First ever loan - am I being sensible

alwaysgrowing

My partner and I both work full time - neither of us work locally or anywhere near each other.

She is a nurse and relies on my car to get to work while I make do with trains and borrowing my dads car.   I've got fed up with this and have decided I need a second car - as I never get to drive my own.

I have had 2 cars via PCP, but this new car will do a lot of driving so I would prefer to just own it.  I had a look at HP but a bank loan is going to work out a lot cheaper - in terms of monthly payment, interest rate and total repayment.

I have had credit cards in the past, but I have never had a loan.   I have had loads of things on finance over the years and have never missed a payment on anything - but in my head finance is fine, but a loan is scary.   I have decided this is stupid, so whilst I still find the whole thing a bit scary, I applied for a 10kish loan over 4 years.  I had originally thought 5 years would be better, but we feel we can manage the slightly higher payments and pay it off within 4 years.  I already have a mortgage and from what I gather a loan for a car is highly unlikely to cause issues with remortgaging in future unless we miss payments

Santander have approved us for a 10k loan at 3% APR.  I guess I just want to ask.....does this all sound vaguely sensible?  I could get a car on PCP over 3 years for £100 less per month, but I would face a £5000 balloon payment at the end if I wanted to own it and I would constantly be watching the mileage.

[Deleted User]

Personally, I would recommend always buying from savings and stay within your budget. 

But if you can't, then go for the smallest and lowest cost loan you can. Pay it back early if you can, but don't stretch yourself by choosing a shorter term than you can handle.

The increased debt will be taken into account when you remortgage, so that's something to be aware of if your finances are tight.

[Deleted User]

There is no problem with mileage and PCP if you intend to buy the car at the end (as you implied). Mileage is an issue if you are handing it back due to the GMV being linked to the car use. I had a car on 0% PCP, paid it off at the end, just ran it as much as I needed and have it nearly 7 years later still running fine.

If you take a loan to buy the car you are paying the full cost up front and then paying the bank back, it's just shifting debt around, vs the balloon at the end of PCP

tacpot12

You have a car already. Why doesn't she get a car to suit her needs and budget? 

alwaysgrowing

Deleted_User said:

There is no problem with mileage and PCP if you intend to buy the car at the end (as you implied). Mileage is an issue if you are handing it back due to the GMV being linked to the car use. I had a car on 0% PCP, paid it off at the end, just ran it as much as I needed and have it nearly 7 years later still running fine.

If you take a loan to buy the car you are paying the full cost up front and then paying the bank back, it's just shifting debt around, vs the balloon at the end of PCP

Sadly the dealership options I have looked at are much closer to 9% finance than 0%.  I have had 0 in the past, but its not even close on the cars I am looking at.

alwaysgrowing

tacpot12 said:

You have a car already. Why doesn't she get a car to suit her needs and budget? 

We have a joint account. It doesn't make a terrible amount of difference whos name the new one is in.

[Deleted User]

alwaysgrowing said:

Deleted_User said:

There is no problem with mileage and PCP if you intend to buy the car at the end (as you implied). Mileage is an issue if you are handing it back due to the GMV being linked to the car use. I had a car on 0% PCP, paid it off at the end, just ran it as much as I needed and have it nearly 7 years later still running fine.

If you take a loan to buy the car you are paying the full cost up front and then paying the bank back, it's just shifting debt around, vs the balloon at the end of PCP

Sadly the dealership options I have looked at are much closer to 9% finance than 0%.  I have had 0 in the past, but its not even close on the cars I am looking at.

That was simply an example, obviously in your case the loan is better value but I was just explaining that PCP vs loan isn't some sort of hugely different setup.

Say you have the same rates

Loan at 3% for £10000 over 3 years - £290.63 a month, repay £10462.81

Or

PCP at 3% for £10000 over 3 years - £500 deposit, £91.38 a month payment = £3789.68 + estimated GMV/balloon £6955.66 = £10745.34

PCP is a bit more expensive in this scenario but in the end if you pay the balloon, it's no different to taking out the loan in terms of financing the car, either way you borrow money and pay it back and have the car

Brie

alwaysgrowing said:

tacpot12 said:

You have a car already. Why doesn't she get a car to suit her needs and budget? 

We have a joint account. It doesn't make a terrible amount of difference whos name the new one is in.

There may be an issue with insurance if it's your car, with you named as the main driver and she is always driving it.  Do be sure you sort that when you get the 2nd car.  

And congrats on getting a loan at a decent rate!

macman

You say that you've 'never had a loan', but then that you've bought 2 cars on a PCP, and bought 'loads of things on finance'. 
They're all loans, just in a different format to a personal loan, so why is this particular one 'scary', unless it's the amount that concerns you?