Car finance overpayment

mikeopvc

Hello, I just need a little advice please?

Our car finance is with Alphera and we can't make regular overpayments in small amounts by standing order like we did with our last loan, now we can only make larger lump sum payments.

So we have saved £500 and want to make a payment but when I just called them they gave me 3 options:

1 - Reduce the term by one month for a £388 payment or by 2 months for £590
2 - Reduce the monthly payment by about £12
3 - Reduce the final balloon payment by £500

I said i'd call back once I've decide which option is best.

Any advice appreciated,

Thanks

AnotherJoe

Without knowing how long the loan has to run or what the monthly payment is I don't see how anyone can advise except option 3 seems utterly pointless to reduce the balloon payment since you could put the money away and earn interest on it.

SeanG79

If you chose option 3, it should also slightly reduce the monthly payments, because currently you are paying interest on the balloon amount over the period of the agreement. If the monthly payments don't reduce via option 3 then it would be the an impractical option to choose.

Option 1 and 2 should yield similar results in total interest paid, so really its whether or not you want to pay for a shorter period or have the monthly payments reduce.

foxy-stoat

Your better off keeping it in a savings account and earning a few pence interest, then use this money to make the last few payments or put towards the balloon payment.

No point in reducing the monthly payments by £12.

SeanG79

Definitely not better off keeping it in a savings account. By overpaying, the overall interest is reduced, and the interest paid on the car finance is almost definitely more than you will earn on interest on savings...

redpete

foxy-stoat wrote: »

No point in reducing the monthly payments by £12.

Or £144 a year - would be worth it to me.

mikeopvc

Hi sorry for the delay in getting back to this.

Here is a bit more info:

Term - 48 months
Start date - 8 December 2015
First monthly payment - £299.98
Regular monthly payment - £299.98
Final monthly payment - £8,887.00
It doesn't say anything about interest rates etc.

Basically we just wanted to make overpayments in order to achieve positive equity with the car so we will be in a better position when we decide to change it for another deal.
Our last agreement with lloyds finance for our last car was much easier as we could just make a faster payment of any amount whenever we wanted and also had a standing order of £20 a week. Eventually we were told the car was worth more than we owed so we got a new deal.
Alphera don't work like that, you can't make small payments and you can't set up a standing oreder, you can only make lump sum payments and you have to ring up each time which is when you get these confusing options, I'm not even sure if paying the £500 will actually save anything with regards to interest, I think they will just deduct it from the total current balance and then devide the remaining balance by the remaining months.
Does that make sense? It sort of does in my head:o

SeanG79

The £500 will definitely save you some interest.

The agreement is regulated, by shortening the term or reducing the monthly payments, you will be reducing the total amount of interest paid on the agreement.

It will have the same impact on the loan interest as the Lloyds loan, only they want bulk payments as opposed to smaller payments.

nimbo

You only pay the balloon if you keep the car. So making the balloon smaller is you're planning to swap the car up seems madness.

Would it be worth saving it for a bigger deposit when changing the car?

I chose my car as it was interest free - and the second and third options were lower than others. The documents should tell you the interest. Which should help you make an informed decision about what to do with the money.

I'm a bit astounded you've borrowed around 23k without knowing what interest you're paying. Although To be fair I had a massive melt down in the car sales room when the sales man kept throwing numbers at me.

Nebulous2

I'd suggest taking it off the balloon payment is exactly the right thing for you to do. You are paying interest on the balloon payment all the way through and reducing it simply reduces the final settlement figure.

Shortening the term brings the final balloon payment closer. You would have to find 9 grand two months sooner if you stick with the agreement.

Reducing the monthly payment simply gives them £500 which they effectively give you back in dribs and drabs each month and will save less interest.