Car finance advice

Mrc44

Hi ,
Could you please give me some advice/guidance before I give out advice,
Speaking to a relative earlier and was told she was paying 250pm for her current car at 10.9% :eek: , looking at her statement she says it’s circa £100pm interest and £150 off her bill which to me is ludicrous, she has no problem with the payments nor has ever missed any or anything like that but I feel she could save herself so much money if she sorted it out somehow, she purchased the car for £15’900 and Audi have offered her a settlement figure of £11’600 , now would I be right to suggest to her to just pay the car off completely by either cash savings, a cheaper loan or a 0% c.card and then pay that off accordingly??
Thank you for any advice I can pass on

DrEskimo

Yes, paying it off with cash would save a lot of interest.

However I suspect she didn't have the capital available when she purchased the car, therefore potentially doesn't have it to hand now either?

Consolidating her debt with a low interest loan or 0% CC would save money too, but that also requires meeting the requirements of the lenders to get offered these.

I suspect this is probably a PCP deal with a final payment, as the monthly payment seems low given the interest rate and amount borrowed? In which case, you then need to factor in that a cheaper loan or CC with a shorter duration will require substantially more per month to service. £11,600 over 36months with no interest is £320. Can she afford this?

If she is looking to save money, then she probably should go back in time and not commit herself to buying an expensive car on high interest finance. That's typically not helpful, so the next best thing is to see what trade valuations she can get for it, then use that to settle the finance as much as possible, and then get a cheaper car, either with savings or cheaper finance at a rate she can afford.

You won't be popular though.....no one likes being told they can't have something they want, let alone telling them they have to give something up.

middleclassbutpoor

10.9% sounds about standard for pre-owned cars on finance offered through the stealerships. Usually the higher the % APR the bigger the commission that they earn.

If she has the means to re-finance to a lower rate, I would definitely say that is good advice but I would suggest that you keep the payment the same thus reducing the term.

If they have the money in savings, providing that they won't be completely wiped out by this... again this is even better advice with a view that the £250 goes back towards building this up.

All of the above is caveated on the basis there are no other signs of financial mis-management by this person which from the info you have given wouldn't indicate this.

Mrc44

Thank you for your reply’s ,
So I was right in thinking would be a hell of a lot better off just paying the car off now at the settlement figure rather than another year/2 paying all that interest :eek: , I didn’t want to push advice on to her until I knew it was right and would be the most cost effective way to her, she has no money problems or needs / wants to sell the car it was just when I asked about the car the figures got brought up and shocked me , she’s happy just paying the £250pm as far as I could tell until the end of the term and then settling the bill (not sure if pcp or how it works) but it just got my mind ticking thinking she could be so much better off if she did it right.
Appreciate the reply’s and I’ll definitely be pushing her to pay it off ASAP

DrEskimo

Mrc44 wrote: »

Thank you for your reply’s ,
So I was right in thinking would be a hell of a lot better off just paying the car off now at the settlement figure rather than another year/2 paying all that interest :eek: , I didn’t want to push advice on to her until I knew it was right and would be the most cost effective way to her, she has no money problems or needs / wants to sell the car it was just when I asked about the car the figures got brought up and shocked me , she’s happy just paying the £250pm as far as I could tell until the end of the term and then settling the bill (not sure if pcp or how it works) but it just got my mind ticking thinking she could be so much better off if she did it right.
Appreciate the reply’s and I’ll definitely be pushing her to pay it off ASAP

Just tell them to add up the upfront payment, all the monthly payments and the final payment (I highly suspect this is a PCP finance deal) and then tell them to subtract that from the initial cost of the car (£15,900) and they will see how much that finance is costing them. Then get them to compare that to a low interest loan.

However, if it is a PCP as I suspect (theres nothing complicated about it, it's just a loan, but a portion is deferred to the end as a larger final payment) it might be that the PCP finance is the only way they can afford to run the car. They might not have the savings to pay it off, or be able to afford the higher monthly cost (despite the loan having a low interest rate).

In which case, their only options are to keep paying it, or sell it and get something cheaper.

Mrc44

Thank you DrEskimo I shall pass on your advice and hopefully she will then realise how much better off she could be!! Hopefully she will pay off the £11’900 settlement amount from savings or at least a big chunk of it then the remainder on a 0% c.card and then pay that off accordingly albeit at a higher cost per month but will save her so much in the long run. I’ve never done or looked into the pcp thing but I assume people just see the “I can get that nice shiny car for £250pm that’s a bargain” and then sign up and drive away without fully understanding or looking at overall costs of the 4/5year deal.
Thank you for your help

Clive_Woody

Mrc44 wrote: »

Thank you DrEskimo I shall pass on your advice and hopefully she will then realise how much better off she could be!! Hopefully she will pay off the £11’900 settlement amount from savings or at least a big chunk of it then the remainder on a 0% c.card and then pay that off accordingly albeit at a higher cost per month but will save her so much in the long run. I’ve never done or looked into the pcp thing but I assume people just see the “I can get that nice shiny car for £250pm that’s a bargain” and then sign up and drive away without fully understanding or looking at overall costs of the 4/5year deal.
Thank you for your help

£250/month is £3000/year, so even after 5 years she will have only paid £15,000 in total, which is less than the purchase price (£15,900) not counting the interest, so it sounds like a PCP deal with an additional final lump sum payment if she wants to keep the car.

If only £150/month goes towards paying the balance, then after 5 years this will be £9000 off the balance, so a final payment of around £6,900 if she wants to keep the car (assuming I got my sums right).

If she can pay it off now then she will save a decent chunk of money.