Car Finance Loan

Blue1968

My son in law has recently passed his driving test and immediately bought a car through a finance company at an APR of 34.9% over 5 years resulting in repayments of £15k for an £8k car.  I was unaware of this but the agreement has now passed its cooling off period.  To compound matters he is facing insurance quotes of over £4,500 pa to insure the car with a black box given his age (21) and lack of NCD

Obviously he has been naive agreeing to the finance deal and not researching the insurance.  Can anyone advise what the best course of action is regarding the finance deal,  is there any possible recourse for this and is there any way of reducing the potential insurance bill.   

MorningcoffeeIV

Regarding the finance, overpay as much as possible - the sooner it's cleared, the less he'll pay.

Insurance - shop around, but don't cut too many corners. 

Ryan_Holden

I think you're up the creek a bit, especially as he'll be a legal adult I'm guessing so you can't act on his behalf.

He can ask the finance company for an early settlement figure and you could try and refinance that figure through a personal loan at a much better rate. Short of that I'm not sure there's anything you can do.

Blue1968

Thanks for very much for your time and comments.  I too thought an early settlement was the only potential solution.  We'll approach them.  Steep learning curve for him unfortuantely.  

CliveOfIndia

It's definitely worth exploring the early settlement option, but just be aware that your son in law may struggle to get a loan at the advertised "representative" rate.  His credit history will be one factor, but so will affordability.  Since a lender cannot guarantee that any loan would actually be used to repay the finance, they have to assume that he's effectively doubling his debt.  So when they run their affordability calculations, he may find that he's offered a loan at quite a high rate of interest.

I'm not saying this will definitely be the case, and it's certainly worth looking into, but just really to manage expectations.

Also you need to bear in mind, the loan needs to be repaid come what may (although that's no different to the existing finance in all likelihood).  But if the loan is taken over 5 years, there's a possibility that he'll still be paying off the loan after the car has gone to the great scrapyard in the sky - and he'd then need to find more money to buy a replacement car on top of that.

Hope I'm not coming across as a doom & gloom merchant, just being pragmatic!

Ryan_Holden

TBH I was thinking the OP refinance the car for their son because I doubt he's getting a personal loan for say, £10k, after having just entered into a finance agreement at that (presumably) young age.

Herzlos

What's the car?

If it's a high insurance car, then the cheapest way out is probably to sell the car, use the money to clear as much of the finance as possible, and then have bank of mum & dad cover the rest.

Then go buy a cheaper car with cheaper insurance with a normal interest rate. He shouldn't be paying more than about 10-15%.

If the car is as good on insurance as you can get, then the best option is for bank of mum & dad to take out a loan at a normal rate to clear the finance.

In either case, clearing the original finance shouldn't result in paying more than 2 months interest, which means it'll be for well under £8500.

I'm intrigued though; has he already bought the insurance or is the car sat unused somewhere?

macman

Add an older, experienced, claims-free driver to the policy. They don't have to use it.

Grumpy_chap

I think the best thing would be an early settlement figure and sale of the car to recover as much as possible of that amount.  That will allow the insurance to be cancelled also and a refund obtained for the majority of the cost.

He will still end up about £1k (or whatever) down on the deal, but that will be a very important learning experience that he will you for one day.  If practicalities require that Bank of Mum&Dad step in, then that should probably also be repaid within short time.

Hopefully, in a little while on, he will be over the shock of it all and take counsel from his elders on the more appropriate vehicle and finance options.  

Blue1968

Many thanks to you all.  The Finance company have given a settlement figure of just over £8100, which after initial fears seems a bit of a result.   We have offered to pay this and he will make regular replayments to us. Not ideal but it gets him and my daughter out of a long term financial hole.    

The Car is a 1.6 Volvo, V40,  which is probably not an ideal first car insurance wise. The car is not being used as yer due to the cost. We will look at adding the no claims driver to hopefully ease the insurance cost.  He has been a little naive over the whole matter clearly.

Ryan_Holden

That's a smart result and very kind on your part. He's lucky you were able to step up.

Glad there's a positive resolution to the situation.