Car Finance vs Personal Loan

reaprr

Hi All,

My girlfriends car finance deal (PCP) will be coming to an end soon and she is looking at all her options. The two options she is leaning towards are:
1) Entering into a new finance deal with the car dealer or
2) Applying for a loan and buying a "nearly new" second hand car

The value of both of these would be the same, around £8k. And they would likely be for 3-4 years, costing about £150-£200/month.

Additionally, we would like to apply for a mortgage in early 2016.

My question is; do lenders see one of these finance options more favourably than another?

I am trying to persuade her the loan would be better however she sees loans as 'bad' and car finance agreements as 'understandable'. I am not sure if banks see a difference at all?

chanz4

lenders don't see either as good as takes off your available, way to look at pcp is its renting

reaprr

Yes I understand that both would have a negative effect on your score, but is one worse than the other?

Batchy

I have just recently got a mortgage.

my experience is :-

Credit card debt ... Bad
Personal Loan ... Bad
PCP ... Bad

Operating lease, contract hire goes into lifestyle costs, so is treated differently

I hire my cars effectively this way, and if I would of had a 17k debt for my current car left rather than 4k worth of payments left, I probably wouldn't have got the mortgage i needed to buy the house we have now purchased.

The fact is, the car can be returned tomorrow for £400 (quoted)... and with a loan you have to pay the 17k regardless of what the car is worth.

Its just different, and the more you speak to different people you will get different answers as not all providers treat in the same way.

stylis

Neither will have a negative impact upon your score with regards to the mortgage, so long as you maintain the payments.

What will matter is affordability.

Best bet is to hand back car at end of term, buy a cheaper car for cash and bank the £200p/m you have set aside for payments, when it comes to mortgage time this will help towards showing you have the affordability.

With regards to the question of PCP vs Loan. Generally a PCP will work out cheaper per month because you are essentially hiring the car and handing it back at the end of the term. Of course if you are wanting to keep the car at the end of the term then you should be putting money aside each month anyway to pay the balloon payment.

The idea behind PCP, is to be an affordable way to hire a car, with the the benefit of driving a brand new car every few years.

If you are looking to keep the car longer term, say 10 years, then a personal loan would be the best option, (pay for 4 years and have 6 years of not paying anything).

It's entirely your preference.