Laugh at my financial decisions, then help!

[squerble]

Hi all. What better medium to expose your silliness than to lots of random internet strangers (and a couple of work colleagues who I think are on here and might recognise me). So...

• In March 2019, I bought a 2017 Ford Focus Estate for about £14k, using a HP agreement at 5.9%, paying about £275/month
• In December 2021, with used prices how they were, I was able to ship the car off to WBAC for £12k, paying off the remainder of the finance and leaving me with enough for the up front payment on a Hyundai Kona EV lease, paying £300/month for the rest of the 3 years.
• In March of this year, I "got the ick" about having a lease, and in a moment of madness, got a loan for £25k ( @ 10%, please don't laugh too hard), terminated the Kona lease early and bought a 2022 Ford Focus Estate. This is now a steaming £525/month, or a total payable of over £31k. No, I don't know what possessed me to go ahead with the loan at this rate.

The rationale was that I'd be able to put together more money on the side to pay the loan off early and avoid a lot of the interest. As always, life has been getting in the way, and the little nag at the back of my head that I was in a very silly position is growing and growing. It's not that I can't afford that much, but it's still a very, very high interest loan and I'm throwing money away. To make things even worse, the car is very seldom used since I started commuting to work on the train. I'm paying £525/month to have a Focus sat on my drive that I use very locally 2-3 times a week, and for much longer journeys once a month or so (running from Liverpool to Leeds and back to see family, for example). Don't get me wrong, it's very nice, but it's a lot of money.

Once you've unfolded yourself from the laughter, I'd appreciate serious comments on what you'd do in this situation (but I'll allow any random insult at the start of your reply!). Do I sell up, buy an absolute shed and pay off as much of the loan in one go that I can? Do I sell up, buy a reasonable car for about £10k, using the rest to pay a chunk off the loan, saving some interest and getting me closer to the end? Any other suggestions?

If you suggest getting a car that's not a shed, then I've only got a small-ish wishlist: petrol, auto (I'd love a BMW with a ZF8), any body shape, not halogen headlights, climate control. Any other features over and above this are definitely just a bonus (such as cruise/speed limiter).

 

[squerble]

@squerble what you being offered to trade it in? Does seem daft to keep hold of it when it will continue to lose value too.

I'm guessing you will be left with a shortfall of around 8-10k if you sell up and settle?

WBAC offering £14k, Motorway show £16.5k, could maybe get more if I tried to sell privately. Remaining loan balance probably around £22k, so figures very close to what you suggested.

 

[squerble]

Sounds like you have beat yourself up enough without me chipping in.
On the basis your car is worth about £17k ish you will be crystallising a huge loss. There may be an early redemption penalty on the loan so the interest saving might not be as much as you desire. Now is not a good time to sell your car. the market is wobbling and 1-3 year old cars are devaluing more sharply than at anytime in the last three years. I expect this to stabilise early next year but dealers are being uber cautious on buying stock and also it's December when a lot will destock anyway. On the basis you have paid off c£4k and your car is worth £17-18k then you have an unfunded c£4k to get out of the finance.
Buying a replacement car at £10k therefore isn't actually going to net you that much spare cash and you'll no doubt have some additional costs for maintenance and repair. I work in the car industry and its seldom even a zero sum game! you have to take your medicine and resolve not to make the same error again!

Luckily no early charges on the loan, can settle in part or in full at any time. Settling in part gives me the option to either keep the remaining monthly payment and they recalculate the shorter term, or keep the remaining term and they recalculate the new monthly payment. Not that it helps much, but that's what the terms of the loan suggest I can do.

 

[squerble]

I don't think you'll get a much better loan at the moment. Sure, advertised loans are at 6.2% ish with some places, but doesn't mean you'll get it.

How long do you have the loan for?

5 year loan. Not looking to get a new loan, but pay off some of the current balance to save money on interest.

 

[squerble]

lol noob.

It seems like the root of the problem is purchases of cars. So I would not do any more of those.

Pay off all the debt, then start fresh. Enjoy your over-priced Focus.

You mean keep the Focus now, suck up the mistake, and just do what I can to pay it off early?

 

[squerble]

When people use the term loan they are referring to an unsecured personal loan, not a hire purchase agreement. You can see from the original post that he originally had a hire purchase agreement in 2017 and mentioned it in his post so it's not like he's confused about the difference.

Absolutely correct - current situation is an unsecured personal loan. Representative rate at the time was around 6.9% but when I did the full application they only offered 9.9%.

Hopefully if the 1.0 it has the timing chain rather than wet belt in oil. If the latter it needs the right oil and regular oil changes, definitely not the ford 18k / 2yr. - Ecoboom.

It's the 1.0 MHEV which is indeed the newer timing chain model, so much less chance of EcoBoom.

My advice - sell the car immediately to Motorway for £16.5k. This is a really good offer considering you can buy hundreds of 2022 1.0 Focus' estates from a Ford main dealer for around £16-17k. I just did a quick bit of reading and can see that on a personal loan you can pay off £8k per year without fees? If that's correct and how I've understood it, pay off £8k as soon as you sell the car, and stick the remaining £8.5k in a 5% savings account until March 2024 when you will entered a new year on your loan, and pay off another £8k. Yes it will mean that you have some £6k to pay off on an asset you don't even have, but unfortunately, that's the cost of A) taking out a personal loan at such a high rate and B) buying a 1 year old Ford Focus which are well known to drop like a stone in value C) buying a newish Ford, in the most expensive way (main dealer), at a time when the car market was the most overvalued in the last 20+ years(?). You were already in negative equity the moment you shook hands on that car, which has been further compounded by the car market crashing, especially in the segment you bought from.

However, I'd rather have a relatively small £6k loan hanging over me (which although is still at 10%, will drastically reduce the amount of money you're paying on interest), rather than an estate Ford that's crashing in value, and a £22k 10% loan hanging over me.

You could even look to pay off the remaining £6k, assuming you have some savings, and see what the early repayment charge is. If it's not too bad, this would be your quickest way out of this.

As a side note - I'm sure you may have an inkling, but you are utterly terrible at buying cars or managing finances. In the future, you should only buy a car following written approval from a committee of responsible adults. You should never take a loan out again unless approved by a responsible adult. And you should start looking at some nice £5k cars to tide you over for the next couple of years as you recover from the financial bumming you have given yourself over the last 2 years.

Thanks for the full layout of steps here. I'm not sure what you read but the amount one can pay off early and/or fees is surely down to the individual loan? As far as I can see, the terms of my loan allow payment of any size, be that a part or full repayment of the capital, at any time, without fee and so I could probably skip a few steps. Some quick maths yesterday shows about £22k capital still to pay, so even if I did get the £16.5k from Motorway I'd still have about £6k shortfall like you said.

As for you side note - yes, fully deserved. The only issue with the "nice £5k" part is that seems to be the going price for an old £1.5k banger - there's another thread with recent posts in Motors talking about this current state.

 

[squerble]

• Sell car and pay lump sum off loan.
• Go without a car for 6 months or so and prioritise paying off rest of loan.
• Save for another 6 months and buy a banger outright.
• Stop obtaining cars via finance.

Hesitate to ask but...do you have other debts?

Thanks. Other than a joint mortgage (fixed at 2% until 2027), no debts. Credit card used monthly for various bits but paid in full; 3-month emergency fund is there etc., I've just lost my head in the last couple of years on these car purchases/leases. If context is helpful, my take-home is around £3,300/month although that'll drop slightly as I start to pay some additional pension contributions to avoid/get tax relief from the 40% rate.

 

[squerble]

Great; you could probably fix this reasonably quickly if you're willing to deal with some hassle short term.

It's definitely one to think about. The lack of a car for nearly a year would be hard to swallow, especially when my partner's car is an aged 2007 Micra. It's still going OK, but I don't know how I'd feel about that being the only car in the household. I fully accept this all my own doing, but the old Micra is a big part of the reluctance in having no car, as well as losing a freedom I've had since 2007.

 

[squerble]

But there is the issue, negative equity and would still need to buy a car

Just gotta suck it up imo

But would you suck it up in the sense of just keeping the Focus, or would you suck it up in the sense of sell the Focus, buy a boringly reliable £4-5k Micra, and just deal with the remaining loan as quickly as possible?