

jamesd

Credit cards are a much cheaper way to finance that. Combine with the 8% First Direct regular saver for up to £300 a month to start building up a repayment pot in case you can't get a renewal card deal. And possible use of the Zopa pot. Virgin and I think now NatWest offer balance transfers from current accounts that put money into a current account.

Zopa isn't a very efficient way to do this, the interest is lower than the regular saver for lending and higher than the cards for borrowing. The lending rates are also poor compared to the tax free rates available from investments within a stocks and shares ISA.

Declaration of interest: I've both had and made loans via Zopa. At current rates I don't expect to do any new lending there.

cloud_dog

ChopperST wrote: »

Only problem with this is that many dealerships will now cap what you can pay with a credit card making this form of stoozing quite difficult, but agree with you it can be a cheap loan for low to mid-value cars if you are disciplined enough to save alongside meeting the monthly payment.

Chopper, you've missed the point slightly.

The idea is not to buy the car using a credit card but to stooze the cash from the CC in to a bank account, then buy the car with cash (or a combination depending on your circumstance).

There are a few cards which will allow you to BT the debt from the CC in to your bank account (as Jamesd has touched on).

When I first started this stoozing milarkey I used this method but also used 0% CCs for purchases, built up the debt (ALWAYS ENSURING I HAD THE CASH TO COVER THE DEBT) then BT'd it on to a 0% for BTs CC.

(Whilst I'm reminiscing anyone remember the 0% free loan from Cahoot when it started up; £15k in to a 6ish% savings account)

I spend about £1k to £1.5k on my CC each month so it was easy to build up the debt (and savings) quite quickly and then BT it around.

This method of 'borrowing' money is not for everyone and is high risk, i.e. you may lose your job, your ability to fund the CC repayments may be hit leading to huge interest payments and your ability to BT may also be hit.