Car loan options

Pod84

Hello MSE'ers!

I'm in a bit of quandry of how best to finance a the remaining ballon payment on my car.

I have £11,000 left and my agreement is coming to an end.

The refinance option with BMW, means I pay the same monthly payment over another 4 years, but the interest rate jumps from 3.9% (rate when I took the finance out 4 years ago) to 8.9% on the new refinanced agreement.

I looked into getting a loan from a bank, Tesco Bank are offering 6.1% over 4 years, which means I pay less interest over the 4 years and also the montly payment comes down by about 14 quid.

Another thought I had was applying for another interest free credit card (I have one already) with the longest interest free period I can find - which appears to be 21 months. And pay no interest. Then when that comes to an end, do a balance transfer to another interest free credit card.

The other option is to sell my car. I have equity in it of between 6-7k. Motorways have me a figure of £18,000 a few days ago. Sell the car to them, pay off the loan with BMW and use the equity to finance a new car. My workplace are doing electric vehicles which include insurance, servicing, tyres, maintenance all for one monthy figure. However they are expensive, around 5-600 p/m - where as now I'm paying £300 p/m.

The worry I have is if I go for the loan option, the negative effect if may have on my credit file, which is currently excellent. 

I would appreciate some advice, thoughts? What you would do?

Thanks in advance.

MEM62

Pod84 said:

What you would do?

I have a left field response as I would not buy a car that I could not pay for with cash.  The depreciation on a car can be severe and to compound that by paying interest on it just doesn't seem sensible.  (Work out how much that car has cost you in depreciation and interest so far you might be surprised)  You can sell it and you'll have £7k to buy a car outright.  You'll then have £3,600 per year to save towards your next car.

This doesn't put your backside in the latest shiny metal but over the years it will save you a good deal of money.      

Grumpy_chap

Pod84 said:

Hello MSE'ers!

I'm in a bit of quandry of how best to finance a the remaining ballon payment on my car.

I have £11,000 left and my agreement is coming to an end.

The refinance option with BMW, means I pay the same monthly payment over another 4 years, but the interest rate jumps from 3.9% (rate when I took the finance out 4 years ago) to 8.9% on the new refinanced agreement.

I looked into getting a loan from a bank, Tesco Bank are offering 6.1% over 4 years, which means I pay less interest over the 4 years and also the montly payment comes down by about 14 quid.

Another thought I had was applying for another interest free credit card (I have one already) with the longest interest free period I can find - which appears to be 21 months. And pay no interest. Then when that comes to an end, do a balance transfer to another interest free credit card.

The other option is to sell my car. I have equity in it of between 6-7k. Motorways have me a figure of £18,000 a few days ago. Sell the car to them, pay off the loan with BMW and use the equity to finance a new car. My workplace are doing electric vehicles which include insurance, servicing, tyres, maintenance all for one monthy figure. However they are expensive, around 5-600 p/m - where as now I'm paying £300 p/m.

The worry I have is if I go for the loan option, the negative effect if may have on my credit file, which is currently excellent. 

I would appreciate some advice, thoughts? What you would do?

Thanks in advance.

With the loan options, you would obviously want to go for the lowest interest rate possible and pay back as the highest monthly rate you can afford, such that the total cost for interest is the lowest it can be.

Are you able to secure a new loan to pay off the balloon payment from the PCP?  It depends on the affordability assessment, which may be undertaken in the context of the new £11k loan being in addition to the current £11k loan.

With the EV option via work, is that a lease scheme?  If so, at the end of the lease period, you will not have accrued any equity in the car and will not have an automatic right to buy the car as there is no pre-advised balloon payment (unlike the PCP).  Is the £600 the cost before salary sacrifice, so the nett cost is lower?  If this is a salary sacrifice scheme, are there any impacts to pension entitlement?

The MSE thing to do would be to take the £18k from Motorway, clear the £11k debt, buy a car with the £7k left over.

prettyandfluffy

I doubt you would be able to pay using a credit card, therefore you would need a money transfer card; the wisest course of action is that described by @Grumpy_chap.  

Pod84

Grumpy_chap said:

Pod84 said:

Hello MSE'ers!

I'm in a bit of quandry of how best to finance a the remaining ballon payment on my car.

I have £11,000 left and my agreement is coming to an end.

The refinance option with BMW, means I pay the same monthly payment over another 4 years, but the interest rate jumps from 3.9% (rate when I took the finance out 4 years ago) to 8.9% on the new refinanced agreement.

I looked into getting a loan from a bank, Tesco Bank are offering 6.1% over 4 years, which means I pay less interest over the 4 years and also the montly payment comes down by about 14 quid.

Another thought I had was applying for another interest free credit card (I have one already) with the longest interest free period I can find - which appears to be 21 months. And pay no interest. Then when that comes to an end, do a balance transfer to another interest free credit card.

The other option is to sell my car. I have equity in it of between 6-7k. Motorways have me a figure of £18,000 a few days ago. Sell the car to them, pay off the loan with BMW and use the equity to finance a new car. My workplace are doing electric vehicles which include insurance, servicing, tyres, maintenance all for one monthy figure. However they are expensive, around 5-600 p/m - where as now I'm paying £300 p/m.

The worry I have is if I go for the loan option, the negative effect if may have on my credit file, which is currently excellent. 

I would appreciate some advice, thoughts? What you would do?

Thanks in advance.

With the loan options, you would obviously want to go for the lowest interest rate possible and pay back as the highest monthly rate you can afford, such that the total cost for interest is the lowest it can be.

Are you able to secure a new loan to pay off the balloon payment from the PCP?  It depends on the affordability assessment, which may be undertaken in the context of the new £11k loan being in addition to the current £11k loan.

With the EV option via work, is that a lease scheme?  If so, at the end of the lease period, you will not have accrued any equity in the car and will not have an automatic right to buy the car as there is no pre-advised balloon payment (unlike the PCP).  Is the £600 the cost before salary sacrifice, so the nett cost is lower?  If this is a salary sacrifice scheme, are there any impacts to pension entitlement?

The MSE thing to do would be to take the £18k from Motorway, clear the £11k debt, buy a car with the £7k left over.

Hi, thanks for the reply.

With Tesco bank, I have a 90% chance of being accepted for 11k over 4 years, so its not a shoo in. 

The EV option at work, its through salary sacrifice and the 5-600 p/m is the cost after salary sacrifice ie/ what would automatically be taken out of my wage. There are of course cheaper EVs they have, around 350-470 mark. Infact they said they could source any EV for me. The scheme is through Octopus. I'll have to ask about the balloon payment thing with Octopus, you might be right I dont think I can build any equity. The other option was to use the 7k and spread that over the 4 years to bring the monthy payments down on the EV scheme?

The MSE way is the best option as you mention, but it means settling for a second hand car for 7k and without sound pretentious, which this probably sounds like, I'm not sure I want that, but on the flip side, I save 300 quid a month. I may go down this route, or the loan Tesco bank loan route, but I'm completely undecided yet.

Really not sure which route to take!

DrEskimo

Pod84 said:

Grumpy_chap said:

Pod84 said:

Hello MSE'ers!

I'm in a bit of quandry of how best to finance a the remaining ballon payment on my car.

I have £11,000 left and my agreement is coming to an end.

The refinance option with BMW, means I pay the same monthly payment over another 4 years, but the interest rate jumps from 3.9% (rate when I took the finance out 4 years ago) to 8.9% on the new refinanced agreement.

I looked into getting a loan from a bank, Tesco Bank are offering 6.1% over 4 years, which means I pay less interest over the 4 years and also the montly payment comes down by about 14 quid.

Another thought I had was applying for another interest free credit card (I have one already) with the longest interest free period I can find - which appears to be 21 months. And pay no interest. Then when that comes to an end, do a balance transfer to another interest free credit card.

The other option is to sell my car. I have equity in it of between 6-7k. Motorways have me a figure of £18,000 a few days ago. Sell the car to them, pay off the loan with BMW and use the equity to finance a new car. My workplace are doing electric vehicles which include insurance, servicing, tyres, maintenance all for one monthy figure. However they are expensive, around 5-600 p/m - where as now I'm paying £300 p/m.

The worry I have is if I go for the loan option, the negative effect if may have on my credit file, which is currently excellent. 

I would appreciate some advice, thoughts? What you would do?

Thanks in advance.

With the loan options, you would obviously want to go for the lowest interest rate possible and pay back as the highest monthly rate you can afford, such that the total cost for interest is the lowest it can be.

Are you able to secure a new loan to pay off the balloon payment from the PCP?  It depends on the affordability assessment, which may be undertaken in the context of the new £11k loan being in addition to the current £11k loan.

With the EV option via work, is that a lease scheme?  If so, at the end of the lease period, you will not have accrued any equity in the car and will not have an automatic right to buy the car as there is no pre-advised balloon payment (unlike the PCP).  Is the £600 the cost before salary sacrifice, so the nett cost is lower?  If this is a salary sacrifice scheme, are there any impacts to pension entitlement?

The MSE thing to do would be to take the £18k from Motorway, clear the £11k debt, buy a car with the £7k left over.

Hi, thanks for the reply.

With Tesco bank, I have a 90% chance of being accepted for 11k over 4 years, so its not a shoo in. 

The EV option at work, its through salary sacrifice and the 5-600 p/m is the cost after salary sacrifice ie/ what would automatically be taken out of my wage. There are of course cheaper EVs they have, around 350-470 mark. Infact they said they could source any EV for me. The scheme is through Octopus. I'll have to ask about the balloon payment thing with Octopus, you might be right I dont think I can build any equity. The other option was to use the 7k and spread that over the 4 years to bring the monthy payments down on the EV scheme?

The MSE way is the best option as you mention, but it means settling for a second hand car for 7k and without sound pretentious, which this probably sounds like, I'm not sure I want that, but on the flip side, I save 300 quid a month. I may go down this route, or the loan Tesco bank loan route, but I'm completely undecided yet.

Really not sure which route to take!

What about a half way solution.

Get a much cheaper loan for a lower amount and combine that with the equity in your car to buy a second hand car for like £10-£12k? You could look to pay it down as fast as possible to save further interest by using any surplus savings each month on top of the loan repayments.

You could look to try and pay it off in a couple of years.

I know used values for EVs are a concern, but for me this is a opportune moment to buy a used EV. I did similar back in 2019 when EV values were low before inflating over the pandemic, and it means even now with used EV prices, I haven't been hit too hard with depreciation at all, and have run solid used EVs for well over 5-years (one of which has over 100k miles).

You will save on depreciation relative to a new car, save on interest relative to a PCP on new car, and save on fuel/running costs (particularly if you buy 2016 models where VED remains unchanged for EVs).

Pod84

DrEskimo said:

What about a half way solution.

Get a much cheaper loan for a lower amount and combine that with the equity in your car to buy a second hand car for like £10-£12k? You could look to pay it down as fast as possible to save further interest by using any surplus savings each month on top of the loan repayments.

You could look to try and pay it off in a couple of years.

I know used values for EVs are a concern, but for me this is a opportune moment to buy a used EV. I did similar back in 2019 when EV values were low before inflating over the pandemic, and it means even now with used EV prices, I haven't been hit too hard with depreciation at all, and have run solid used EVs for well over 5-years (one of which has over 100k miles).

You will save on depreciation relative to a new car, save on interest relative to a PCP on new car, and save on fuel/running costs (particularly if you buy 2016 models where VED remains unchanged for EVs).

What a fantastic idea, that's never even crossed by mind, thank you, definitely something I will be considering now.