Is car finance a good idea?

Man of Honour
Joined
17 Oct 2002
Posts
159,534
Get a Mondeo, but before you do, test drive a 5 Series. Then when you get into the Mondeo, it'll feel like a small hatch, mine does :p
 
Man of Honour
Joined
21 Feb 2006
Posts
29,298
Well I am no expert on car finance, but I have financed a number of cars over a number of years so can perhaps shed some light on things. The first thing to consider is how much you want to borrow. If you are talking about a couple of grand then there are probably cheaper and safer ways to secure finance than taking out a car finance agreement. Bank loan, overdraft extension, cheap or ideally interest free credit card are all good options, but remember that when the interest free period runs out on your credit card you might well find it expensive if its not paid off. I bought my first and second car with a bank loan, and they were £1,000 and £3,400 in the early 80's.

As with most finance there are many options to consider with car specific finance. It is fair to say that if you finance a car using this method the car is not yours, but what does this really matter? To say you can't get out of it as easy is utter and total rubbish with most modern finance arrangements, but again it all depends on the small print. Some lease and PCP agreements will have penalties attached to them, but you would be foolish to take them.

The thing that has always annoyed me with finance is that the people who need it most usually get penalised more! I would also focus less on the APR, which can be shown and accounted for in many different ways and look more at the rate over FHBR (finance house base lending rate) or BOEBR (Bank of Englands Base Rate).

Most car dealers will talk 'flat rates' when they mean percentage over FHBR. So when you hear 4% flat, it is actually 9% APR or more! So the guy who got 4% needs to check his numbers because I bet its 4% over FHBR which is the normal rate for dealers.

I currently pay 1.9% over FHBR which is exceptional for a car finance agreement. You have to negotiate hard and also look for agreements which account for interest daily. That was you don't get a front loaded deal that sees you paying interest for the first 12 months!

It is a minefield out there and most people don't have a clue what they are doing and get ripped off. They get £500 off the car then get thumped by stupid finance, which costs much more over the period of the finance.

Car finance can be extremely competitive but like all things you need to shop around and look at the small print.
 
Man of Honour
Joined
17 Oct 2002
Posts
159,534
housemaster said:
The thing that has always annoyed me with finance is that the people who need it most usually get penalised more!

This is becuase people who need it most are the most risk to the lender. It's quite simple really. Totally skint people who can't afford any sort of wheels without finance = bad risk for credit.

So they get charged loads.
 
Man of Honour
Joined
21 Feb 2006
Posts
29,298
[TW]Fox said:
This is becuase people who need it most are the most risk to the lender. It's quite simple really. Totally skint people who can't afford any sort of wheels without finance = bad risk for credit.

So they get charged loads.
I am fully aware of the reasons, I was being ironic.. :rolleyes:
 
Caporegime
Joined
21 Oct 2002
Posts
26,251
Location
Here
[TW]Fox said:
This is becuase people who need it most are the most risk to the lender. It's quite simple really. Totally skint people who can't afford any sort of wheels without finance = bad risk for credit.

So they get charged loads.
Finance - If the company don't get payment they can take the car.

Loan - Company can not take anything to cover the missed payments.

For this reason it is a lot easier to get finance for people with bad credit historys (and who are self employed)
 

Pug

Pug

Soldato
Joined
20 Oct 2002
Posts
5,184
Location
Over there...
housemaster said:
So the guy who got 4% needs to check his numbers

by that i suspect you mean me :)

Well, i ignored base rates and the like, and calculated it this way to check:

i borrowed £10k @ a supposed 4%

Over 3 1/2 i'm paying £274.

eg:
10k + 1yr @ 4%, (£400) = £10400
10400 + 1yr @ 4% (£416) = £10816
10816 + 1 yr @ 4% (£432) = £11249
11249 + 0.5yr @ 4% (£225) = £11473 or £274 a month (which is what i pay).

Was a good deal i thought, hence them "paying" me to have the car loan (the 10k i had cash is in a FTSE tracker, and over the same period will hopefully make twice that)
 
Man of Honour
Joined
21 Feb 2006
Posts
29,298
Simon said:
Finance - If the company don't get payment they can take the car.

Loan - Company can not take anything to cover the missed payments.

For this reason it is a lot easier to get finance for people with bad credit historys (and who are self employed)
Partly true, but not always the case. People can take out secured loans, which are secured on property, assuming there is equity in the property of course. Also, Finance is not always the easier route for the self employed. My friend who is self employed found it very difficult to get finance on his 911 even though he was putting 50k cash into it. No history of credit was his problem, not the fact he was self employed.

Many factors with finance and every individual should be judged on their own requirements. There are not really set routes for people as so many factors will impact on finding the most appropriate form of finance.
 
Man of Honour
Joined
21 Feb 2006
Posts
29,298
Pug said:
by that i suspect you mean me :)

Well, i ignored base rates and the like, and calculated it this way to check:

i borrowed £10k @ a supposed 4%

Over 3 1/2 i'm paying £274.

eg:
10k + 1yr @ 4%, (£400) = £10400
10400 + 1yr @ 4% (£416) = £10816
10816 + 1 yr @ 4% (£432) = £11249
11249 + 0.5yr @ 4% (£225) = £11473 or £274 a month (which is what i pay).

Was a good deal i thought, hence them "paying" me to have the car loan (the 10k i had cash is in a FTSE tracker, and over the same period will hopefully make twice that)
A good rate my friend!

Many manufacturers will offer special rates to shift cars. I got £6,000 of a BRAND NEW A4 for my wife because I bought it and did the deal on the last day of their financial year. It was from a UK Audi dealer and it was NOT pre-registered. Its all about finacial periods etc etc

The 'norm' for most car manufactueres is around 4% over FHBR and the vast majority of people fail to negotiate on this bit and miss a trick. Some poeple will get interest free, which is great, though typically people who pay cash will also be able to negotiate a big discount for cars sold under this scheme.

Its all in the deal and my point is look at the fine print and make sure your not blinded by APR, Flat Rate and all the other percentages...
 

Pug

Pug

Soldato
Joined
20 Oct 2002
Posts
5,184
Location
Over there...
thats what the guy at toyota prety much said. They dont want to make money on the finance, its just a means of getting the car. They even mentioned that if i pay back the last payment a month early, i'll miss out on the £60 administration fee or whatever it is - they were really helpful.
 
Caporegime
Joined
21 Oct 2002
Posts
26,251
Location
Here
housemaster said:
Partly true, but not always the case.<snip>

I am just going by the experience of my parents who are self employed. They can't just go out and get an unsecured low interest loan like an employed person can
 
Man of Honour
Joined
21 Feb 2006
Posts
29,298
Pug said:
thats what the guy at toyota prety much said. They dont want to make money on the finance, its just a means of getting the car. They even mentioned that if i pay back the last payment a month early, i'll miss out on the £60 administration fee or whatever it is - they were really helpful.
Many car sales people are rewarded on the volume of sales rather than the profit in the car they sell. Finance has become more and more profitable for most car dealers nowadays and it is why they typically have a finance manager or alike, ensuring the car salesman is controlled somewhat.

As you go up the range of price you will find the finance is where the real profit is made. Car dealers will typically be focused on units and rewarded on units sold, but prestige finance has also become a huge money spinner for car dealers and why they focus so hard on it.
 
Man of Honour
Joined
21 Feb 2006
Posts
29,298
Simon said:
I am just going by the experience of my parents who are self employed. They can't just go out and get an unsecured low interest loan like an employed person can
As I said with finance its down to each individual and why it makes its difficult to provide generic advice on how to finance something.
 
Soldato
Joined
12 Aug 2004
Posts
2,503
Location
Oop North
We (me and the Missus) have a rule, (obviously excepting the mortgage)

If you need to finance it, you cant have it until you've saved half the outlay

You'd be surprised how many things drop away as not really wanted.

Oh, and if you do finance it, ind the cheapest option, not the easiest. for a small outlay, a Credit card loan might be the answer.Make sure its paid on time though...
 
Associate
Joined
18 May 2004
Posts
2,218
Conanius said:
save then, honestly, you'll get pee'd off massively if you start having an outgoing you cant control

thats a VERY silly comment

if your not sensbile enough to budget in the first place the you only have your self to blame.

And cost vs car is a completely personal thing. i pay nearly as much as my mortgage for my car each month and Im happy because its the car ive always wanted.

I decided if i could afford it and the answer was YES so Im never going to have an "an outgoing you/I cant control"
 

Maz

Maz

Soldato
Joined
18 Oct 2002
Posts
7,387
Location
Newcastle.
housemaster said:
Well I am no expert on car finance, but I have financed a number of cars over a number of years so can perhaps shed some light on things. The first thing to consider is how much you want to borrow. If you are talking about a couple of grand then there are probably cheaper and safer ways to secure finance than taking out a car finance agreement. Bank loan, overdraft extension, cheap or ideally interest free credit card are all good options, but remember that when the interest free period runs out on your credit card you might well find it expensive if its not paid off. I bought my first and second car with a bank loan, and they were £1,000 and £3,400 in the early 80's.

As with most finance there are many options to consider with car specific finance. It is fair to say that if you finance a car using this method the car is not yours, but what does this really matter? To say you can't get out of it as easy is utter and total rubbish with most modern finance arrangements, but again it all depends on the small print. Some lease and PCP agreements will have penalties attached to them, but you would be foolish to take them.

The thing that has always annoyed me with finance is that the people who need it most usually get penalised more! I would also focus less on the APR, which can be shown and accounted for in many different ways and look more at the rate over FHBR (finance house base lending rate) or BOEBR (Bank of Englands Base Rate).

Most car dealers will talk 'flat rates' when they mean percentage over FHBR. So when you hear 4% flat, it is actually 9% APR or more! So the guy who got 4% needs to check his numbers because I bet its 4% over FHBR which is the normal rate for dealers.

I currently pay 1.9% over FHBR which is exceptional for a car finance agreement. You have to negotiate hard and also look for agreements which account for interest daily. That was you don't get a front loaded deal that sees you paying interest for the first 12 months!

It is a minefield out there and most people don't have a clue what they are doing and get ripped off. They get £500 off the car then get thumped by stupid finance, which costs much more over the period of the finance.

Car finance can be extremely competitive but like all things you need to shop around and look at the small print.


What are you talking about!?!? :confused:

Finance companies base rate is basically the lowest rate a dealer can sell without paying a subsidy or making any commision,.

This varies for different dealers depending on size and volume etc.

If your offered a rate of 4% flat then its a rate of 4% - not 4% over FHBR (Whatever that is).

So say you borrow 10,000 at 4% for 3 years, then you will pay back 12% of the loan amount (4% a year x 3 years)

Also you pay 1.9% over FHBR? whats the total rate then?

Car finance agreements are NOT front loaded with interest, this can't happen I'm pretty sure it's against the law.
 
Soldato
Joined
12 Aug 2004
Posts
2,503
Location
Oop North
I don't really follow Housemasters' logic there. The way "the powers that be" determined we all should compare interest rates is with APR.

Everyone who offers loans must quote the APR as the most prominent figure, and it is an attempt to give a direct comparison of the various loan figures.

the only way loan figures can appear to be loaded, is to not reallt indicate that an initial payment does not form part of the loan (it can make the APR look better as less money is actually loaned over the same period)
 
Last edited:

Maz

Maz

Soldato
Joined
18 Oct 2002
Posts
7,387
Location
Newcastle.
aztechnology said:
I don't really follow Housemasters' logic there. The way "the powers that be" determined we all should compare interest rates is with APR.

Everyone who offers loans must quote the APR as the most prominent figure, and it is an attempt to give a direct comparison of the various loan figures.

the only way loan figures can appear to be loaded, is to not reallt indicate that an initial payment does not form part of the loan (it can make the APR look better as less money is actually loaned over the same period)


The documentation fee and option fee actually increase the APR.
 

Maz

Maz

Soldato
Joined
18 Oct 2002
Posts
7,387
Location
Newcastle.
aztechnology said:
technically, if the fee is payable up front, it doesn't form part of the loan, so is not part of the APR calc. :D


It's not payable upfront.

It's paid along with the first payment.

And the option fee is paid with the final payment, so it is included when working out an apr.
 
Back
Top Bottom