Car Finance

eng1991

I am looking into getting a vehicle on finance next month and was wondering how it all works.


I understand that PCP is my best option. Will the finance company (Vauxhall vehicle so most likely Arnold Clark) want to see bank statements/wage slips or will they simply do a credit check on myself?

System

They may. Being worried about a finance company wanting to see wage slips is usually something those who don't have that much income and can't afford the finance do. Car finance is quite often the straw that breaks the camels back for those whose finances are tight. Remember this is something that you're going to be signing up to for 3/4 years and can't get out of without serious financial penalty until the last 6 months or so.

Cornucopia

Have a read: https://www.moneysavingexpert.com/car-finance/personal-contract-purchase

eng1991

Wages aren't a problem its more the bank statements. Lent money out recently and don't want any questions being asked. Never been in - bank account wise, got adequate savings, never missed a direct debit payment (phone, gym, help to buy isa account). Making the payments isn't a problem, saving for a house so dont want to dip into the savings for a new car would rather pay monthly (£200 roughly) which is more than affordable.

As i said just dont want any questions regarding statements last few months thats all

Lewys

I never had them look at my bank statements. I think the only documentation they looked at was my driving licence.

I had a credit check done after they'd taken some personal details, addresses, employment details and annual salary - but as far as I know they didn't confirm with my employer and I certainly didn't hand any wage slips over.

You might go to Arnold Clark, but the money will be coming from Santander or MotoNovo or Lloyds etc.

eng1991

Thank you for the reply. Yes I believe that they have 20 different finance companies they go to and dependent on the credit rating is what price gets offered

foxy-stoat

Have you tried getting a loan and buying a car with cash?

Rather than paying £12,000 for a £9000 car.

eng1991

Would taking a loan out and then purchasing the car not be less beneficial considering the rate at which cars depreciate in value?

foxy-stoat

Depends on the interest rate, how long you are planning on keeping the car, if you unlucky enough to have a total loss claim without Gap insurance, purchase price vs actual market value or private sale.

DrEskimo

eng1991 wrote: »

Would taking a loan out and then purchasing the car not be less beneficial considering the rate at which cars depreciate in value?

PCP is a loan. It's just a different payment structure to a standard personal loan.

Whilst you benefit from lower monthly payments, it comes at the cost of higher interest. The APR only tells half the story. A standard bank loan with a similar APR to a PCP will still be many many times cheaper in terms of interest, despite borrowing the same amount, over the same term.

The only additional protection you get from a PCP that you don't get from a standard loan is a guaranteed future value (GFV, the final 'balloon' payment at the end). Basically if the car is worth less then you can just hand the car back.

However I think this is grossly overstated as a benefit for a few reasons;

1/ The extra interest you pay by getting the PCP to get this GFV protection can be so much higher, that any reasonable estimate of unexpected deprecation would not be more than the extra interest paid (generally. I know some early EV's like the Leaf and the Zoe would have benefitted from the GFV protection). For example if the car depreciated £1,000 more than the expected GFV, but the PCP loan cost you an additional £1500 in interest compared to a standard loan, then you are still at a net loss of £500, despite the heavier than expected depreciation.

2/ The GFV is based on bottom market value. It's very easy to get more for the car through other dealers, websites like Tootle or just selling it privately. Basically see if any negative equity before just handing the car back is based on a fair valuation.

3/ It's only viable at the end of the term assuming you've adhered to the T&C's. If you have gone over your predicted mileage then you have additional mileage costs, and if you want to trade the car in earlier, then the GFV doesn't apply.

The car will depreciate the same no matter how you finance it, so the difference is in the cost of the loan. Whether the GFV gives you protection you want at a reasonable cost is up to you. Work out the difference, and think to yourself "If someone offered me an insurance policy that gave me the GFV at that price, would I buy it", as essentially that is what you are doing.

The only time things are different when it comes to deprecation is with leasing.

Cornucopia

Good post, and I agree with much of what you've said.

However, I don't see how the interest on a bank loan can be "many, many times cheaper" that of an equivalent PCP, but perhaps I have misunderstood.


For me, the comparison looks like this:-

Citroen C4 Cactus PCP: £19270 OTR, 37 Months @ £270
Deposit: £2500, Incentives: £2500

This gives a total cost of credit of £1533, APR 4.9%

A 36 month bank loan for £14270 would give payments of £426pm, and a total cost of credit of: £1079. This makes the very big assumption that the same incentives would apply to Bank finance.

Or trying to match the PCP payments: 60 x £267, for a total cost of £1807.

There are also better PCP deals on the model specified than the one I have posted. Caveat Emptor - as always.