H/P or loan for car?

djwolf

Just when it looked like I wasn't anywhere close to a deal with part-exing for a newer car I've managed to get to a compromise with the dealer. They raised their offer for mine and dropped the price of theirs also so I've gained almost £1k in all.

I always thought personal loans were best due to their good APR rates and flexibility but anyway, the dealer has strongly suggested that I go for H/P saying it's better in many ways than a personal loan because you get a bit more protection with the car as the finance company has an interest in it. I have the option of terminating the agreement after halfway and handing the car back. Also, there are no charges for early settlement or overpayments. They have offered me an APR of about 9% which seems reasonable and the monthly payments are affordable. I know that I won't officially own the car as such until the finance is paid but I'm fairly okay with that.

Any opinions on whether H/P is better than a personal loan?

Thanks.

chieffy72

The dealer is right but you need to make sure they're setting up a proper HP agreement,there should be a section in the paperwork titled "Termination,your rights" or something like that. If,for some reason you were struggling to keep up repayments halfway through you've got the option to hand the car back to the Finance Company. If you borrow from the bank,tough,they'll still want their money back.

Lots of manufacturers now giving deposit allowances now rather than discounts,discounts affect residual (2nd hand) values,deposit allowances less so.

For example,you see a new Focus for £15000 and you've got a £3500 deposit leaving a balance of £11500. Ford will give you £1500 towards your deposit so you're only borrowing £10000. Interest on £10000 at 7.9% APR over four years is £1600 so in effect you're only paying £100 interest! You're never going to get that sort of deal from a bank.

forgotmyname

Dont forget they make money by getting you to take their finance deal.

Have you done the figures for each? How much difference is there?

If you get £5000 on HP at 9% you pay almost £1000 interest over 4 years.

£5000 loan at 5% you pay £500 interest over 4 years.

SirFinch

It can also depend on if you are planning on keeping the car for the entire term of the finance deal. HP agreements are normally front loaded with the interest so in the early stages of the term you will be paying a higher percentage of the interest rather than paying back what you owe. Also if you plan of selling the car before you have settled the finance it can make it more difficult to sell privately as the new buyer will either need to be trusting that you are going to clear the finance or they will need to pay the finance company the outstanding amount themselves.

djwolf

Well, I basically need £8,400 to do the change over. Borrowing this amount over 54 months will cost me £189 a month plus an extra £300 payment for credit arrangement and completion fee. I think the APR is 11%. This makes it a bit more expensive than a personal loan at say 6% although I've heard not many people get that low rate in reality. If I want to sell the car later on I could get a personal loan or use savings to pay off the H/P amount before I put it up for sale. They said interest would get knocked off if settling early same as a personal loan.

Think I'm going for the H/P as it seems the most convenient way to go otherwise I have to mess about with applying for loans from banks, then sending signed forms back and then waiting a week for the money to be paid in. Also, if I hadn't gone for H/P I don't think the dealer would have increased their cash back offer for my part-ex so much.

phill99

Remember though that if you default on HP they can take the car off you and if you use it for work, you're shafted. A personal loan is unsecured so if you default, they won't take the car.

forgotmyname

Swings and roundabouts eh. Cheap loans are out there. But usually saved for the people that dont need to borrow money.

steve-L

Only you can decide what the car is worth to you.
I'd suggest you calculate both the lease and loan based on how long till you OWN the car and what the TOTAL cost is.

Then take the price guides and extrapolate what that car is worth after the pay-off period.

Then weigh up what this means to you..... are your circumstances likely to change, what might go wrong and how much to fix... and what REAL protection that gives under the lease.

mrs_T

If you have a decent credit history have you considered a 0% credit card? If you can repay over 23 months (barclaycard) it could be free or next to free depending on your dealer asking for a credit card fee. http://www.stoozing.com/0fees.php If you can't repay in full in the time period you can always transfer the outstanding balance to another 0% deal when the time comes. I've bought my last two cars this way.

Hintza

djwolf wrote: »

Borrowing this amount over 54 months

Which will last longer:-

The loan
The car
The buyer

Personally I think that is far too long on car.

forgotmyname

Yeah i think i said that in the other thread.

In 4 years the car will be 10 years old and be in the
same position he is in now. 10 year old car that needs
work.

But with another year to pay on it.

So possibly in a worse position.