Car finance - HP or bank loan?

hotel_whiskey

Hi any help/advice would be very much appreciated.

I need a small reliable car for a new job. I have seen something suitable and the garage will offer finance. However, I have also looked in to getting a loan at a reasonable APR with the bank.

I realise that the APR through the garage will be considerably higher but the car man said HP was better as the loan is on the car - this sounded good but I don't really understand what he meant.

I can't see that I will need another high purchase loan in the near future - unless I need house repairs (touch wood) - but I assume having a bank loan could mean I am less likely to get another loan if I needed it?

Thanks in advance.

DrEskimo

Apply for a couple of loans from banks and see what you get offered.

There is no sense in getting a secured loan at a higher rate if you can get an unsecured loan cheaper.

What is your budget and how much are you looking to borrow.? I tend to advise people not to borrow money on depreciating assets, but if they have to then make sure it's no more than 50% of its value and not longer than 3yrs. This ensures that it's very unlikely you will owe more than the car is worth.

Plenty of cheap reliable cars.

dresdendave

hotel_whiskey wrote: »

I realise that the APR through the garage will be considerably higher but the car man said HP was better as the loan is on the car - this sounded good but I don't really understand what he meant.

What he meant was that he will earn more commission if you get finance via him, that is why it is better (for him).

hotel_whiskey

Thank you that's reassured me. The car is newer and therefore more expensive than my original budget - I haven't bought a car for a while - but as it's needed for work I need something that will, hopefully, be reliable.

DrEskimo wrote: »

Apply for a couple of loans from banks and see what you get offered.

There is no sense in getting a secured loan at a higher rate if you can get an unsecured loan cheaper.

What is your budget and how much are you looking to borrow.? I tend to advise people not to borrow money on depreciating assets, but if they have to then make sure it's no more than 50% of its value and not longer than 3yrs. This ensures that it's very unlikely you will owe more than the car is worth.

Plenty of cheap reliable cars.

hotel_whiskey

dresdendave wrote: »

What he meant was that he will earn more commission if you get finance via him, that is why it is better (for him).

Thanks. This is was what I was wondering - he seemed very genuine - this idea of it being attached to the car rather than me seemed puzzling. Mind he could have said 'this one comes with the extra benefit of four wheels' and I'd have smiled and thought it was a good deal!

DrEskimo

hotel_whiskey wrote: »

Thanks. This is was what I was wondering - he seemed very genuine - this idea of it being attached to the car rather than me seemed puzzling. Mind he could have said 'this one comes with the extra benefit of four wheels' and I'd have smiled and thought it was a good deal!

About the only benefit of a secured loan is that it is easier to obtain than an unsecured loan if you have a poor credit history. But of course, that comes at the cost of higher APR. If you have no problem getting a cheaper unsecured loan, then it makes little sense.

A new car doesn't necessarily mean the car is more reliable. Even brand new cars can break down. Generally the 'sweet spot' for car depreciation/reliability it between around 3-8years of the cars life. I would recommend looking for cars in your budget that fit that description.

You will get good advice on the motoring forum about specific makes and models.

foxy-stoat

How much are you going to spend on the car and what will the approximate monthly payments be....and have you got any savings? You should have some if your thinking about paying £100+ a month for the HP or loan repayments.

I needed a small reliable car for work and I spent £2500 on one. I drive over 13,000 miles a year (commuting only), its been fine for the last 6 months. You dont need to spend thousands on what you need.

DD265

If it helps, I did a money transfer from a credit card to purchase my latest car.

The fee was 4%, then the balance is interest free for 20 months (and will be paid off within that term). I did take out the HP on the car to get a better deal, then paid it off using the money transfer within the cooling off period.

[Deleted User]

If you went down the HP route what incentives are on offer? Eg deposit contribution?

Mojca799

Hey, reigniting this one as i have a similar question... I think the OP is asking if the HP agreement would be favoured against a Bank Loan when it comes to your credit file? Is there a specific reason that the dealer would say the HP is better than a loan (other than to obtain his credit commission)..?

Have I misunderstood?

[Deleted User]

Yes, you've misunderstood.

The dealer only recommended HP as it makes him wealthier.  Either way, a loan will appear on the OPs file.