Advice re Hire Purchase of a Car

babelfish

My 25 year old daughter, who still lives with me and hubby, is celebrating getting her new job with more hours and passing the probation period by buying herself her first car.

On Saturday we found the perfect car for her at a good price from a dealership. My hubby went with her and she left a £250 deposit and applied for their finance. She can afford the repayments.

However, we have never in our lives had anything on HP and its really bugging me that you don't really own the car until you've paid up in a few years. She's putting down £1000 altogether in cash and the rest will be HP finance (car is £8250). My husband and I don't have any loans ourselves apart from our mortgage and Im thinking of taking out a loan for the car ourselves which daughter will pay for each month instead. Ive looked at the figures for loans and our own bank offer loans of 3.6% (assuming eligibility of course). If we do this then she can keep her £1000 and pay about £15 a month less (or pay the same per month and have a shorter term).

She's completely trustworthy and would pay each month or sell the car if she could no longer afford it.

Three questions (assuming she is accepted for finance anyway!):

1. Can she cancel the HP being as she only signed to apply for it on Saturday?

2. We sort of wanted her to have the loan as her first step to having finance of her own and as a mark of independence but is it worth it for all the extra money she will pay?

3. Will it still affect her credit rating if she cancels the application now?

Nearlyold

babelfish wrote: »

1. Can she cancel the HP being as she only signed to apply for it on Saturday?

2. We sort of wanted her to have the loan as her first step to having finance of her own and as a mark of independence but is it worth it for all the extra money she will pay?

3. Will it still affect her credit rating if she cancels the application now?

Answers


1. Yes she can just tell the dealer she's going to pay cash. NB Has she been accepted yet? Even if she had already collected the car all consumer finance has a 14 day cooling off period. (though the cooling off period does not apply to the purchase itself)


2. This is a judgement call, if you can get a much lower finance rate by borrowing yourselves and lending her the money this would seem the better option


3. A search will show on her credit file but can't see this being a huge problem

rdwarr

There's no guarantee that the car would be available for the same price without the HP - it's likely the dealer will be making commission on the finance which he wouldn't get on a cash sale.

I must admit your point (2) above worried me though. Do you really see having finance (e.g. debt) as a "mark of independence"? £8250 is massive for a first car, especially when she doesn't have the money.

babelfish

Its a mark of independence because she is at last earning enough to be able to buy herself a car instead of borrowing ours all the time. She will get used to paying a certain amount of money out each month - which we all do normally for mortgage/bills etc. She really wants to take this step.

We haven't had an answer on the finance yet and I don't know how strict the finance companies are when it comes to HP. £8250 was the price on the car and we didn't haggle them down on it. He reduced the monthly repayments by £10 somehow though after my husband said she'd buy it if he got the payments down, which must be due to the finance deal and perhaps a different interest rate? Its 12.9% apr.

mrsammyp

I think it is a debt that she needs to take on herself, be that by HP, PCP or a personal bank loan. This would give her true responsibility and help build her credit history.

MNM2903

sorry if ive missed something but why doesnt she get the loan herself?

babelfish

She is getting the loan herself. The transaction for HP is in her name. Its just that my husband and I can get a much cheaper loan and she could then pay our loan repayments instead of paying the higher HP payments.

babelfish

Just looking at worst case scenario's (because Im completely new to HP!). If the car was to be written off at any point what happens about the HP loan?

~Brock~

babelfish wrote: »

She is getting the loan herself. The transaction for HP is in her name. Its just that my husband and I can get a much cheaper loan and she could then pay our loan repayments instead of paying the higher HP payments.

...errrr...then she wouldn't be getting the loan herself would she, or have I missed something blindingly obvious?

babelfish

If she carries on with the HP finance then, yes, the loan is all hers, in her name only. I was just debating whether to get a loan for her in our name that she has to arrange to pay us for!

Red-Squirrel_2

Sorry in advance because this is going to sound a bit harsh.

There's no point worrying about the 'independence' gained by having a HP loan when she's going car shopping with her parents and having her dad do the negotiating for her at the age of 25!

If I were you/her, I'd forget this car, and get something much more affordable that she can finance completely independently without huge debt to parents or overpriced HP agreements. Most people only have a cheap second hand car as their first one in their first proper job, until they've saved a bit and had a couple of payrises.

She'll be able to get something half decent with just the £1000 in cash she was planning to use for her deposit. You can always give her a hand with advice on second hand car buying, asking around friends if they know of anybody selling etc.