Personal loan vs Car finance - O_Relly
Hi,

This question may have been answered earlier, but I haven't been able to find a specific answer, so apologies if the question is repetitive.

A personal loan is much cheaper than a car finance organised by the dealer or manufacturer when buying a used car.

However, I was told by the salesman that a car finance from the manufacturer or car dealer is better, and the argument was that if for some reason the car was to be written - off or stolen, then the car is secured against the loan.

Whereas in the case of a personal loan, I would still have to pay back the personal loan, as the bank doesn't care what happened to the car, or for what purpose I used the loan for that matter.

I wasn't certain I understood this correctly. Car being secured against the loan -> does this mean if the car were stolen, the finance company would consider that and write off my loan, meaning I wouldn't have to pay it all back?

Is this true? What is the advantage of the car finance over a personal loan ? Are there any other things to be considered here ?

What are the disadvantages of taking a pesonal loan and paying the full price upfront before taking the car home ?

Would appreciate thoughts and suggestions.

Cheers,
O_Relly.

Edited by O_Relly on 19/07/2016 at 18:57

Personal loan vs Car finance - Auristocrat
With Hire Purchase (which is the type of dealer finance you're talking about), you're effectively hiring the car from the finance company, and it only becomes yours when the final instalment is paid. The car is secured against the loan - so if you want to sell the car before the hire purchase agreement has finished, you have to settle with the finance company first. Similarly if the car is written off, the remainder of the loan has to be settled out of any insurance payout before you purchase another car. If the car were stolen, the finance company would require the remainder of the hire purchase to be paid - usually out of any insurance pay out. This is assuming the insurance payout is more than is owed to the finance company. Unusual, but possible - if the finance company is owed more than the insurance payout, you would have to settle any difference with the finance company.

There are two types of personal loan - secured and unsecured.

Most banks offer unsecured personal loans. With an unsecured personal loan, the car isn't secured against the loan. The car is yours from the day you paid for it (ie took delivery). If you wish to sell the car before the personal loan is due to finish, it is down to you as to whether you settle the loan, or continue to pay the instalments until the loan is paid off. Similarly, if the car is written off, it is down to you to decide when to settle the personal loan - whether that is out of the insurance pay out or whether you continue with the personal loan to the end of the loan agreement.

Secured personal loans may be secured against either property (eg your house) or the item the loan is being used to purchase. In which case, if payments aren't made satisfactorily the item the loan is secured against may be at risk of repossession.

Having said that, usually where a personal loan or hire purchase is settled early, the bank or finance company usually agree a settlement amount with you, which includes a reduction in interest charges due to the agreement being settled early.

There are pros and cons for both:

Personal loans - sometimes lower interest charges,
you own the car from day one.
you can sell the car partway through the loan agreement and decide whether to settle th loan or continue paying it.

Hire purchase - sometimes the finance company used by the car manufacturer have offers such as low interest or interest free hire purchase,
the car isn't yours until you make the final payment
you have to settle the agreement if you wish to sell the car partway through the hire purchase agreement.

What you have to remember is that the car salesman/dealer will get a commission for arranging finance through the finance company they deal with. I would suggest your car salesperson is giving you a skewed viewpoint in the hope you will use them to arrange your finance, and they or the dealer will get commission on the finance.

Edited by Auristocrat on 19/07/2016 at 20:37

Personal loan vs Car finance - O_Relly
Thanks for the detailed response Auristocrat ! That was well explained and it is all now clear.

So it looks like a no-brainer that the personal loan is a better option for me in this case.

I understand there are 0% APR offers on some new cars. However, I am looking at going for a used car purchase for a car priced at (approx) 8K. I am able to obtain a unsecured personal loan at 3.3% APR.

Whereas the car finance companies hire purchase schemes on their websites show a default of 9.4% APR.

I also have the other option of withdrawing money from credit cards which have upto 40 months 0% interest repayments.

Even, in the extremely remote case of car being written off or stolen, I will be covered by insurance and that will be same regardless of whether my loan is with the car finance dealer company or personal loan from a bank.

Also like you rightly said, with a personal loan case, I have the options of part payments and pre-closure with minor or zero penalty charges depending on which bank I choose to borrow from. Part-payments are not (or would not be an easy) an option with the car finance company.

Thanks for the help!
Personal loan vs Car finance - Smileyman
Do check what "admin" fees will be added - eg a documentation fee at the start or option to buy fee at the end of the deal. These will vary from lender to lender.

When comparing add all the monthly payments plus fees then compare, don't just compare based on finance interest rates. Also include your deposit into your calculations, which might vary between dealer and self funded options.

Finally, check the terms for early repayment, this will very and may not be as advantageous as expected.

Edited by Smileyman on 19/07/2016 at 23:25

Personal loan vs Car finance - RobJP

When buying, you may wish to give some serious consideration to GAP insurance. It's relatively cheap, and it ensures you aren't left out of pocket in the event of a write off.

An example : you buy your car for £20,000. 15 months down the line, it is written off. You still owe £16,000, insurance pays out £13,000. You are left to make up the difference yourself.

GAP comes in 2 types, RTI (return to invoice), and Vehicle Replacement (VR). I can't be certain, but think the VR is the better one, providing greater benefit. Two good providers are ALA (recommended by HJ) and Frank Pickles. NEVER buy GAP insurance from the dealer.

Personal loan vs Car finance - O_Relly
Many thanks RobJP and SmileyMan for the information!

I wasn't aware a GAP insurance existed. I will read up about it and thanks for the recommendations. Although I am an optimist and believe either or the two won't, can't and will not happen :-) not a bad idea to have a GAP insurance just in case.

Cheers!
Personal loan vs Car finance - RobJP

Just as a rough guide to what you should be paying for GAP : We bought a brand new Z4 last year. List price £33k. VR GAP for a 4 year policy was a bit over £200. So if it's written off or stolen anytime before May 2019, we get market value from our normal insurance, and topped up to the full whack by the GAP.

Personal loan vs Car finance - concrete

Just as a rough guide to what you should be paying for GAP : We bought a brand new Z4 last year. List price £33k. VR GAP for a 4 year policy was a bit over £200. So if it's written off or stolen anytime before May 2019, we get market value from our normal insurance, and topped up to the full whack by the GAP.

Hello Rob. I have caravan insurance with Frank Pickles. Is your GAP policy with them? When I buy next year I intend to PCP then settle within a few weeks. But I also wish to have GAP insurance too. Seems very sensible.

Cheers Concrete

Personal loan vs Car finance - RT

Just as a rough guide to what you should be paying for GAP : We bought a brand new Z4 last year. List price £33k. VR GAP for a 4 year policy was a bit over £200. So if it's written off or stolen anytime before May 2019, we get market value from our normal insurance, and topped up to the full whack by the GAP.

Hello Rob. I have caravan insurance with Frank Pickles. Is your GAP policy with them? When I buy next year I intend to PCP then settle within a few weeks. But I also wish to have GAP insurance too. Seems very sensible.

Cheers Concrete

Remember that many car and caravan insurance policies cover new-for-old is the first year - so GAP insurance has no value until 12 months old.

Personal loan vs Car finance - NAthan smith
Put simply car finance or pcp will allow you get into a better Mir expensive car compared to a personal loan. For example if you looked at a £12000 car the monthly payments over 4 years would be considerably higher than a pcp deal with a small or even 0 deposit. There are some pitfalls and individual circumstances like everything but it is why 80% of car sales last year where on a pcp deal
Personal loan vs Car finance - galileo
Put simply car finance or pcp will allow you get into a better Mir expensive car compared to a personal loan. For example if you looked at a £12000 car the monthly payments over 4 years would be considerably higher than a pcp deal with a small or even 0 deposit. There are some pitfalls and individual circumstances like everything but it is why 80% of car sales last year where on a pcp deal

The difference is that after 4 years you would own the car bought with a loan, on PCP you wouldn't unless you paid the 'balloon' payment, which you would have to find from somewhere.

Personal loan vs Car finance - alan1302
Put simply car finance or pcp will allow you get into a better Mir expensive car compared to a personal loan. For example if you looked at a £12000 car the monthly payments over 4 years would be considerably higher than a pcp deal with a small or even 0 deposit. There are some pitfalls and individual circumstances like everything but it is why 80% of car sales last year where on a pcp deal

If it's on a personal loan at the end of the 4 years you own the car and can do what you like with it though...on the PCP you either need to trade it in for another or pay off the final baloon payment. I think it comes down to if you want to be paying out each month and getting a new car every 3/4 years or if you want to buy one and keep it for a longer term.

Personal loan vs Car finance - Gibbo_Wirral

Quite simply, dealers like finance. So that's the best argument for taking a personal loan.

Personal loan vs Car finance - daveyjp

Sales staff are there to sell - cars, finance, insurance, expensive polish you name it. They will do anything to sell a car including telling a load of porkies about why their loan is better than a competitors.

I prefer a "clean loan" - i.e. not in any way attached to the car. It makes buying cars so much easier when you walk in and tell them you are paying cash - sales staff hate it, but they don't have to sell to me!

If you do take their finance you are then into hours being confused by deposits, repayment amounts, loan terms, APR, PCP, GFV etc etc - i.e. alot of stuff you probably know very little about and they know everything and when an expert plays a novice the expert wins.

The issue about having a locan atatched to a car is a concern of mine. If the car you buy is written off the finance company will be onto you for full settlement, insurance will pay some, GAP may pay, but even this can be painful come claim time.

Borrow from a bank and you still have the loan to pay, but you still get an inurance payout so you can either pay off your bank loan, or use the insurance payment to buy another car and continue paying the bank loan.

Borrow as little as possible and pay it back over a short a term - I like to borrow over no more than two years.

Personal loan vs Car finance - NAthan smith

Quite simply, dealers like finance. So that's the best argument for taking a personal loan.

Or why 80% of sales last were pcp....
Personal loan vs Car finance - Falkirk Bairn

Short term a better car and/ or lower payments in the short term - but probably dearer for most in the medium & long term.

Manufacturers "can cut the price of a car" by subsidising PCP without cutting the List Price.

Personal loan vs Car finance - Smileyman

Simple test - ask yourself, after (say) 5 years how much will have been paid out to finance the car .... that's your money out of your pocket, and (after allowing for possible inclusion of maintenance, tyres RFL etc) decide which you'd prefer. If you are a cash buyer don't forget to adjust for a discount and include any finance interest charges.

From my perspective, the only reason to go for the higher cost would be if the monthly payments are so much lower that it's the only way to afford the car - then ask yourself who's getting the extra monies you're paying!

Personal loan vs Car finance - Bilboman
I find myself deliberating car finance right now as redundancy has meant a loss of company car. It is a strange new world for me after 15 years of having everything chosen for me and no running or finance costs to think about.
In my case I am lucky enough to have enough cash from savings plus redundancy to consider actually buying a new car outright and I am about to take the plunge.
The real advantage for me of a cash purchase (equivalent to a personal loan as far as the dealer is concerned) is, as has been said before, that I will actually own the car from day one. Definitely a 'heart' rather than 'head' decision but I remember how my parents paid out a small fortune to Radio Rentals back in the day for a tv and video that they never owned and it always seemed a strange way to carry on.
HP - and its modern day equivalent, PCP - are rental schemes that enable an awful lot of people to keep up with (and overtake!) the Joneses for a reasonable deposit and affordable monthly payments. Horses for courses, but this particular horse isn't for me. I'll be shelling out a lump sum now which is halfway between the total cost of PCP (if I make the balloon payment) and the nominal list price with applicable discounts. (In other words, there really is no such thing as a list price!)

Edited by Bilboman on 07/09/2016 at 23:04

Personal loan vs Car finance - Dogfuzz

I would be hard pushed to be persuaded to borrow in any form to buy a car-I would buy (with £s) what I could afford at the time or keep what I've got till the cash was available( saved!) . As long as your present car is reasonably reliable and well maintained, your other "saving" is holding on to an asset that is depreciating considerably less than a brand new vehicle-whether you own it outright or not. Of course if your car is a dud, totally whacked or thoroughly unreliable and costing you masses--then polish it up, sell it or part exchange it.

OR-You could of course try and do without a car entirely .Add up all--I mean all motoring costs and put that aside for public transport/taxis and occasional rent-a-car weekends etc. Not an easy decision for country folk-but that's what i would advise all city dwellers.

Personal loan vs Car finance - RT

I would be hard pushed to be persuaded to borrow in any form to buy a car-I would buy (with £s) what I could afford at the time or keep what I've got till the cash was available( saved!).

I agree with that entirely - but sometimes additional discount offers can make PCP attractive, but pay it off within days to avoid almost all interest charges to maintain my principle.

Personal loan vs Car finance - TheBroker

Aplogies for my conspicuous absense from such questions. Work has been rather busy.

Other that to re-iterate alot of what has already been said about personal loans v car finance there are a few other factors to consider.

When you take out a personal loan, you walk into the show-room as a cash buyer, a typical retail customer if you like. What this means is that you will most likely be sold the car at close to full price or with some discount but not too much.

When it comes to car finance things change in the background somewhat.

For our company the following applies:

We as a company have negotiated deals with dealer groups which mean we get a substantial discount against retail price due to the quantities of vehicles we supply to our customers.

We as a company have also negotiated strong rates with our funders for the same reason as above.

Our funders also do deals directly with manufacturers for even better deals which they then pass on to us

All this combined means we can cherry pick our funder offering the best deal and rates, cherry pick our dealer offering the best further discount and then wrap this up nicely for our customer who gets provided with the car they want and the financial product they want (not what that dealer can push).

Is the cost of borrowing less on a personal loan than car finance, on the face of it almost always yes. However, when you look at the deals brokers like us can do this quickly changes.

Here is an example:

VW Passat 2.0TDI GT Saloon - Manual

Retail Cost Price: £26,025

3 Year Personal Loan (Tesco): £796.90/month (total paid = £28688)
Approx Value of car after 3 years (Autotrader): £11,000 (total 30,000 miles)
Offset residual value against loan = £17,688 over 3 years
Total monthly cost = £17,688/36 = £491
Then add cost of maintenance/servicing/Tyres/Road Fund License

A PCH deal we have on at the moment for the same car:
3+35 x £246 (inc VAT) which includes servicing, maintenance, tyres and road fund license

Total payable over 3 years: £9,348 or equivalent monthly cost of £259.66
Plus no hassle of selling the car etc

Contract Hire or PCP, or even HP are not for everyone, and some will never finance a car on principle, which is fine but I would always reccomend a customer consider all the options before proceeding as there can be considerable savings involved in going against what you would normally do.

For those who would not want to use an independent broker but go to local dealer for finance, you can ask what commission they receive from the funder for doing the deal with you. Often it will be around £500 of which the saleman may get £250.

Now I'm not the biggest fan of dealer retail sales as they are not the best, but I do feel occasionally sorry for them when they arrange a deal, give test drives, spend time on it, all on a wage of around £12k basic (the rest is commission from finance and sales) to then think yay Ive done a deal that will earn me £250, only to find out the buyer settled immediately which means the salesman gets nothing for that deal in the end so may as well not have bothered.

Just something to think about... I would recommend being up front with the salesman concerned so they know that they will not recieve any benefit from spending time with you, giving you a test drive, getting the best rate they can, finding the car, ordering it, checking it over when it arrives, doing the handover with you etc.

Personal loan vs Car finance - colinh

"For those who would not want to use an independent broker but go to local dealer for finance, you can ask what commission they receive from the funder for doing the deal with you. Often it will be around £500 of which the saleman may get £250."

Was interested to read this comment. Typical adverts in Spain read:

Kia Niro level 2 trim:

List price - €27,030

Price with minimum financing of €14,000 - €20,500

Price without financing - €23,000

This would seem to suggest that commission from the funder is at a much higher level

Personal loan vs Car finance - Betti Narenke

There are two ways to get a finance loan in buying a car. One is personal loan and second is car loan. Usually, the personal loans are the cheapest way to finacne a car deal. you can get a personal loan from a back, organizaion or finance companies. My-personalloan.com is offering fast and simple xxxx in UK.

Edited by Avant on 26/09/2017 at 21:39

Personal loan vs Car finance - oldroverboy.

There are two ways to get a finance loan in buying a car. One is personal loan and second is car loan. Usually, the personal loans are the cheapest way to finacne a car deal. you can get a personal loan from a back, organizaion or finance companies. My-personalloan.com is offering fast and simple xxxx in UK.

Spam spam spam spam spam

Edited by Avant on 26/09/2017 at 21:49

Personal loan vs Car finance - argybargy

There are two ways to get a finance loan in buying a car. One is personal loan and second is car loan. Usually, the personal loans are the cheapest way to finacne a car deal. you can get a personal loan from a back, organizaion or finance companies. My-personalloan.com is offering fast and simple xxxx in UK.

Wow, thanks, Betti. Just as a matter of interest, do you by any chance have the email address of the President of Nigeria? I suspect that he's been trying to contact me to deposit one thousand million Nigerian dollars in my bank account, and only needs my details to allow him to do so.

Edited by Avant on 26/09/2017 at 21:50

Personal loan vs Car finance - madf

There are two ways to get a finance loan in buying a car. One is personal loan and second is car loan. Usually, the personal loans are the cheapest way to finacne a car deal. you can get a personal loan from a back, organizaion or finance companies. My-personalloan.com is offering fast and simple xxxx in UK.

"Representative 51.1% APR for personal loan. Representative 305.9% APR for Short Term Loan"

You have to be desperate....


Edited by Avant on 26/09/2017 at 21:50

Personal loan vs Car finance - gordonbennet

There are two ways to get a finance loan in buying a car. One is personal loan and second is car loan. Usually, the personal loans are the cheapest way to finacne a car deal. you can get a personal loan from a back, organizaion or finance companies. My-personalloan.com is offering fast and simple xxxx in UK.

"Representative 51.1% APR for personal loan. Representative 305.9% APR for Short Term Loan"

You have to be desperate....


They definately need referring to the 419eater forum to be dealt with appropriately :-)

Edited by Avant on 26/09/2017 at 21:50

Personal loan vs Car finance - Avant

If you see spam, and absolutely must comment on it, PLEASE DON'T QUOTE IT. It means I have to delete the link in each of your replies. VERY BORING.

I can delete a thread that starts with spam, but not this one as the rest of it is good stuff.

Personal loan vs Car finance - veloceman
I was at my local dealer last week getting my Leon serviced.
They currently have a deal running where I can get a brand new Cupra for £260 per month.
Of course this is a lease only deal which limits mileage to 10k per year over 3 years.
Of course you never own the car, but if you wanted new to me there is no better way to buy.
This means it will have cost £9,360 over the 3 year period.
Looking at Autotrader a 3yr old equivalents are going for between £25k and £18k.
Meaning a loss of between £12-15k (retail around £30k) of depreciation and also no interest to pay either.
Food for thought?
Personal loan vs Car finance - veloceman
Sorry, error can't workout how to edit on my phone!
I meant retail between £15-£18k on Autotrader.
There is a vertical band of advertising that obscures what I've written.
Personal loan vs Car finance - oldroverboy.

I have given up on trying to read anything on my smartphone unless it is essential.

Intrusive advertising spoils everything

.

Personal loan vs Car finance - argybargy

ORB, I use a programme called Adblocker on my laptop, and it weeds out most of the rubbish. Some sites that I use throw up a message pleading with you to turn off your blocker and allow their advertising because it pays for their services, but there's always an option to ignore.

Chances are the same sort of software can be installed on smartphones.

Edited by argybargy on 27/09/2017 at 10:59

 

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