Wasn't expecting that outcome. Honda finance.

WillCheshire20

Well went in to Honda today, found the car i wanted, sat down and did the pcp deal in principle, deposit, monthly payments, final payment etc.

All was fine until they put the finance trough and it was declined, quite shocked to be honest.

Car price £32,995
Deposit £9,000
Amount of finance £23,995
Monthly £412
Optional final payment £15,155
Total amount payable inc optional final payment £38,600
So according to the sales man that's almost a 40% deposit

Now quick history, since 18 (36 now) never had anything really on credit due to working for a company where company car, mobile phone, company credit card and all that sort of stuff has always been provided so never needed to buy anything on credit. However left there just under 2 years ago and set up on my own, kind of need a vehicle that represents the company I have now established. We had a quick look at my credit file and apart from a low score no reason we can see anything effecting it. What sort of percentage deposit is normally required or is it a case of it doesn't matter. 

Any ideas anyone???

Grumpy_chap

The first thing to do is look at the credit file on all three CRA's and check for any inaccurate data.  The score itself is not particularly important.

Do you operate as sole-trader or Ltd Co.?
What general business sector do you operate in?
Lenders will typically want to see at least two-years of accounts before advancing significant credit.  Not sure whether a car loan falls into the category of significant credit.
Have you (as a business) claimed any COVID-support?  SEISS / furlough / BBLS?  Some of this support required statement of adversely impacted and some lenders are taking a very risk-adverse approach to interpreting that.

I understand the part about having a "good" vehicle to support the image of a successful and financially sound business, especially if you need to give Clients lifts etc.  This objective can be met at less than £33k.

As an aside, the car is £33k and £9k deposit is 27% not 40%.  I am not sure how the sales person got to their figure - coudl you have misheard "nearly 30% deposit"?

AdrianC

You don't say what the APR is on that finance... It will say in your paperwork. That's the interest rate, annualised for the amount you're borrowing for how long you owe it.

But let's explain how it breaks down.
You're ordering a £33k car that's predicted to be worth £15k at the end of the term.
You're putting £9k down, and financing the other £24k of the car's price. (Yes, the amount you finance includes that £15k balloon - you're borrowing that. You are driving a £33k car out of the showroom after putting just £9k on the table, after all.)
The interest payable on that financed £24k is going to be £5,600 over the term, a total of £29,600.
You're deferring £15,155 of that £29,600 until the end - you can either pay that and own the car, or just hand it back. So you're paying £14,445 back over the term.
That's 36 x £412... (more or less - I guess there's some fees in there, too)

Amortise the £9k in, and the real monthly cost is £660.

Another way of looking at it... You are paying the £18k the car is losing in depreciation over the term, plus £5.6k in interest on the £24k you're borrowing.

Go on, how many miles over that 36 months...?

DrEskimo

I count it as a blessing....

You were seriously about to agree to buy a Honda that was going to depreciate as much as £17,840 over 3yrs, and then pay an extra £5,580 in interest to borrow money to do it...??

What Honda is it? There are likely much cheaper options. Second hand with a personal loan to start....How much is the same model and spec 2/3yrs old?

WillCheshire20

AdrianC said:

You don't say what the APR is on that finance... It will say in your paperwork. That's the interest rate, annualised for the amount you're borrowing for how long you owe it.

But let's explain how it breaks down.
You're ordering a £33k car that's predicted to be worth £15k at the end of the term.
You're putting £9k down, and financing the other £24k of the car's price. (Yes, the amount you finance includes that £15k balloon - you're borrowing that. You are driving a £33k car out of the showroom after putting just £9k on the table, after all.)
The interest payable on that financed £24k is going to be £5,600 over the term, a total of £29,600.
You're deferring £15,155 of that £29,600 until the end - you can either pay that and own the car, or just hand it back. So you're paying £14,445 back over the term.
That's 36 x £412... (more or less - I guess there's some fees in there, too)

Amortise the £9k in, and the real monthly cost is £660.

Another way of looking at it... You are paying the £18k the car is losing in depreciation over the term, plus £5.6k in interest on the £24k you're borrowing.

Go on, how many miles over that 36 months...?

12K miles PA so 36k in total, Interest at 9.9%APR

DrEskimo said:

I count it as a blessing....

You were seriously about to agree to buy a Honda that was going to depreciate as much as £17,840 over 3yrs, and then pay an extra £5,580 in interest to borrow money to do it...??

What Honda is it? There are likely much cheaper options. Second hand with a personal loan to start....How much is the same model and spec 2/3yrs old?

The depreciation says it would depreciate £17,840, but if you look around at a second hand one the oldest and cheapest in the country currently at 3 years or older is £23,000. The company i used to work at once had a Jaguar XF £42,000 new after 2 years the owner went to trade it in and was told it was worth £20,500 max now thats a loss, happens with most cars.
Its a civic type r. I would take a low mileage 1 or 2 year old but would i get accepted for credit/finance thats what im worried about.

WillCheshire20

Grumpy_chap said:

The first thing to do is look at the credit file on all three CRA's and check for any inaccurate data.  The score itself is not particularly important.

Do you operate as sole-trader or Ltd Co.?
What general business sector do you operate in?
Lenders will typically want to see at least two-years of accounts before advancing significant credit.  Not sure whether a car loan falls into the category of significant credit.
Have you (as a business) claimed any COVID-support?  SEISS / furlough / BBLS?  Some of this support required statement of adversely impacted and some lenders are taking a very risk-adverse approach to interpreting that.

I understand the part about having a "good" vehicle to support the image of a successful and financially sound business, especially if you need to give Clients lifts etc.  This objective can be met at less than £33k.

As an aside, the car is £33k and £9k deposit is 27% not 40%.  I am not sure how the sales person got to their figure - coudl you have misheard "nearly 30% deposit"?

Do you operate as sole-trader or Ltd Co.?  Limited company.
What general business sector do you operate in? Motor vehicle accessories and upgrades
Lenders will typically want to see at least two-years of accounts before advancing significant credit.  Not sure whether a car loan falls into the category of significant credit. 18 months only
Have you (as a business) claimed any COVID-support?  SEISS / furlough / BBLS?  Some of this support required statement of adversely impacted and some lenders are taking a very risk-adverse approach to interpreting that. Didnt claim or receive any covid or BBLS support what so ever.

I think he was going of the amount to be financed £23,995 as they apparently still own £15,155 of the car until a pay the balloon payment.

fred246

It reminds me of when I was unexpectedly refused 0% credit. I was given a MASSIVE discount for cash. Taught me never to get 0% credit. There is always a better cash deal.

AdrianC

WillCheshire20 said:

AdrianC said:

You don't say what the APR is on that finance... It will say in your paperwork. That's the interest rate, annualised for the amount you're borrowing for how long you owe it.

But let's explain how it breaks down.
You're ordering a £33k car that's predicted to be worth £15k at the end of the term.
You're putting £9k down, and financing the other £24k of the car's price. (Yes, the amount you finance includes that £15k balloon - you're borrowing that. You are driving a £33k car out of the showroom after putting just £9k on the table, after all.)
The interest payable on that financed £24k is going to be £5,600 over the term, a total of £29,600.
You're deferring £15,155 of that £29,600 until the end - you can either pay that and own the car, or just hand it back. So you're paying £14,445 back over the term.
That's 36 x £412... (more or less - I guess there's some fees in there, too)

Amortise the £9k in, and the real monthly cost is £660.

Another way of looking at it... You are paying the £18k the car is losing in depreciation over the term, plus £5.6k in interest on the £24k you're borrowing.

Go on, how many miles over that 36 months...?

12K miles PA so 36k in total

So it's going to be costing you 83p/mile to rent the car from them. Before fuel, servicing, tyres, insurance, etc.

Interest at 9.9%APR

There's your issue. 10% interest...

Mind you, interest is only £5,600 of the £29,600 it's costing you to rent the car for three years. Most of the cost is simply the predicted depreciation. The interest works out to ~£150/mo across the term, about 15p/mile of that 83p. About the same as your fuel bill.

DrEskimo said:

I count it as a blessing....

You were seriously about to agree to buy a Honda that was going to depreciate as much as £17,840 over 3yrs, and then pay an extra £5,580 in interest to borrow money to do it...??

What Honda is it? There are likely much cheaper options. Second hand with a personal loan to start....How much is the same model and spec 2/3yrs old?

The depreciation says it would depreciate £17,840, but if you look around at a second hand one the oldest and cheapest in the country currently at 3 years or older is £23,000.

Then, if that's still the case in 2024, you can pay the £15,100, buy the car, and promptly sell it for £23,000, recouping some of your outlay over the term.

But... the financier do not expect it to be.

A 3yo one now would be the same shape as the new one. They are built at Swindon, which closes in two months time. Will it be dropped, or will they import them from Japan? It's not been selling at all well...

WillCheshire20

AdrianC said:

WillCheshire20 said:

AdrianC said:

You don't say what the APR is on that finance... It will say in your paperwork. That's the interest rate, annualised for the amount you're borrowing for how long you owe it.

But let's explain how it breaks down.
You're ordering a £33k car that's predicted to be worth £15k at the end of the term.
You're putting £9k down, and financing the other £24k of the car's price. (Yes, the amount you finance includes that £15k balloon - you're borrowing that. You are driving a £33k car out of the showroom after putting just £9k on the table, after all.)
The interest payable on that financed £24k is going to be £5,600 over the term, a total of £29,600.
You're deferring £15,155 of that £29,600 until the end - you can either pay that and own the car, or just hand it back. So you're paying £14,445 back over the term.
That's 36 x £412... (more or less - I guess there's some fees in there, too)

Amortise the £9k in, and the real monthly cost is £660.

Another way of looking at it... You are paying the £18k the car is losing in depreciation over the term, plus £5.6k in interest on the £24k you're borrowing.

Go on, how many miles over that 36 months...?

12K miles PA so 36k in total

So it's going to be costing you 83p/mile to rent the car from them. Before fuel, servicing, tyres, insurance, etc.

Interest at 9.9%APR

There's your issue. 10% interest...

Mind you, interest is only £5,600 of the £29,600 it's costing you to rent the car for three years. Most of the cost is simply the predicted depreciation. The interest works out to ~£150/mo across the term, about 15p/mile of that 83p. About the same as your fuel bill.

DrEskimo said:

I count it as a blessing....

You were seriously about to agree to buy a Honda that was going to depreciate as much as £17,840 over 3yrs, and then pay an extra £5,580 in interest to borrow money to do it...??

What Honda is it? There are likely much cheaper options. Second hand with a personal loan to start....How much is the same model and spec 2/3yrs old?

The depreciation says it would depreciate £17,840, but if you look around at a second hand one the oldest and cheapest in the country currently at 3 years or older is £23,000.

Then, if that's still the case in 2024, you can pay the £15,100, buy the car, and promptly sell it for £23,000, recouping some of your outlay over the term.

But... the financier do not expect it to be.

A 3yo one now would be the same shape as the new one. They are built at Swindon, which closes in two months time. Will it be dropped, or will they import them from Japan? It's not been selling at all well...

Speaking to a suppose you'd call him an insider, the current Civic type R is the second best seller out of them all, the decision to close the swinton factory and move production to Canada and Japan is all to do with import logistics to the US and the rest of Europe however that works. This is one of the reasons this car is ideal as we specialise in the civic and do a lot of work on them plus ive had 3 generations of the type r. I see it as an investment as well.

Grumpy_chap

WillCheshire20 said:

Its a civic type r.
 would i get accepted for credit/finance thats what im worried about.

It is your assessment whether a Civic Type R meets the objective of positively representing the company - in many fields that would not be the type of car of preference.  It may be suitable if you are running the business in the field of "bling-mobiles".

As for whether you'll get the credit anywhere is an assessment of your income (Ltd Co.) and liabilities elsewhere.  You have not provided any information on this type of factor so no-one can assess whether the £33k car is stretching you more than reasonable.  What about your mortgage / rent etc?

Are you applying for finance in your own name or the Ltd Co.?

Judging from your other thread, it is quite likely that a lender would not see your business as sufficiently robust right now to support a £33k car:
https://forums.moneysavingexpert.com/discussion/6222610/bounce-back-loan-help/p1

WillCheshire20 said:

we were able to weather the first lock down barely, but unfortunately looks like we are now going to have to lay off staff, sell assets and possibly close the business all for the sake of £10k sad but inevitable.

A big turn-around from a business on it's knees in December to same business borrowing for a substantial sum in May.

For not a massive amount more than the deposit you proposed on the new car, you can achieve a car that will do just the same in terms of positively presenting the business.  Maybe less fun and definitely slower, but possibly affordable and achievable:
https://www.autotrader.co.uk/car-details/202101288426274
The "boy racer" may be better waiting until the business is more established.

Grumpy_chap

WillCheshire20 said:

12K miles PA so 36k in total, Interest at 9.9%APR

The Honda website default figures offer a Civic Type R for 12k miles PA over three years with £9k deposit for £380 monthly and final payment £15.5k.  APR 5.9%.
The fact you were not eligible for the best rate finance that Honda offer is already a bit of an indicator that your current position is not deemed as a wonderful risk to the lender.