Ford Finance

ItchyCat

I traded in my car last November and arranged a new finance deal with Ford for £13,457.82.  First payment (December) £209.89.  37 payments £199.89 and balloon payment of £5,852.00.  APR 4.9%. 

I am in a position to pay this off in full. The settlement figure is £11,722.  Another monthly payment goes out in a couple of days but as this mostly will cover interest I don’t expect the settlement figure to change much.

So the question is, what are the advantages and disadvantages of settling up. If I’ve calculated corrected (probably not!) I think I can save around about £1,000 interest. Big plus. Hit to the bank account, not so good, but I’m not earning 4.9% on the money for sure.

Any advice?

[Deleted User]

The advantage is saving interest.  The disadvantage is reducing your available cash. 

It depends on what kind of savings you would have left.

ItchyCat

Thank you for your response.

Available cash is not a problem, so it seems the advantages outweigh the disadvantages, as I thought.

So assuming I settle the finance agreement, would I then need to keep my GAP insurance? As I understand, that pays for outstanding finance over and above the value of the car in the case of an insurance claim. If the finance is paid off, I’m guessing there is no need for GAP insurance....or is there? 

DrEskimo

ItchyCat said:

Thank you for your response.

Available cash is not a problem, so it seems the advantages outweigh the disadvantages, as I thought.

So assuming I settle the finance agreement, would I then need to keep my GAP insurance? As I understand, that pays for outstanding finance over and above the value of the car in the case of an insurance claim. If the finance is paid off, I’m guessing there is no need for GAP insurance....or is there? 

Depends what type of GAP you have. If it's only finance GAP, then no. But I have vehicle replacement GAP and I bought that despite buying a used car for cash. 

ItchyCat

It is a “Combined Purchase Price Protection & Finance Shortfall Protection GAP Insurance Policy”

What we will cover

For vehicles purchased outright or on a finance agreement:

Following the total loss of your vehicle, we will pay up to the sum insured for the difference between the insured value and the purchase price of your vehicle, or if greater, the early settlement amount that you owe to your finance company.

So worth keeping I think!

ItchyCat

Ok, so this is probably a REALLY stupid question, as I haven’t really thought it through, but....

Having read through my purchase agreement, it seems I can make overpayments by arrangement. So is the balloon payment a set amount due on a set date? I’m thinking if I pay off the amount due before then, ie £5,870, then I can keep the final payment in savings earning just a little bit of interest until it has to be paid. This makes perfect sense in my head, but I may be overlooking something?

DrEskimo

ItchyCat said:

It is a “Combined Purchase Price Protection & Finance Shortfall Protection GAP Insurance Policy”

What we will cover

For vehicles purchased outright or on a finance agreement:

Following the total loss of your vehicle, we will pay up to the sum insured for the difference between the insured value and the purchase price of your vehicle, or if greater, the early settlement amount that you owe to your finance company.

So worth keeping I think!

Yea, so it still has monetary value even without finance. If you bought it from the dealer, it was likely overpriced and potentially not great in terms of level of cover though....probably a bit late to tell you that now though!

ItchyCat said:

Ok, so this is probably a REALLY stupid question, as I haven’t really thought it through, but....

Having read through my purchase agreement, it seems I can make overpayments by arrangement. So is the balloon payment a set amount due on a set date? I’m thinking if I pay off the amount due before then, ie £5,870, then I can keep the final payment in savings earning just a little bit of interest until it has to be paid. This makes perfect sense in my head, but I may be overlooking something?

Yes, the balloon payment is the final payment that is due at the end. However if you make overpayments, at a certain point it will begin to go towards paying down the balloon payment. You can keep borrowing the balloon payment, but will be paying interest on borrowing it just the same as the other money. The savings you get from the bank (~1.5%) won't offset the amount they are charging you to borrow it (4.9%).

ItchyCat

I guess just paying the whole lot is the best thing to do then. I won’t have monthly payments to think about, the car will be mine, and I’ve minimised the interest.

Thank you for taking the time to help.  It is appreciated.