Car Finance

mattrgee

Need to buy a new car and seemed to have narrowed it down to either a Honda Civic or Honda Jazz. The salesman suggested for following:

Take out the finance over 5 years instead of 3, therfore reducing the monthly payments to something more manageable. Then if you want to change the car after 2 or 3 years, the dealer would settle the finance and I would avoid the interest on the remaining balance. But, there would be a penality of 2 months repayments to make.

This doesn't seem like too bad a deal. Are there any catches I should be aware of? Have I missed anything?

ianm41

I take it we are talking about a brand new car here..unless you have to have the latest 05 reg..buy one 6-12 months old....you will save a fortune... not being funny here but anyone who buys a car brand new need their head examined.. yes I know you will be able to specify your exact requirements ect...but..does it really matter if it does not have the alloy wheels you wanted or the exact colour you were thinking of... do yourself a favour and by an ex-demo car...

Justin_Credit

I know very little about the subject but just thought I would give you my opinion.

You would probably be paying much much more in the way of interest over 5 years, of course you would have to check out what the APR is and calculate exactly what the car will cost you and do the same for a 3 yr period.

With all loans the early payments are made up mainly of interest and very little capital repayment, so 2 or 3 years into a 5 year loan you will find that you have paid only a fairly small amount off of the original capital sum. If you decide to part-ex the car at that time most of the proceeds will probably go towards settling the debt and then you start the whole process over again with another new car.

At least if you could manage to pay it over 3yrs and then go for a new one, all the proceeds will then go towards the new car.

I feel that the salesman is trying to lock you in so that you will renew in 2-3 yrs and then he can carry on selling you cars for ever more, but if you go along with that you will never own a car, it will always be owned by the bank or finance company.

Just my thoughts, you need to mull it over and research the figures yourself of course.

HTH

JC

Poppy9

Justin_Credit wrote:

I know very little about the subject but just thought I would give you my opinion.
JC

Welcome to MSE:D

mrcow

mattrgee wrote:

This doesn't seem like too bad a deal. Are there any catches I should be aware of? Have I missed anything?

I'm sure that you've already thought this through and are having doubts (or you wouldn't have posted here).

Please bear the following in mind before you agree to anything:

Under any other circumstances would you really consider financial advice from a car dealer (second hand or otherwise) sound advice?? Please remember, he doesn't give a second hoot about you, your financial circumstances, or whether you can well afford to sign up to an expensive credit deal for the next five years.

He wants his commission. Full stop. That's as far as it goes. And he'll sign you up to whatever it takes to make the sale. He's advising you to go for a five year loan to make you think that you can afford to spend more money.

And yes - any credit that he is offering you will be overpriced (whether you spot it immediately or find out the hard way!) and by opting for five years, you'll just be overpaying in interest.

Shop around, for the car AND the finance. Remember to compare like for like (ie. get the APR figures of any loans offered, not some flat rate that he may try and quote you). Don't rush into a decision, as you'll have plenty of time to repent at your leisure if you get stuck with a overpriced car on an expensive finance agreement.

mattrgee

Thanks for the help so far guys...

I'm quite happy to own a second hand car or nearly new car but unfortionately there doesn't seem to be very many Civic's or Jazz's about. Their depreciation is very low and a lot of the car supermarkets won't touch them

I'm going to nip into the garage and find out what the actual APR is rather than just basing it on the monthly repayments. What is an acceptable APR rate when getting finance through a garage?

Thanks in advance

Justin_Credit

I would recommend that you do as mrcow says and shop around for the car and finance. By all means get the figures from the dealership you've been to but go away and study them and check out other lenders before committing yourself.

You should be able to find more info on loans from within MSE, the 'Banking & Loans' button on the left of screen should get you started.

JC

MarkyMarkD

I would always propose NOT borrowing from the dealer, unless you are getting a 0% rate or some very low rate manufacturer-sponsored finance deal.

Some lenders (e.g. A&L for one) do their own PCP-type deals, where the payments are on the basis that there is a "balloon payment" due after (say) 3 years - this means your payments are lower, but there isn't a penalty for settling after 3 years by selling the car. A&L's is called "car purchase plan".

burbs_2

Im a car dealer and i would avoid the car finance package that i sell like the plauge. every car dealer i know would say exactly the same.

there are numerous better deals out there.

mattrgee

burbs wrote:

Im a car dealer and i would avoid the car finance package that i sell like the plauge. every car dealer i know would say exactly the same.

there are numerous better deals out there.

Straight from the horses mouth!

Thanks for the help.

fatboyonadiet

Be careful what they say, I got a Jag and they told me it was a low APR (4%), depreciated like hell and got rid. When I got a VW was all that bit wiser with finance and basically worked the figures out myself was cheaper to get a personal loan (will do a LoB or0% shuffle soon but that's a different story!), the finance guy pretty much said we are more expensive then getting a loan but without actually saying it! Better to do your own sums, remember they won't put the fee for taking out the loan or repaying early in their figures.

Also sell the car privately as you will get more money - more hassle though