Balloon payment

[Workerbeee]

We have a car on HP @ £299 per month. The options after 4 years are;
Return the car (they check condition, mileage etc)
Pay £11k outstanding
Get a new car and pay £299 for evermore

We would like to buy outright so need to finance the 11k - we have kept an empty credit card (12.5k limit) that often offers short term interest free deals. This would be a plan B.

My question is ... if we applied for a Sainsbury’s loan I think that credit card will hinder us (even though it’s empty) however if loan application fails we need the card! So it’s a catch 22.

Advice please

Are you already in this agreement?

If not I wouldn’t sign up to it.

The balloon payment is massive. Way more than you would expect on a PCP deal.

Pcp’s are the worst type of finance especially if you are planning on buying outright as you are paying the interest on the full value of the car initially and then paying interest for a second time if you take out a loan to pay the balloon.

It would not surprise me if they become the next PPI scandal

If you are already in it I would be finding out what low rate loans are and if it’s likely you will be accepted for it.

An empty credit card shouldn’t hinder your application for a loan unless you have bad credit history or the size of the credit card allowance is large compared to your earnings.

Maybe I have used the wrong terminology but we purchased the car from new and 11k is the balance after paying £299 per month for 4 years (it was an interest free deal).

Good to know that they don’t view the empty credit card badly

If an interest free deal that isn’t so bad.

So the car was £25.5k?

After 4 years a bran new car depreciates also much that sometimes it’s worth less than the balloon payment

Check out how much 4 year old cars of your type are worth second hand and if it’s more than £11k look at getting the loan to buy it from the dealer.

If it’s worth less give it back to the dealer and buy a different car for less

We got a good deal - car is currently worth more then 11k and we really want to keep it and pay it off.

I’m thinking maybe the dealer might offer us a loan - I will investigate!

Ask for HP quote to finance the balloon payment from the dealer you bought it from. Quite normal to do this but buying the car initially on HP would probably been cheaper in the long run but higher monthly payments over a shorter term

Check out money saving expert for loans and credit cards. You may get a good loan rate and I can't see a dealer offering you 3% or under.

Or interest free credit card if you can keep paying a monthly amount and transfer balance at end of deal and pay a decent monthly amount. I'd work out what the loan would cost and pay this amount each month to the credit card. Then keep transferring for deals, until it is paid off.

Your original deal must have been PCP as HP tends not to have balloon payments at the end, not high ones anyway but the monthly payments are much higher than that of PCP and you own the car at the end of HP.

You can ask the dealer to do HP on the car to pay off the balloon payment. So basically, you take out finance to pay the £11k.

It would be like you handing the car back then taking it as a used car on HP. With it only being 4 years old, this is a good way to go and the apr on car finance tends to be around the same as the banks if not lower in some cases. PCP is usually interest free to encourage people to buy new cars which make a lot more money than used

Just wanted to add that if you handed the car back, they would just clean it, service it and put it on their forecourt for sale as a used car anyway so you're saving them the trouble of advertising it and stuff. So you'd end your PCP deal by handing it back then take out a new deal for HP to pay it off and own it at the end of the finance.

If you take the HP over 3 years, the car will still only be 7 years old when you finally own it. My car is a 2012 so 7 years old and still fab