Timing of personal loan for car purchase

pjcox2005

Hi,

Quick question if people can help, I'm planning on taking out a reasonable size personal loan for a car purchase (likely 2 year old car from a car dealer). Happy on rates, repayment etc, and it just means not needing to change current investments.

Would you typically take out the loan in advance so it is sat in bank account when you go to buy car, or find car, pay deposit and then take out the loan even if that means a wait for final purchase. I'm 80% that we will buy the car when we test drive two models end of next week, but aware I could end up in a position of a loan having been taken out and then deciding against a purchase if i sort now. Presumably if that happens I just need to keep to repayment terms (or pay back if it allows) and use for other points - either home improvements or investments which is fine. 

Thanks

[Deleted User]

You'll want to be sure you have the money before you put down a deposit.

Ebe_Scrooge

Exactly as above.  If you put down the deposit then find you're not accepted for the loan, you're a bit snookered, and may end up forfeiting the deposit.

pjcox2005 said:

I'm planning on taking out a reasonable size personal loan ... Happy on rates, repayment etc

Remember, you won't know what rate you'll be offered until you've completed the application process.  Particularly if the loan is a "reasonable size", then affordability checks may mean that the rate you're offered is a fair bit higher than the advertised "representative rate" - or you may even be declined altogether.

pjcox2005 said:

 it just means not needing to change current investments.

Does that imply that you actually have the money available?  Obviously we don't know the full details - but it would normally be far more prudent to buy the car outright if you have the option.  You'll save a hefty whack in interest, and can simply refloat your savings by making a payment back into your savings account each month equivalent to what you'd have been paying in loan repayments.  Actually, if you do this, you'll end up with more savings as you'd be effectively paying yourself the interest you'd otherwise be paying to the lender.

Unless, of course, your investments are giving a better return than the interest you'd be paying.  Unlikely, but not impossible I guess.

[Deleted User]

Ebe_Scrooge said:

Exactly as above.  If you put down the deposit then find you're not accepted for the loan, you're a bit snookered, and may end up forfeiting the deposit.

pjcox2005 said:

I'm planning on taking out a reasonable size personal loan ... Happy on rates, repayment etc

Remember, you won't know what rate you'll be offered until you've completed the application process.  Particularly if the loan is a "reasonable size", then affordability checks may mean that the rate you're offered is a fair bit higher than the advertised "representative rate" - or you may even be declined altogether.

pjcox2005 said:

 it just means not needing to change current investments.

Does that imply that you actually have the money available?  Obviously we don't know the full details - but it would normally be far more prudent to buy the car outright if you have the option.  You'll save a hefty whack in interest, and can simply refloat your savings by making a payment back into your savings account each month equivalent to what you'd have been paying in loan repayments.  Actually, if you do this, you'll end up with more savings as you'd be effectively paying yourself the interest you'd otherwise be paying to the lender.

Unless, of course, your investments are giving a better return than the interest you'd be paying.  Unlikely, but not impossible I guess.

Investments could mean something like S&S ISA which can be a pain to sell particularly if the funds are not recovered from Ukraine - and most likely over the course of a 3-4 year loan, they'll probably be up more than the loan interest (vs selling them and paying no interest but having the shares rise)

pjcox2005

Thanks all. Timing makes sense to apply early. It was just one of those points where you suddenly think i could end up with a loan and then not need it if i decide not to buy. However, as you mention i may not get the rates and no rush to actually buy the car anyway.

Yeah, I tie most of our savings up in S&S Isa so just a faff and if i can get the lowest loan rates advertised at 2.8% then I think the investments will do better. If I can't get that rate then they'll have to be sold for it or purchase delayed.

Grumpy_chap

Is the personal loan cheaper overall than Dealer finance, if any "incentives" are considered?