Car Financing options

Macca78

I currently have car finance which expires in November and i'm considering the options available to me.

My car cost £8k, i've paid £140 per month for 3 yrs and in November will still owe £3k.
I think my options are:
1) Sell the car, pay off the finance, and hopefully be left with enough for a deposit on a new car.
2) Keep the car, use some kind of personal finance to pay the balance, credit card or loan for 2-3 years.

I think i will keep the car for now as i'm hoping next year me and my partner will be in a better financial position and therefore have more options.
So would it be more sensible to get a credit card (if i can get this much credit), as its more flexible to pay off early?

My main query is how to finance my next car. Say i want a car approx £15k and can only afford £250 per month, as far as i'm aware the options available are:
1) Take a loan for the full value and pay over a longer term - ie over 5 years.
2) Get a finance deal like i currently have, where there is a balloon payment after 3 years.

Are there other options?
I'm reluctant to take a loan for over 5 years when i'm unlikely to keep the car for that long? Is it normal to do this, sell a car, keep the loan, use the proceeds of the car for your next deposit, and refinance for any difference. Or would you pay off a loan early? What about penalties?

Surely lots of people can't afford a new £15k car outright, so whats the norm for financing?

Any advice appreciated - i want to plan ahead!!!

saxmund

You could get a credit card like MBNA or Virgin which allows you to do a balance transfer to your bank account. You can then pay off the £3K and pay the credit card off as fast as you can - if you get an interest free deal your only cost will be the 3% balance transfer fee. If you can afford £250 a month you would be able to nearly pay it off by the end of the interest free period.

The balloon payment seems to me to be a bit of a scam. Obviously it allows people to buy a car they otherwise couldn't afford, but it still leaves you owing money when you want to change the car. Thus hooking people into going back and buying a car through the same people because it's easier to deal with the surplus that way. If you finance through a personal loan it's easy enough to roll the surplus over into the new one, but it's still going to increase your costs.

If you're thinking of paying £15K, it sounds as if you're thinking of buying a new car. Why not go for a second hand one? The same model 2-3 years old could cost half as much (or even less) and will offer the same driving experience. There's a little more risk, and servicing might be more expensive due to having to replace some items, but overall it offers better value for money. And if you do really have £15K to spend, well you'll get a much better car for your money - for example, if you can make do with 2 seats, you could get a decent Porsche Boxster for that money.

Macca78

Thanks Saxmund, the new car v's old car is just another what if, when considering the options.
I currently drive alot for work and have had a few incidents over the past few years, and through it not being my fault and being covered by a warranty, i haven't had to pay for any repairs needed.
Therefore, if i'm not going to be travelling, i'd be happy to keep my current car or buy a used car. However, if i am travelling alot, i'd prefer to be covered by a warranty.

The £15k is just an example, i'm generally wondering what the finance options are away from the balloon payment, and if its normal to take out a loan over a longer term. ie i've just used some loans calcs, and i could probably afford to pay such an amount over 6 years, but am of the opinion you should take out finance over the same life of the asset, and i doubt i would keep a car for 6 years.

saxmund

I can understand your need for reliability if your car is essential for your work, however a warranty doesn't stop a car from breaking down, it just funds (part of) the cost of repair when it does. I'd suggest that spending many thousands of pounds more for a new car just for a manufacturer's warranty is not good value for money, instead you could put some money aside for a repair fund or just accept that sometimes you will have to shell out for repairs - you will be saving money on the purchase price, after all. Or you could always buy an insurance-based warranty on a used car.

If you spend the same money on a used car you will get a better one for the same money - eg bigger engine, more comfortable, higher quality brand - which will make it more pleasant for doing your work miles.

I currently sit behind a computer all day, but if I had to drive say 20K miles a year for work I'd probably get something like a 2-3 year old diesel Alfa 156 Sportwagon. Which is both practical and a nice car, and the diesel will be much cheaper to run than an Alfa for that sort of mileage (I should know, I've currently got a 2.0TS petrol one and I rarely get more than 30 mpg).

If you like BMWs, a 2-3 year old one should be pretty reliable and reasonably enjoyable to drive as well.

Of course it's your decision; I just don't see myself ever buying a new car, I just suppose it's a good job some people do!