Advice on finance options

CyberCatK

Hello, I'm totally confused about the best way to buy a car (second hand). Finance or bank loan? I'm nervous about having finance and something happening to the car and the insurance not covering what i still owe. What is the best option to finance a car please. I have a budget of up to £200pm I have no interest in buying the car at the end of any deal. i would also consider a bank loan if thats the best option. Any advice greatly appreciated.

Bigphil1474

It will depend on what you can get. A bank loan can be spent on what you want, although the bank usually ask what it is for. It is not tied to the car in any way. Car finance is normally arranged via the dealer and you would need to check the Ts & Cs. If the finance is offering a special deal e.g. money off the car and a low interest rate, that might be the best option, if not a bank loan might be the option. You could even try dancing around with credit cards. 

If you are talking bout a PCP type deal, these are usually on new cars. Never done one myself, but sometimes it can work out cheaper to buy a new car than a second hand one.

Personally, I'd decide what my budget was, and see whether I can get a bank loan for the amount I need, all other things being equal. 

paul_c123

The key metric is probably APR, but you could also look at total cost to repay. You might decide its too high and look for a car you could buy outright too.

Frozen_up_north

PCP is OK until the end of the deal… you then have to start all over again. It is a case of diminishing value/deposit. Check the maths and ask the salesperson how they handle the next car deal in 3 or 4 years time.

I had a PCP several years ago, but never again.

sheslookinhot

There are lots of lease deals under £200 per month.

paul_c123

You'll find a lot of the <£200 lease deals require a big upfront payment, sometimes a year. Anyway, a good site to find lease deals is leaseloco.com I think its a kind of comparison site for them.

daveyjp

The first post needs clarification as "having no interest in purchasing the car at the end of the deal" can also be interpreted that the OP has £200 a month for a loan to buy a vehicle outright, so PCP and leases are out.

Goudy

CyberCatK said:

Hello, I'm totally confused about the best way to buy a car (second hand). Finance or bank loan? I'm nervous about having finance and something happening to the car and the insurance not covering what i still owe. What is the best option to finance a car please. I have a budget of up to £200pm I have no interest in buying the car at the end of any deal. i would also consider a bank loan if thats the best option. Any advice greatly appreciated.

Your post seems a bit confusing.

You are thinking of financing a car with some sort of loan but don't want to own it at the end?

There are various ways into car "ownership".
First one is just paying cash. It's yours and you owe nothing.

You could get that cash via a bank loan.
Again the car is yours as is the debt. Unless it's a specific car loan from the bank, there's nothing linking the debt to the car.
You just make the repayments which includes all the interest.

You could finance the car with a car loan, better known as Hire Purchase.
Similar to a bank loan but this usually links the debt to the car.

A form of this car finance is PCP or Personal Contract Purchase.
Instead of the repayments being evenly spread throughout the loan agreement, a portion of it (around 50% or so) is deferred. They call this the Guaranteed Final Payment or GFV. 
This makes the monthly payments smaller but the final payment is larger (around 50%) but you have some options instead of paying it, like handing the car back to the finance company.
(there are some pros and cons with this, this is just a quick guide)

You could lease a car.
You will never be the legal owner, you car basically renting it long term.
This is often called Personal Contract Hire or PCH.
You usually pay a deposit of X amount of months up front, followed by the monthly payments.
You never own the car and there is often no option to buy it at the end.


As for insurance not covering what you owe, there's not really much you can do about that, not to start with at least.
Cars depreciate at a different rate to how you would pay for a car on finance, plus you have to pay the interest on the loan,

For example you buy a £10,000 car with some form of finance, this then means you owe £10,000 plus all the interest.
So you already owe more than the car is worth.

Now you are making monthly payments.
Within these monthly payments would be a proportion of capital and interest.
Now car depreciate at a faster rate in the early years than they do when get older but your payments are linear, monthly payments.

With a PCP deal there will be a point towards the end of your finance agreement where the cars used value equals the GFV, the deferred payment.
It's not a precise point as car prices can fluctuate, but it's around this time where they are as equal as they are ever going to be.

There are things you can do to protect against this.
There are forms of extra insurance that will top up the normal insurance pay out to fill the short fall.

Ectophile

Wait a year. and you'll have £2200 towards buying a car.  Allow for the fuel, road tax, insurance and maintenance you haven't paid for a year, and it should be well over £3000.