Loan for balloon payment on PCP for car

jamieann_lee

Hi, 

Our car is on PCP, and initially we were going to just hand back the car, but having thought about it we want to keep the car but don't have enough money saved to pay off the balloon payment. The deal is up on July next year, same time we need to re-mortgage so we thought of paying off the car now and doing so with a loan?

I am wondering if a loan or money transfer credit card is best to use - we also have about a small amount on our credit card, which we would also use the loan to pay off.

Does this make sense to do or is there a better way around it?

enthusiasticsaver

It depends on the figures really.  Personally I would opt to cut back as far as possible to clear the credit card then save as much as possible over the next few months before taking out any new debt for the car making sure you leave 6 months between any debt application for the car and applying for the remortgage.  Have you been given figures for buying the car and how much will you need to borrow? How much credit card debt do you have and how much have you saved towards the car?

I always think debt consolidation is a mistake as you trick yourself into thinking you have dealt with debt rather than move it so I would focus on paying off the credit card first rather than roll that forward on to a new card or loan. Have you cut back as far as possible to save as much towards the car as possible? If your remortgage is likely to  be straightforward and affordability etc is all fine then I would go for a 0% money transfer card for the balloon over as long a period as possible as the interest will be nil.  Watch out for the money transfer fee though.  If your affordability for the remortgage is tight then a low interest personal loan is better as your lender will just take the personal loan payments into account rather than a  percentage of the credit card debt. This is obviously assuming you are able to get a low interest rate loan which depends on your financial circumstances and credit history. 

Andyjflet

I work in finance, you can re-finance the balloon, check out the rate they are offering. Alternatively sell the car now, used prices are very high, clear the balloon and buy a banger for a while. 

EssexHebridean

I'm going to take a slightly different route here - you have a bit of time on your side here, which is a great advantage, the trick is to work fast now and make that time work for you. 

Put together your full SOA - statement of affairs - and find out how much slack you *should* have in your budget each month currently. First step is to make sure that you *do* have that money - if not you need to go through your spending to work out where frittering is happening. Next I'd go through things category by category and work out where you might be able to save a few pounds here and there. some ideas - mobiles that are out of contract switched to a cheaper SIM only deal; any energy deals that you've not switched for a while might be able to make savings on; look to haggle on renewals with things like breakdown recovery or if you have TV/Broadband packages; eat from the freezer and stores as far as possible for a month or several to save on food spending. You could also have a scout around to see if you have anything you no longer use that you could sell to boost the car fund. Every penny of surplus from your budget, stick it aside into the highest interest  easy access or limited withdrawals account you can find - Coventry and Marcus both have options here. You can't go for a fixed term because you're going to need this money around February/March next year to make sure you've completed any further borrowing with over 3 months to go ahead of the remortage. 

See how much you can stash aside to pay off against the balloon payment - regardless of which later steps you opt for, this will put you in a better position as you'll need to borrow less down the line. I'd also look to start making additional payments to that credit card balance, or at least getting it switched to a 0% deal if it's not already on one. 

Down the line, once you've bought out the car, get whatever finance you've arranged to cover that cleared as soon as you can by those same means - allocating your surplus to it, and then once it's cleared, start stashing aside a sum each month ready for the time when the car needs replacing - hopefully not for a good few years yet mind!