Hire Purchase vs Bank Loan

gord

gord

gord

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Joined
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Hi all,

So my girlfriend has just taken out £7k credit on a hire purchase agreement with the car dealer. As part of this agreement she's getting 2 free services, saving her circa £400 in the first two years of ownership.

However, the rate is 10.9% APR, giving her repayments of £200 per month for 42 months, and I can't help but feel this could be beaten by a bank loan. Sure enough, the quick calculators give her repayments of £180 instead, saving a decent sum over the term.

As far as I am aware she is within her rights to withdraw from the hire purchase finance within 14 days, using the bank loan to pay back the credit amount and thus have smaller repayments. However, would she also lose out on the servicing deal? I've read the T&Cs and there is a clause within termination by them as "repudiation" of the agreement, which I feel covers them if she did withdraw and pay it all of early. Technically if we had a good bank loan we'd save more than enough to cover the servicing and still be better off by my calculations.

What are your thoughts OcUK? Any help is much appreciated.
 
Is it a large dealer, or a small independent?

If it's the former, they'll be giving you a servicing plan and probably tweaking the rate to make it look 'free'.

Regardless, it'll be a separate product from the finance so you can go ahead and pay the HP off early using the loan and save money.

Secondly, you can pay off a HP at any point you want and not incur a penalty - they can't hold you to ransom with it.
 
gord said:
As far as I am aware she is within her rights to withdraw from the hire purchase finance within 14 days, using the bank loan to pay back the credit amount and thus have smaller repayments. However, would she also lose out on the servicing
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Could you not phone the credit company for a settlement figure, use the loan to pay it off, cheaper repayments and keep the servicing?

Or surely just cancelling and using the loan, the servicing should come with purchasing the car rather than buying the car on credit if you know what I mean

mjt said:
Oof. I borrowed £20k at 0.5% :o
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Dont want to steer the thread away here, Where did you find such a deal if you don’t mind saying? As I’ve been looking to change from pcp to hp but looks like a bank is the only way
 
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Depends on the contract but usually the servicing is purely an incentive and can't be clawed back. I've done it twice now with VW financial services. Taken the finance at their crazy 11% Apr rate then withdrawn from it.

I'm guessing given its two free services and 10.9% it is VWFS as that's their standard rate and commonly used incentive.

Just make sure you withdraw as opposed to settle so you aren't charged a settlement fee / additional interest.

ChilledLJ said:
Don't trust the quick calculator, 10.9 isn't too bad on £7k
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10.9% is a bonkers APR if you have a decent credit rating. There are dozens of places that will do 3-4%
 
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David Flett said:
Dont want to steer the thread away here, Where did you find such a deal if you don’t mind saying? As I’ve been looking to change from pcp to hp but looks like a bank is the only way
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kindai said:
Err yes... details please...
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Sorry to disappoint. Don't live in the UK!

My bank had a special deal on for cars under 3 years old. Almost makes up for the fact used cars are significantly more expensive than what you guys get.

Madness though, as when I bought my A6 almost 3 years ago now, the interest rate on car loans was over 8%!
 
Abyss said:
Depends on the contract but usually the servicing is purely an incentive and can't be clawed back. I've done it twice now with VW financial services. Taken the finance at their crazy 11% Apr rate then withdrawn from it.

I'm guessing given its two free services and 10.9% it is VWFS as that's their standard rate and commonly used incentive.

Just make sure you withdraw as opposed to settle so you aren't charged a settlement fee / additional interest.
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It is indeed, will be doing some more detailed loan quotes tomorrow then and see what we get.

Thanks for all the input so far chaps. As far as I am aware 7K is just under the 7.5K needed for better loan rates, but even a few percent would save enough to warrant the change now.
 
mjt said:
Sorry to disappoint. Don't live in the UK!
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Makes sense now:D

Seems to be cheaper to borrow more nowadays, maybe better with a slightly bigger loan to get lower interest rates and use the spare to pay it back quicker which should reduce payments
 
If your credit is good, why not just get a 3 year interest free credit card (check the best deals on MSE), do a bank transfer for a 2ish percent one off fee, pay your 200 quid a month for 3 years and it's done. Total cost of credit? £150ish
 
gord said:
It is indeed, will be doing some more detailed loan quotes tomorrow then and see what we get.

Thanks for all the input so far chaps. As far as I am aware 7K is just under the 7.5K needed for better loan rates, but even a few percent would save enough to warrant the change now.
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Borrow 7.5k then and pay £500 back straight away.
 
Also Hire purchase if money situation changes for the worse then the car can be repossessed. Its a lot harder for assets to be repossessed on an "unsecured" personal loan. Apply for a bank loan take out the highest amount possible to get into a lower APR bracket then make an overpayment with the unused cash
 
pigeonguyuk said:
Also Hire purchase if money situation changes for the worse then the car can be repossessed. Its a lot harder for assets to be repossessed on an "unsecured" personal loan. Apply for a bank loan take out the highest amount possible to get into a lower APR bracket then make an overpayment with the unused cash
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Works both ways though as you always have the halves and thirds option if needed
 
Turns out that her average credit rating means those 3% offers are too far out of reach anyway and most offers are coming out worse than the finance she's already been given. Still worth knowing, thanks everyone for the help.
 
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