What are my chances on a loan/PCP for a car?

Troubled42

Hi all.

I'm really looking into buying an with my budget being around 12k. I'm looking for a particular spec such as the 1.4 tfsi 122 or 150bhp S line 3dr model which has some of the newer xenon headlights + DRLs. This means I'm looking at 13 plate onwards, due to the particular upgrades i'm after. (cylinder on demand engine would be another bonus)

As to be expected, I've been looking at used cars and there's some great deals out there around £9-13k for <40k mileage and similar to the spec I'm after. I've got some money saved up (£7k, which means I'm looking to borrow around 6 or 7k.) At the way things are... I'm able to pay this loan off within 12 months. This would be a loan from my bank.

I walked into the local garage to ask a few questions about particular models and naturally, we got chatting about purchases. He seemed very fond of offering me a PCP which 85% of the customers who walk through the door will go for when looking to buy a new car. At my age + circumstances I'd never dream of driving a brand new really.. but it did sound awesome...and slightly worrying if its too good to be true!

I'm mainly wanting to know if just going for the loan and paying in cash is more suitable than PCP. I understand this is a decision thats completely based off my circumstances so I'll try and list a few. I'd really appreciate any advice... and I dont want to be here in 6 months time making a 'i cant pay my debt because I bought a pricey car' thread. I'm trying to keep as open minded as possible about this, even if its currently unrealistic for me at this stage.

Before getting in any specific details/costs of the PCP/loan... I was told its easier to get PCP over a bank loan, given that at the end of the day, the company is going to own the car and they'll just repossess if you fail to pay.. whereas a bank will need to chase you through courts.

I'm I've been in and out of work (mostly to return back to university) but after graduating in 2015, thats settling down. I managed to get a 6 month temporary job with a reasonable salary in 2015 which finished in April 2016. I was out of work for a few months and I started working again in August on a fixed term 12 month contract.. the likelihood being I'm most likely going to be kept on due to staffing shortages/restructuring... but hey, I can't guarantee that can I?
If for example the worst was to happen and i'd lose my job in august 2017 and I had PCP on my shoulders, I'd have
1) already built up a healthy amount of savings to carry on for months due to the low monthly payment costs of the PCP
2) I'd have most likely secured another job 2-3 months before knowing I was leaving. a PCP hanging over my head would definitely motivate me in sorting out the next job.

I love the sound of the flexibility of the PCP - knowing that after three years you can just swap for a newer model.. and off you go again. (Definitely not really worth paying the balloon payment to own the car) The only concern it throws in is ... well, its over several years.. whereas i know i'd pay off a bank loan within 12 months from my salary, no questions asked, no uncertainity, no worries about losing my job or anything like that..

There's just so many mind boggling pros/cons. used car etc.. 30 or 40k+ miles.. breakdown costs, repairs, insurance, MOT...any unseen charges in the future.. compared to an absolutely brand new car with Audi warranty, servicing, no MOT for 3 years etc.

Here's a few more things to note;

- Both salesman I spoke to recently seem to suggest i'd 'definitely get the finance'... but I won't know until I go through with it and even then, being rejected will dent my rating..? He did ask if i've been at my current address for a few years and the answer is yes.
- My credit score is good.... but I don't have any history of borrowing. It was only a week ago I signed up to my first credit card from my bank which they're accepting me for. ClearScore says 465 and Noddle says 619, 4/5
- I've been driving since I was 16, 7 years no claims.

What clearscore says;

You have no Court or Insolvency data
You have no accounts in Default or Repossession
You have been on the Electoral Roll at your current address for a long time
You have made very few applications for credit in the past year
You have held at least one of your accounts for several years
You have very few / no accounts in arrears
Your current Telecoms balance is relatively low

I'll probably post about the specific details of the PCP after a few days, as well as interest rates. If I've missed anything then please don't hesitate to ask!

Big thanks for reading.

[Deleted User]

PCP is certainly easier to get, as you say, as it's secured on an asset.

However, with such a thin credit file, you'll be perceived as a very high risk. Remember that your credit scores don't mean anything.

You'll probably struggle with any kind of loan at the moment, especially on a fixed rate contract.

If you're looking to move out of home, I would prioritise that. Better and newer cars will still be waiting for you.

Oh - and it's 'I'd have' not 'I'd of'.

Troubled42

Yep. Completely understand i'm high risk. at the end of the day i could try for finance or a bank loan and get rejected for both. It will knock me down several pegs and I'll be very disappointed.. but that just means wait a few months for salary to boost the bank balance and away we go...
No, I've not got my sights on moving out at the moment... but it wouldn't be smart to ignore the fact I should start saving for the inevitable future. I never really wanted to buy an Audi just because 'its Audi'.. just fancied the higher spec models which will save me cash on fuel, tax, etc. there's definitely other options out there, I know. I suppose we could almost take the make/model out of the equation here to be honest.

Lets not forget that its also a possibility of my parents being a guarantor to get the deal finalised, to which I'd pay for.

I've corrected my horrific grammar, thank you.

[Deleted User]

No problem. At least you didn't start your post with a 'So..'.

Gaz83

Troubled42 wrote: »

Lets not forget that its also a possibility of my parents being a guarantor to get the deal finalised, to which I'd pay for.

If your parents are willing to be a guarantor, then it'd work out far cheaper for them to take out the loan in their own name and you make the monthly payments to them.

Nebulous2

Don't kid yourself about saving money on fuel. We've all been seduced by bright and shiny things and this is a luxury / indulgent purchase.

You are either signing up to committing a big chunk of your income for one year or for three. There is a big difference. Circumstances change unexpectedly. They have more chance of changing over a longer timescale. At the end of the year with the loan you will have an asset worth maybe £10k. At the end of the three years with PCP you will have maybe £15k debt to pay to keep a £15k car or nothing at all.

So you aren't comparing like with like.

For people who want to buy new cars PCP can work, if the garage throws in a dealer contribution and other goodies such as a service plan. It is sometimes worth it when you do the sums, especially if you can then pay it off with cheaper finance.

Anyway, whatever you decide enjoy it. We're only young for a while and a new toy can bring a lot of pleasure.

keith969

If you are set on a new car, then a PCP can be a good way since dealers often give a 'contribution' towards the deposit. I recall Audi were offering 2K on at least some models.

However... if you buy a new car, remember that depreciation kicks in the minute you drive the car off the forecourt. Given that a S line A1 will be about £21K OTR, your car will be worth thousands less straight away. Whereas a 3 year old car will not depreciate so rapidly.

A PCP also locks you in to the cycle of either renewing it at the end of 3 years, or finding a non unsubstantial payment to buy it. Whereas if you buy on a loan, after the loan is paid off it's yours.

foxy-stoat

I got to the end of the second paragraph of the first post before I made my mind up.

Take the loan for £7000 with your bank with monthly repayments of £600 over 12 months. Cheapest, safest way to finance your A1.

CLAPTON

sounds like total economic madness
you haven't even got a permanent job and you want to start a lifetime of debt.
buy a 2-3k car

bazzyb

If you're putting your savings in as a deposit then go for the loan option (or HP) rather than PCP.

With PCP, if you're not intending on paying the final balloon payment then you will have nothing to show for your £6-7k deposit which you put in, you will be wanting to get a new car presumably and then unless you have been saving up you won't have as substantial a deposit to put in to the new deal.

With the loan option, when you have paid off all the payments you have a tangible asset which you own and when you do decide to look for another car the trade-in can be used as a good deposit.

Or, the most sensible solution of all is as posted above - buy a lower priced car without borrowing at all, this sounds like a good solution for now when you don't have a permanent job.

iolanthe07

CLAPTON wrote: »

sounds like total economic madness
you haven't even got a permanent job and you want to start a lifetime of debt.
buy a 2-3k car

Clapton is right, of course. But few things in life compare with the pleasure of having a brand new car. Over the last half century I must have financed the Caribbean cruises of many car dealers, so I'm maybe not the best person to advise you, but I would go for it. You're a long time dead.