[Closed] 2nd hand car finance - interest rate question

https://www.zopa.com/loans

Can't you get a bank loan?   Surely that would be a better interest rate and much more controllable.

Car finance these days is concentrated on PCH etc for new cars, lease deals etc. I don't think many dealers will be falling over themselves to offer you good finance on used cars when the bottom has dropped out of the used car market anyway

I bought a second hand car earlier this year and found it cheaper in the long run to get a loan separately from a specialist provider and then effectively become a cash buyer of the car. I also borrowed a little bit for contingencies using an interest free overdraft.

Edit: I used zopa (just seen post above)

Don’t take this the wrong way, but for the finance ind the £4K car market is sub-prime even if you’re the perfect credit risk.

As above, get a personal loan and given what dealers who deal with £4K cars are like you might as well risk a private sale, there are still some nice people about.

kiEvans halshaw started at 7% apr with me trying to get me to pay a really low deposit and aareally low monthly for 5 years I'd end up paying for the car nearly 1.5 times over the duration .

Told him straight I wasn't paying that and I was quite happy to pay cash if his next offer wasn't better. Asked him to stick 3k down and put it over 3 years. Came down to almost a 1/3rd of the first rate .

He said most folk just wanted the lowest monthly deposit and monthly as the total cost wasn't important to most folk so long as the monthly was low.

This was not a 4k car.

Mate of mine bought a 3-door Megane coupe thing. Not really my cup of tea, but loaded to the gills with unnecessary tech & then fitted with a gutless 1.5 diesel. Anyway - they bought it on a lease type thing where they were paying £x a month, but had a mileage limit of something like 12k.

Their situation changed and his Wife started using it for work, so mileage went up to around 30k/yr. He rang the dealer who said no way you can continue on a lease type deal, but we'll sort you out a loan and you can just buy the car. He said fine, send the paperwork & we'll sign it all, which he did. It was only a while later that he realised the payments were quite high & when he checked the APR, it was 13%!!!

When my Wife bought our current Ibiza, I think the dealership offered her a loan with something like 9%APR. She told them that her bank were offering her something around 4% (can't remember exactly what it was). They trundled off and came back with 7%. She repeated that the bank were offering her 4% and they've got one more chance to match that - bloke came back & offered their lowest rate of 6.2% - she just got the bank loan.

Basically, if you can get a bank loan it will probably work out cheaper. But, there will be stepped amounts where the APR drops - so with £4k you might still be paying a fairly high APR.
I'm sure someone on here recently managed to get 3% or similar fairly easily from a loan provider though for a car purchase.

So to correct a few things here.  The used car market is certainly not on its arse! Anything but in fact!  New cars are struggling at the moment, mainly thanks to lack of supply and constipated pre-ref stock (WLTP -tax changes)

in terms of HP, ask the dealer what the flat rate they are working to is.  This is the % rate you pay back per year over he agreement...as an example £1000 over a 2 year period is £1200 total so £200 interest. APR rates are skewed due to how the interest is calculated on HP.  I will say a bank loan may be cheaper but you don’t have the same level of protection etc as you do with HP, swings and roundabouts really. Easy to compare payments over the term to give total paid vs a proper bank loan quote

I got a £4500 loan from ZOPA for part payment towards a card, I think it was about 10% but you can pay make extra payments when you want

I just borrowed an extra £15k unsecured from my bank to finish an extension before I remortgage. 3.6% APR

unless your credit rating is shit, get a bank loan.

£4k is credit card territory, last time I looked you could even get no fee ones but not sure if around now. M&S is low fee though  https://bank.marksandspencer.com/credit-card/transfer-plus-offer/ so just get two new cards, buy it on one and immediately transfer to the other (although some offer 0% for a few months on purchases to).

If you are borrowing 4k over 2 or 3 years 13% APR isnt that bad for HP.

Most representative APR’s for Franchise dealer finance are around 10%, representatve examples are normally amounts of around 7-10k over 4 years the APR will inflate as you are borrowing less im and ( im assuming here) over a shorter term.

I also doubt anybody could get a personal loan for £4K at 3.5% APR. If they can let me know, i might have one myself!!

Dint know about that level of finance but just got 3% apr from Sainsburys for 16k over 5 years to part fund our motorhome.

Whilst you do get the protection of the Consumer Credit Act (CCA) with a dealer point of sale (POS) provided HP / Conditional Sale agreement (provided by a specialist motor finance provider i.e. MotoNovo / Close Brothers etc), you do tend to pay a higher flat rate and subsequently higher APR than with a high street bank. Plus the POS providers usually charge an admin fee which can be added to the loan amount, so you end up paying interest on fees - none of this with the banks. The lower the term and loan amount will have an affect on the APR, making it higher as the term / loan amount reduces. Some of the rates the banks quote are dependent on higher loan amounts (best APR for loans £7,500 to £10,000 for example). Plus and minuses for both methods of borrowing, personally I would try your bank first or even some of the brokers that advertise on line - Zuto / Car Finance 24/7 may get you a decent deal on HP so you get the CCA protection; 3rds / Halfs rules and complaints procedure if any thing goes wrong with the car and the dealer ignores you. Hope this helps. NC

in terms of HP, ask the dealer what the flat rate they are working to is.  This is the % rate you pay back per year over he agreement…as an example £1000 over a 2 year period is £1200 total so £200 interest. APR rates are skewed due to how the interest is calculated on HP.  I will say a bank loan may be cheaper but you don’t have the same level of protection etc as you do with HP, swings and roundabouts really. Easy to compare payments over the term to give total paid vs a proper bank loan quote

Everything above is misleading and wrong.

'flat rate' is "anything you want it to be" never trust anyone who quotes 'flat rate' it's an unregulated and vague term an can mean anything, or nothing.

APR is perfectly suited to comparing financial agreements of this sort of size and term. It's calculation is regulated by the consumer credit act and has to include all fees and other BS some shady providers try to add, it, by legal definition, shows consumers the true cost of borrowing.

The only "extra protection" HP offers is it's secured on the asset first, and consumer second, but in real terms all that means is if you can't pay, after they've destroyed your credit rating, they repo the car, batter you with a few grand in fees and you still end up with a CCJ.

There is, infamously, of course the opportunity to VT a HP agreement, but if you buy well, by the time a £4k car has become a £4k car it's depreciation curve is so flat that you should never be in negative equity with it.

The last 2nd had car I bought I added to the mortgage (£15k) and then paid off via monthly overpayments. Interest rate worked out at 2% or something like that.

Paid cash for half of my van and put £3800 on an interest free Virgin credit card, which gives me 30 months to pay off.  I'll pay of less around Christmas and when work is quiet and more when I'm busy.

Whenever I've needed a loan, we've always ended up taking it from our bank who are as cheap (if not the cheapest) of any deal, as well as being very, very low faff.

e.g. £10,000 over three years works out at 3%pa fixed, so total charges would be just over £500.

Oh, and they'll sort it over the phone and while there is a loan agreement to be signed, if you're in good standing, they'll just extend a free overdraft to cover the loan amount before the paperwork is sorted, so you can have access to the money in minutes and sort the paperwork out later.

Obviously, you need to be in good credit standing (i.e. right at the top of the credit score!) and already a current account customer, but it's a cheap way to borrow money.

They're much less competitive with lower amounts though 🙁

When I bought mine December last year, it was 2.9% APR if you bought a new one of 11% if you bought a second hand one. I found a good calculator on CarWow that showed how much difference even small changes to the APR made (I was financing about 10k on PCP.

I ended up buying a zero mile pre-reg at 5.5% APR. It took a long time for them to get down to that and we did walk away once when they refused to budge from about 7%.  I did have a similar deal from somewhere else but it would have meant travelling about 250 miles to fetch it, so I was keen to keep it local. Showing the other offer tho finally did the trick.

If I’d wanted to buy the car, I’d have paid cash or got a cheap loan. But as I knew it was a 3 year gig, PCP with a low-ish rate worked for us.

Paid cash for half of my van and put £3800 on an interest free Virgin credit card, which gives me 30 months to pay off.  I’ll pay of less around Christmas and when work is quiet and more when I’m busy.

i too use an interest free card for anything around that price.  windows a few years ago, new bathroom/toilet thats nearly paid off now, when it comes to new car time this is what we'll do again.

Lots of car places won’t take creditany more since they can’t pass the % charge on.

If you have time you can still get a 0% card and just pay for *everything* else with it and put the cash aside and pay for the car with that.

Works best with modest car purchases 😆

IIRC £5k is where the cheaper loans become available, so it may be cheaper to borrow a bit more, even if you don't spend it all

Everything above is misleading and wrong.

Um, what’s misleading about it P-Jay?  The flat rate of interest used is a much easier way to calculate the amount of interest paid per year over the agreement.  Nothing to do with regulation under the CCA!  Which by the way I didn’t mention!  The flat rate is certainly not anything you want it to be!  You will not be able to accurately calculate the interest on a HP agreement easily via an APR, because of the fees you mentioned and how the interest is loaded onto the agreement.

Personally I would not use dealer finance on a £4K car.  There are much cheaper options.

also to point out the depreciation ‘curve’ as you put is still very relavant on a £4K car, especially when you consider the dealers margain.  Which will be a significant part of the £4K price...ultimately this will be lost as soon as you role off his forecourt.  As such this is more relevant on a cheaper car and has a much bigger effect early on in ownership.

Um, what’s misleading about it P-Jay?  The flat rate of interest used is a much easier way to calculate the amount of interest paid per year over the agreement.  Nothing to do with regulation under the CCA!  Which by the way I didn't mention!  The flat rate is certainly not anything you want it to be!  You will not be able to accurately calculate the interest on a HP agreement easily via an APR, because of the fees you mentioned and how the interest is loaded onto the agreement.

Personally I would not use dealer finance on a £4K car.  There are much cheaper options.

also to point out the depreciation ‘curve’ as you put is still very relevant on a £4K car, especially when you consider the dealers margin.  Which will be a significant part of the £4K price…ultimately this will be lost as soon as you role off his forecourt.  As such this is more relevant on a cheaper car and has a much bigger effect early on in ownership.

"The flat rate of interest used is a much easier way to calculate the amount of interest paid per year over the agreement."

Easier, because, there's no defined way to do it. Okay, for arguments sake they offer you the 'industry accepted' method, this won't include any fees, which is a fantastic way to hide the true cost of finance.

"You will not be able to accurately calculate the interest on a HP agreement easily via an APR, because of the fees you mentioned and how the interest is loaded onto the agreement."

Consumers aren't expected to calculate interest rates themselves (although you can download any number of free apps to do it for you). The CCA was put in place partly to ensure that consumers don't get told "it's 5% flat rate mare, cheap as chips" and then sign for a 30% APR HP deal blind to how much they're playing for it. Providers have to show the correct, regulated amount of APR on the paperwork, if it's out by more than a basis point then the paperwork is unenforceable.

The interest is 'loaded' onto a HP agreement in exactly the same was it is for a personal loan, the difference is the fees. £200 signing fee, £100 to 'secure' the car '£200 end of agreement ownership transfer fee' I've seen plenty of them - they were used in the past to double the profit on a finance agreement on the sly - APR is a true reflection of the actual cost, they only time you might argue it's skewed is on very short-term loans where you repay within a year as they always show the annual cost.

"<span style="font-size: 0.8rem;">also to point out the depreciation ‘curve’ as you put is still very </span>relevant<span style="font-size: 0.8rem;"> on a £4K car, especially when you consider the dealers </span>margin<span style="font-size: 0.8rem;">.  Which will be a significant part of the £4K price…ultimately this will be lost as soon as you role off his forecourt.  As such this is more relevant on a cheaper car and has a much bigger effect early on in ownership."</span>

Even dealer supplied cars have a much flatter depreciation curve the older they get, new cars can lose 30-40% value day one which leaves consumers with smaller deposits in negative equity for a long time.

I'm not guessing this, I worked in finance for a long time.

While that may be the theory and idea behind it pjay

In my recent experience of being on the consumer side that is not how it works.

They kept just giving me pound number per month values I was having to work out aprs and total costs my self. Even when I asked straight what his Apr was just just handed me a calculator....

While that may be the theory and idea behind it pjay

In my recent experience of being on the consumer side that is not how it works.

They kept just giving me pound number per month values I was having to work out aprs and total costs my self.

Shady dealers are shady, I got the same at a main dealer, and I've known the Salesman since I was a Kid! I found asking for it every time they mentioned a price bored them a lot quicker than it bored me.

Anyway, it's fine to 'chat' about figures, but the paperwork should show APR clearly,

Going back to my first point anyway, the OP wants a Personal Loan, probably from Zopa.

I’m not guessing this, I worked in finance for a long time.

Likewise, in fact still very much linked...19years in total....including working for a motor finance provider, major dealer groups and vehicle remarketers.  I still present each year at a suppliers conference around the used vehicle market for one of the biggest consumer finance providers.  Albeit I’m now changing jobs! Not that this needs to be some kind of internet peacocking session!

regardless, the advice I gave is valid.  Not for people hell bent on just getting a low APR more around understanding the cost over the term borrowed.  Flat rate of interest per year over the term plus fees! Tells you how much you will payback vs borrowed and APR won’t do this unless, as you say, you use an online calculator tool.  It has Nothing to do with the CCA.  Yes a high APR means you are paying more interest, but like I say understanding the flat rate in my experience is just as, if not more important.

I still stand on my statement...Personally I would borrow the money elsewhere.

Shady dealers are shady indeed .this was a major car supermarket .some may say the largest in Europe

Simple maths at least.

Forget APR, Flat Rate etc

TAP is the only way to compare. Total Amount Payable adds all the fees, interest, deposit and repayments up to give you the figure you actually end up paying over the entire term.

At the £4k end of the market a 0% credit card with NO Fees is the way to go if the retailer will accept it. Take your pick:

https://www.money.co.uk/credit-cards/0-purchases-credit-cards.htm?track=290073&creative=251824801365&network=s&placement=&adpos=1t3&gclid=EAIaIQobChMI2cmNnJvv3QIVCuR3Ch2oIAT8EAAYAyAAEgKi-fD_BwE

The best way is to spend £4K on a card with the best rewards/cash back and then balance transfer to the 0% card.