Hire Purchase Car Loan Advice

Jackallo61

Hello all, long time observer first time poster. 

In April 2025 I will be one year into a five year Hire Purchase car loan. I will be in negative equity of £3000. My grandparent has gifted me £4000 to get a new car. I bought the one I have now in a bit of an emergency due to my 2011 Citroen's engine failing and was therefore not in as strong a financial position as I am in now. 

I am aware that I can go to a car dealership and they will pay off my car loan if I trade my car in with them, pay them the negative equity to them and I would still have a £1000. 

However, I am concerned about my credit rating. My partner and I are looking to buy a house in August 2026. 

 Will it negatively affect my credit rating by doing this?

Many thanks. 

Jackallo61

Sorry for not adding additional information. I have no other forms of credit and my credit rating is fair to good depending on which service you use. 

DullGreyGuy

So you bought a car on a 5 year HP in April 2024. You've come into some money and so want to get rid of last years car and buy a different car? 

How have you worked out the £3k negative equity? Is that -v- dealership price? Have you looked at other mechanisms of selling that will give you more for the car? 

Why are you wanting another new car? You've gone through the most expensive part of the depreciation and you are going to do it again?

To answer the actual question, early settling car finance is not going to be seen as a negative thing my a mortgage provider in itself. If you are going to get another car on credit then that will depend on the amount of credit you need, APR, monthly payments and your keeping up with payments from when you get it to when you apply for the mortgage. 

Jackallo61

DullGreyGuy said:

So you bought a car on a 5 year HP in April 2024. You've come into some money and so want to get rid of last years car and buy a different car? 

How have you worked out the £3k negative equity? Is that -v- dealership price? Have you looked at other mechanisms of selling that will give you more for the car? 

Why are you wanting another new car? You've gone through the most expensive part of the depreciation and you are going to do it again?

To answer the actual question, early settling car finance is not going to be seen as a negative thing my a mortgage provider in itself. If you are going to get another car on credit then that will depend on the amount of credit you need, APR, monthly payments and your keeping up with payments from when you get it to when you apply for the mortgage. 

The car I have got now is a 15 plate and I am looker for a newer more reliable car for when I do have my own mortgage (to avoid costly repairs etc). My grandparent is the one who has advised me on this and is the one giving me the £4000 to spend on a newer car and only a car. 

DullGreyGuy

Jackallo61 said:

DullGreyGuy said:

So you bought a car on a 5 year HP in April 2024. You've come into some money and so want to get rid of last years car and buy a different car? 

How have you worked out the £3k negative equity? Is that -v- dealership price? Have you looked at other mechanisms of selling that will give you more for the car? 

Why are you wanting another new car? You've gone through the most expensive part of the depreciation and you are going to do it again?

To answer the actual question, early settling car finance is not going to be seen as a negative thing my a mortgage provider in itself. If you are going to get another car on credit then that will depend on the amount of credit you need, APR, monthly payments and your keeping up with payments from when you get it to when you apply for the mortgage. 

The car I have got now is a 15 plate and I am looker for a newer more reliable car for when I do have my own mortgage (to avoid costly repairs etc). My grandparent is the one who has advised me on this and is the one giving me the £4000 to spend on a newer car and only a car. 

So an 8-9 year old car you bought last year is now £3k in negative equity? It was planned to be circa 14 years old at the end of the HP?

Either way early settlement won't hurt you. Not sure how £1k materially changes your buying power from last year though. 

DrEskimo

What is the total amount owed and what is the APR on the current HP loan?

my initially advice would be to just use the £4k to pay down the HP loan to get it cleared faster, then once it’s done you can save the monthly loan payment to yourself instead and use those savings and any value in your car towards your next purchase without the need for any borrowing when your mortgage comes. 

My advice is always to get into the mindset of not immediately reaching for finance as the answer.

RoadToAMillion

Has your current car caused you any issues? I really don't buy into this whole "newer car, more reliable" mindset, it is utter rubbish IMHO, even a brand new car could have issues. 

If you want my advice, keep your current car, well maintain it and save any extra finance payment you would've paid on top of the £4000 and put that into a high interest account for vehicle maintenance.  

sourcrates

RoadToAMillion said:

Has your current car caused you any issues? I really don't buy into this whole "newer car, more reliable" mindset, it is utter rubbish IMHO, even a brand new car could have issues. 

If you want my advice, keep your current car, well maintain it and save any extra finance payment you would've paid on top of the £4000 and put that into a high interest account for vehicle maintenance.  

I prefer olde skool, I have a 23 year old Audi TT, utterly reliable, starts every time, no rust as its aluminium, bulletproof engine, apart from some oil leaks due to failed gaskets and basic maintenance, nothing has gone wrong.

All for under 4k cash.

Edi81

Cars are so much more reliable now. Your grandfather may be thinking of in the past. 

I’d pay off the hp with the money and then you will finish paying it much sooner 

MEM62

RoadToAMillion said:

Has your current car caused you any issues? I really don't buy into this whole "newer car, more reliable" mindset, it is utter rubbish IMHO, 

sourcrates said:

RoadToAMillion said:

Has your current car caused you any issues? I really don't buy into this whole "newer car, more reliable" mindset, it is utter rubbish IMHO, even a brand new car could have issues. 

If you want my advice, keep your current car, well maintain it and save any extra finance payment you would've paid on top of the £4000 and put that into a high interest account for vehicle maintenance.  

I prefer olde skool, I have a 23 year old Audi TT, utterly reliable, starts every time, no rust as its aluminium, bulletproof engine, apart from some oil leaks due to failed gaskets and basic maintenance, nothing has gone wrong.

All for under 4k cash.

Both great pieces of advice.