Car loans and PCP overpayment

exharris

I've ended up in a bit of a weird financial position recently and wanted to seek advise

I purchased a used car in 2020, it was a 66 plate astra with 4k miles for £12k. I got a loan to pay for it which I've since cleared in full (had some money from house sale) so no debt on the car.  I was glad not to have a car debt, and intended to 'run it into the ground until 100k + miles'.  I purchased an extended warranty at the time for 3 years, which cost me about £700.


I have very bad luck with cars and they always seem to go wrong I've never been able to have any trouble free periods with cars over 5 years old - they always just seem to start going wrong and it costs a fortune after this.  I've tried a few times now to 'own an older car outright as its cheaper' but it never works out and I end up without a car as its in garage all the time and expensive repairs. 

As of last month,  I had built up about £2k on credit cards.

My car engine light came on a month or so ago and car went in garage at 33k miles, they wouldn't give me a courtesy car so was left in lurch.  Long story, needs new engine and it is going to cost £3k ish.  Extended warranty only covers first £1k (I only found out cost of repair today)

After 3/4 weeks of no car, busses, missed appointments, delaying dental work etc. as cannot get there, I decided I was going to buy another car and sell the Astra after the repair, cos engine problems is a bad sign. I accepted that any used car is going to cause me problems (plenty of you are going to tell me you have ten year old cars with 100k+ miles and have never had problems but I am sorry this is just not my experience and I am not inclined to chance it again with old cars).

I've accepted that I need a newer car, maybe 3/4 years old with low miles, and this is going to involve a monthly payment...  someone told me Mazda are reliable.. I took out a £16k loan with intention to buy used Mazda2, repay CCs, over 6 years, 5.3% from Tesco, £260pcm. If any left, repay loan early/overpay.

When I test drove a used Mazda2, they ended up selling me a new one on PCP 4 years, £21,600 car, £1500 customer deposit £500 dealer contribution deposit, credit of about £19600, 4 years £313 pcm 7.2% APR. final payment is about £8.5 k - if want to keep car (car will be worth around £13-14k at this point though). 

So I now have ;

£3,800 on a 0% credit card, I've left this debt here for now - 0% rate ends in June24
£16,000 Tesco loan of which £14,210 left (paid some other bits off)- 5.4%, 6 years. £260pcm.
A broken car in garage worth about £10-11k if sold privately after repair... , with an upcoming bill of £2k to repair, so net value £8-9k.
A 4 year PCP at 7% APR on the new car, £313pcm

Net income is £3250pcm (after tax pension NI etc).
Mortgage is £550 (maybe going to £850 from January)
gas/leccy £150
Ctax £100
Sky/mobile/broadband £150
Insurance £50 
Petrol £200

So, I think I need to pay down the debts with the cash I have but want to explore the most efficient way.  Then I need to start putting away enough to pay most of the car PCP ballon payment in 4 years.

I accept this is not ideal - I could have waited until car repaired, then sold, then got a cheaper car with proceeds but as per above I don't want to mess about with old cars anymore it is just not worth it I always always end up regretting it.

Is it best to leave the 0% CC as it is, then repay highest APR rate debt first i.e. pay as much as possible off the PCP deal first as its higher interest? I think they just take overpayments off the 4 year period payments, the balloon payment remains as is as its the value after depreciation.
Then repay as much off Tesco loan as possible?
This should get monthly payments down.

Thanks. 

SaverRate

I wish people would change their attitude from 'they ended up selling me a new one' to 'I instead decided to go with a brand new one'.

Take responsibility for your actions.

Okay so what next?
The cheapest option is to repay the highest apr first.

You could use the Tesco Loan to pay off as much of the PCP deal but Your 0% credit card ends in June so that will be the highest debt so pay that off first then the PCP. 

But, can you manage the monthly repayments on both the Tesco Loan & PCP? If not, get rid of the credit card and tesco loan asap so your just left with the PCP. You need to check if overpayments on PCP reduce the monthly payments or just the overall debt. 

exharris

Quite right - I decided to go for a brand new one so as to be much more certain to avoid the kind of breakdowns, issues and inconvenience I've experienced on every single used car I have ever owned.

The CC 0% ends in June 24 but I guess in the bigger picture of the 4 to 6 year period involved here, it is the highest APR after June 24 ... unless I shift it to another 0%.  

I could manage the PCP and Tesco loan repayments now (this is about £560pcm) but this would leave me with around £23k in the bank after I sell the Astra.. which I don't really need. Also my mortgage rate ends in Jan 24 and need to re-do it at end of this month, so mortgage is going up from 550 to 850ish from Jan 24, I reckon.

Overpayments on the PCP reduce the monthly payments within the 4 year term, but the term length and final payment remains the same, as the deal is based on the depreciation over the 4 years.

MrFrugalFever

Hi exHarris.

Out of your current debt, your PCP deal will likely have the most amount of interest overall because the optional final payment will not change and will be contributing to the interest for 48 months. The good news is though that you can make overpayments to Santander until your monthly payment becomes 1p, this will reduce the amount of interest.

The bit that can make a PCP SUPER expensive is when the optional final payment looms and the person wants to buy the car but can’t fund the payment outright so then requires additional lending to do so, thus generating another ton of interest on it!

Your current car, get a second opinion on repairs, you likely can get an independent Vauxhall specialist do the work for a lot less. 

Your Mazda2 will be bullet proof and easily do you 100k miles.

Herzlos

Can you afford to pay off the loan and PCP at the same time? If not and you haven't used the loan, you can repay it and pay minimal interest.

However, if you spend £2k of it to get the Astra fixed, sell the Astra and then you should have enough to settle the PCP entirely and clear the credit card (or since it's 0% for a year - overpay the loan). That'd save you more money in the long run given the PCP is 7% and the loan 5.4%.