HP vs personal loan for car purchase

aom_ref

Hi all,

I am about to buy a new (well, used but new for me) car and I'm trying to decide whether a personal loan or a HP agreement is best for me. My budget is around £120 per month and the trade-in value of my current car is likely to be £250 at the absolute most. (12 years old, 2 months MOT left and it's not in great shape)

In terms of loans, I used MSE Credit Club to find loans where I have a 90% approval chance. The representative APR on a couple of these is around 3.9%. I understand that there's a (strong?) chance I could be charged more than that. So, for a loan of £6,000 over 5 years I would pay around £110 per month with the representative APR but most likely a wee bit more than that.

This seems quite manageable to me and I would probably take out gap insurance to allow me to buy a similar car without having to borrow any further in the event of a write-off etc.

However, I'm not sure whether it is much more straightforward to just visit a main dealer and see what the HP looks like. My main concern is that I currently have a very good credit score with Credit Club/Experian and I'm concerned that adding several credit searches to this while shopping around will have a negative impact on this.

So can anyone advice on the pros/cons of personal loan vs HP as I'm not finding very much info online that is persuasive either way?

Willing2Learn

Don't worry about your credit score. Lenders do not see it and do not use it. A lender scores you against their own independent criteria and policies using the data held in your credit file(s), added to the data you submit in your credit application.


A few credit searches doesn't really matter. When a lender looks at your file they might be put off by lots of searches, but a few is ok. (Credit searches do impact your credit score, but since your score is meaningless, it does not matter.)

DCFC79

Just 1 question but you say you have budgeted for £120 a month, where is this amount currently ?

aom_ref

It's disposable income at the moment, I've just had a pay rise due to a job re-grading so this will be going on a new car.

DCFC79

aom_ref wrote: »

It's disposable income at the moment, I've just had a pay rise due to a job re-grading so this will be going on a new car.

Ok well in that respect then, HP can be easier to get as its secured on the car.


Did you not come across this
https://www.moneyadviceservice.org.uk/en/articles/buying-a-car-through-hire-purchase

aom_ref

That and many other articles, it was just that I didn't find anything in them that made me think HP was definitely the better option for me.

HP seems a bit more straightforward in the long run.

DrEskimo

What sort of rates are you getting on used car HP finance though?

They are usually upwards of 9%..for the cost difference I would say a personal loan is worth the extra hassle...

DCFC79

aom_ref wrote: »

That and many other articles, it was just that I didn't find anything in them that made me think HP was definitely the better option for me.

HP seems a bit more straightforward in the long run.

If your likely to change the car in say 2 years maybe a loan is better, possibly there's fees if you decide on a change if you have HP.

Like the link says if you wanted to modify it you need permission, a loan you don't.

Its possible a loan would suit you more.

letitbe90

Willing2Learn wrote: »

Don't worry about your credit score. Lenders do not see it and do not use it. A lender scores you against their own independent criteria and policies using the data held in your credit file(s), added to the data you submit in your credit application.


A few credit searches doesn't really matter. When a lender looks at your file they might be put off by lots of searches, but a few is ok. (Credit searches do impact your credit score, but since your score is meaningless, it does not matter.)

Credit scores are not meaningless - if it reduces your Experian/Equifax/Call Credit score, you can be 95% sure it likely reduces the company specific "score" that is calculated by their algorithm to judge if you should get credit. More often then not, people would be surprised just how close company credit score calculations are to some of the reference agencies - which is not surprising as the agencies are trying to mimic company algorithms.

People use anecdotes to discredit reference agencies, but it is a failure to understand how company algorithms work. They work off the same data the credit reference agencies work off too.

Niv

aom_ref wrote: »

Hi all,

I am about to buy a new (well, used but new for me) car and I'm trying to decide whether a personal loan or a HP agreement is best for me. My budget is around £120 per month and the trade-in value of my current car is likely to be £250 at the absolute most. (12 years old, 2 months MOT left and it's not in great shape)

In terms of loans, I used MSE Credit Club to find loans where I have a 90% approval chance. The representative APR on a couple of these is around 3.9%. I understand that there's a (strong?) chance I could be charged more than that. So, for a loan of £6,000 over 5 years I would pay around £110 per month with the representative APR but most likely a wee bit more than that.

This seems quite manageable to me and I would probably take out gap insurance to allow me to buy a similar car without having to borrow any further in the event of a write-off etc.

However, I'm not sure whether it is much more straightforward to just visit a main dealer and see what the HP looks like. My main concern is that I currently have a very good credit score with Credit Club/Experian and I'm concerned that adding several credit searches to this while shopping around will have a negative impact on this.

So can anyone advice on the pros/cons of personal loan vs HP as I'm not finding very much info online that is persuasive either way?

Please read this regarding gap insurance before you decide to buy it:


https://www.moneysavingexpert.com/car-insurance/gap-insurance/

MEM62

A couple of points for your consideration.

Firstly, do you regularly save more than £120 per month? If not then you cannot afford the repayments with your current spending patterns no matter how much you try to convince yourself otherwise.

Secondly, look at the value of the car now and the projected value of the car at the end of the loan period. Take this depreciation cost and add it to the interest that you will be paying on the loan. That, is what the car will cost you exclusive of running costs. Are you still convinced that this is a good idea?

The value of a car drops like a stone. Adding interest to that loss only compounds the expense. Don't be drawn in by 'shiny new car syndrome'.