Upside down on a car loan.. Advice

TangoMike83

I currently have a VW Golf, which has been fine for my small family of me my fiancee and our 2 y/o son. We are expecting another baby in September and I would like to buy a larger second hand car. However, I have a bank loan for my car and I believe I owe more than it's currently worth by about 2k. Does anybody have any advice of what the best course of action to take? Could I pay off the loan plus a new car with another loan? I know that I can repay the entire amount of the loan at any time without additional fees.

UsernameAlreadyExists

Has the first loan been pre-loaded with interest? (i.e. sum of outstanding repayments = capital + interest over term) If so, don't pay off the loan with another loan otherwise you'll be paying interest on interest.

TangoMike83

I'm not sure to be honest.. I guess I'll have to ring them and discuss it. I've got the contract with me but I'm not the best at understanding what it all means??

UsernameAlreadyExists

Well ... imagine you borrowed £1000 over 1 year at 20% APR. So you'd need to pay back £1200 in total. so that's £100 per month right?
So if 4 months down the line you've already paid 3 months at £100 you decide you want to pay it all off ... you just pay back the 9 remaining months at £900. Which is great for the lender because they get all the money back sooner, and the £200 interest! Of course there will be no penalty!


Now imagine you decided to get a different loan for £900 (and some more) to clear the previous loan and get a new car. you'll be paying interest on this £900 ... which is ON TOP of the interest that was already paid for on the first loan!


This is all I am trying to point out, but it depends on the type of loan you have etc.

TangoMike83

Yeah I understand what you mean now.. Thank you.. I think this is the situation I am in I guess the best way would be to try and save the difference on the value and the remainder of the loan (the 2k.) Thank you.

harveybobbles

So the car isnt on finance then? It's just a bank loan?

Whiner

harveybobbles wrote: »

So the car isnt on finance then? It's just a bank loan?

Yes. He didn't say it was on finance.

fishybusiness

Could I pay off the loan plus a new car with another loan?

You can do anything you want if you have access to a larger loan.

Question is....do you want to?

gilbert_and_sullivan

Why willingly pay interest to someone on a depreciating asset, then when its not working out do the same again, only this time from a starting point £2000 worse then when you started, along this ever tighter spiralling road lies ruin.

Hintza

The Golf isn't tiny and he cheapest car (in general) is the one you own. Keep the Golf for the time being would be my advice.

BillJones

UsernameAlreadyExists wrote: »

Well ... imagine you borrowed £1000 over 1 year at 20% APR. So you'd need to pay back £1200 in total. so that's £100 per month right?

Well no, of course you'd not. Your payments are what you'd have at 41% APR.