Car finance balloon payment

hd216

Hi guys and girls,


I currently have a 42 month 0% car finance agreement, about half way through it. What I'm trying to work out in advance is the cheapest way to pay off the balloon payments.


As of today, there is £8556.26 outstanding with 20 monthly payments of 193.04 remaining, which leaves me with a balloon payment figure of £4961.46.


While I'm financially comfortable paying the £193 each month, I don't think I can stretch myself quite far enough to save the extra ~£240 each month to have the full £4960 figure in the 20 months I have left.


What are my best options loan wise to achieve this?


In my head was thinking something along the lines of a 3 year loan of £7500 (most loan companies seem to offer an interest rate break at this level) @ around 3.6%APR, put it into my Santander 123 account now which would earn ~3% interest on it, which would mitigate some of the interest charged.
In 20 months time when the finance balloon payment is due, pay it off and then overpay the loan repayments to minimise interest paid back?


Does this make sense, would it work? Is there a better option (other than aiming for the impossible extra saving per month!)

David301

You want to borrow £7500 now, put it in your bank for 20 months, whilst paying the repayments on this and your car loan so that you can pay £4961 in 20 months?

Why dont you just borrow £8556 now at 3.6% apr for 36 months total repayable £9031 cost £250pm

You probably wont get 3.6% though

hd216

Hmm, I think I was probably just thinking about it in a really backwards way and focussing on the interest rates, rather than the actual interest paid back etc.:whistle:


Now that I've engaged my brain... a 2 year loan for the 5k works out cheaper right even if the interest is slightly higher?

David301

It all depends whether you can get a loan in the first place and what %APR you are going to be offered

If you want to keep your existing car then I would suggest that you probable start saving the extra money now to limit how much you need to borrow and then do the rest on a 0% credit card over however long the deal is

Herzlos

hd216 wrote: »

While I'm financially comfortable paying the £193 each month, I don't think I can stretch myself quite far enough to save the extra ~£240 each month to have the full £4960 figure in the 20 months I have left.


What are my best options loan wise to achieve this?

Save as much as you can now, and if 20 months time you want to keep the car, pay for it from savings, with a short term loan to cover the shortfall.

Don't even consider borrowing the money for it until the month before the payment is due.

Foxy-Stoat_3

hd216 wrote: »

I don't think I can stretch myself quite far enough to save the extra ~£240 each month to have the full £4960 figure in the 20 months I have left.

Can you afford the £220 a month for a £7500 loan over 3 years, if you get the best rate?

If you can then buy £220 worth of Premium Bonds for the next 20 months, by the time your balloon payment is due you would of saved £4400 and your nearly there for the final payment. If you win big then you can buy a nicer car, if you win small then you would of out performed the best interest paying rate accounts.

Good luck!

pd52

I'd just hand the car back instead of paying the ballon payment and start again, I always thought this was the idea of pcp deals, otherwise you just end up with another loan on a car that really isn't worth the ballon payment amount that's outside the manufacturers warranty that needs mots etc. if you paid off the BP in full then went to trade it in you wouldn't get that amount

Herzlos

The car can be worth more than the balloon payment though, and it'll be cheaper than starting a new agreement on a new car, so it's worth considering borrowing to buy the car. But not 2 years in advance.

Nearlyold

pd52 wrote: »

I'd just hand the car back instead of paying the ballon payment and start again, I always thought this was the idea of pcp deals, otherwise you just end up with another loan on a car that really isn't worth the ballon payment amount that's outside the manufacturers warranty that needs mots etc. if you paid off the BP in full then went to trade it in you wouldn't get that amount

If it is a PCP deal then that is an option however it may be HP with a balloon where there is no hand back option at the end, you have to pay the balloon.

MNM2903

Depending on the car and how well its held its value i would probably continue the payments and then get a loan for the balloon payment at the end then you own the car and have the option to sell an recoup some money if thats the kind of thing you want to do, if not you own the car and should probably get a few more years from it.

Most are right though you probably wont get the 3.6% even if its available at the time it only has to be offered to 51% of customers. My girlfriend has an excellent credit history and didnt get her loan at this rate.

Serendipitious

Midway through my original PCP, I also began to consider my options. But when it came to the balloon payment time for mine, the dealership's finance department offered me various options, including a new HP arrangement from themselves at a very favourable rate over 2 years. I accepted this, but within a year of the new agreement starting, I fortunately acquired the money to pay it off, so I settled the new agreement early.

I now have a service plan with the dealership at around £15 per month to cover all services and MOTs till the end of 2017.