How do car loans work?

[3xpendable]

I'm in a bit of a dilemma,and wanted to know more about how loans, more specifically car loans work in general as I have no idea about them. Basically the option has come up to purchase a friends 2011 Mini Cooper S that he has had from new and only done 11,000 miles, it's a gorgeous car and really fun to drive too so I'm tempted by it. Looking up it's worth about £10-£12K and he said he'd give me a discount but I'm in a dilemma because I am the sort of person who likes, and was raised to buy things I can afford and not get anything on 'credit' (mortgage excuded obviously).

So, are loans more hassle then they're worth? Also what happens if I say sold the car after 2 years and repaid early, what's the penalty? Finally, is the car worth getting? I mean are they problematic etc?

[tractorman]

I went to my bank (twice) when buying cars. Getting a bank loan was easy then - it might not be now. However, the loan was for five years and, although the car was a sort-of collateral, the loan wasn't directly linked to the car and I could have sold the car before the loan was paid and continue making the payments. Although not the ideal candidate for a loan at the time (single man living with parent and in a new job etc), I had been banking with them for a long time and had a good record (only in the red once and that was by accident - my credit card was out of date when I filled the car with diesel); so they "knew" me and my circumstances. The interest wasn't the cheapest, but the availability of the loan (no hassle and arranged within a day) made it worth the extra cost.

I could have gone for a three year loan, but the payments would have made life somewhat difficult! Of course, the interest would have been much less, but I wouldn't have been able to afford fuel, insurance, tax and maintenance bills!

[rich.]

you see the bank, they lend you money & you pay it back with interest.. check the interest rate though.. i paid 16% it got me out of trouble when my car had died for the umpteenth time.. i paid it off early after 3 years instead of 5, no penalties & the bank wanted to lend me even more money then.. even though i didnt want it

[jpsh120]

Should be hassle free as long as you are sensible where you choose to borrow from.

In my experience my own bank has never offered me rates as good as another lender, with the exception of when they gave me a loan at the same rate as my mortgage - might be worth enquiring if you can do the same.

Interest rates vary and you often find borrowing more money can be cheaper in the long run.

Some very useful information HERE

[3xpendable]

Thanks guys, I'll look into it.

[Topaz]

When I was riding the Black Horse many years ago, organising loans was something I did five or six time a day - remember that from a Bank it will be a 'Personal Loan' which means that we lend to you as a person - you tell us it's for a car but we didn't check what the money had been spent on. As long as repayments are kept up then it isn't a problem - and if you do default on the loan we had no rights over the vehicle.

That's the difference between loan and a 'Hire Purchase' or 'Leasing' arrangement - with some of those you don't actually own the car until the final payment is made and some then give you the option of returning the car and starting again with another new one - however these are usually only arranged through a garage which has an arrangement with a finance company.

In your case a bank loan or personal loan from one of the reputable companies listed in the Money Saving Expert link above would be best bet. Most can be arranged online in just a few minutes but sometime the headline rate isn't offered due to credit scoring which may or may not work against you if haven't had credit before they can't assess if you are a bad risk or not. Almost all offer a fixed rate so the amount you pay won't alter. Early repayment isn't a problem and the settlement figure should include a refund of uncharged interest as that is calculated up front to make sure the monthly repayments are correct.

Hope that helps

Mike

[megadethmaniac]

I used to work for Motability and they financed cars on Hp.

The general rule is that if you could arrange HP on the car (and as its a private deal I`m not so sure that you will) that any early repayment will be down to the rule of 78 IIRC. Essentially if the loan is over 36 months and you repay at month 34 then they are entitled to interest on 36,35,34 and 33 pushing the interest 1 month forward as they are entitled. You will appreciate that in month 1 you pay almost nothing off the car and at 36 the interest is negligible? Not much of a drama unless you are being ripped off with high interest rates...

That said I doubt that you will get anyone that will finance a private deal. Its too much of a risk to them in case the car goes wrong as they then are liable under a DCS agreement. I suspect that anyone will happily finance the purchase by lending you the cash (if you have the requisite clean history and can show an income that suggests you are good for it). In which case its a simple Loan and whilst not dramatically different there is less risk of the vehicle being recovered if you do not keep up payments.

One word of caution, if the car is on HP then unless you are an innocent purchaser for value without notice then the finance company may still be able to recover the car if the previous owner defaults on the loan.

[3xpendable]

Thanks Megadeth, but it;s not on HP it is a personal loan. Got it all sorted with the bank yesterday.

Details to follow

[rich.]

great! when can we have pics of the maxi

[3xpendable]

Picking it up Saturday