We all search for the perfect deal when it comes to buying a car. It is ironic then that many of us don’t search for the best finance deal to go with it. This guide offers some simple tips on where to start.
What agreement types are available?
Hire Purchase (HP)
This method of credit means that the car can be taken home and paid for over a fixed monthly repayment term. The car is not legally owned until the last payment has been made.
Personal Contract Purchase (PCP)
A personal contract purchase , or lease agreement, starts with a large deposit that is followed by lower monthly repayments. At the end of the lease term there are 2 options. Either pay a large final ‘balloon’ payment, after which the car is yours, or give the car back to the lender as a deposit for a new vehicle.
An unsecured, or personal loan, can be taken out to purchase your car. This type of borrowing can be easily budgeted for as the money is taken out over a fixed term and is usually repaid at a fixed interest rate.
Second charge mortgage
This type of borrowing secures the money owed against your home. Your home can then be repossessed by the lender should repayments not be made.
Once you have thought about the best-suited car lending for you, take a look at the tips below to help you choose the best deal.
TIP 1 – Explore your options Just as you search the Internet for the perfect car, why not shop around for the right car finance?
TIP 2 – Research standard loans vs car finance Loans can be taken out for a range of purposes, including a car purchase. In fact, a loan provider may offer a more favourable interest rate than a car dealership finance agreement.
TIP 3 – Check the repayment structure Do some market research. Some lenders may offer lower APRs to those borrowing over a certain threshold, so it may be worth borrowing slightly more than you need, for other purchases you may wish to make, in order to qualify.
TIP 4 – Consider the repayment period A long repayment term may seem attractive at first, but don’t forget that although the monthly payments are less, the overall cost of the interest is likely to be higher.
TIP 5 – Don’t be afraid to question the dealer A dealership may offer you a deal on the car, such as a discount or added extras, on the understanding that you sign up to their hire purchase scheme. It may be that the deal is legitimate, but always ask what the cost of the car would be without the HP agreement before making your decision.
TIP 6 – Think about how long you plan to keep the car Bear in mind when taking out a loan that a car depreciates over time, and if you decide to sell the car before your loan term has expired, you will need to pay the remaining balance of the loan. If you usually change your car every 3 years, it may be cheaper for you to look into a car leasing scheme (PCP) rather than a hire purchase agreement.
TIP 7 – Look out for additional costs Set up fees and early settlement charges can be a common feature of car finance. Make sure that you check the agreement fully before accepting the loan. If you decide to go for a PCP agreement, keep in mind that an additional cost will be incurred should the agreed yearly mileage be exceeded. Make sure that your chosen deal suits your individual circumstances.
Not all of agreement types covered will be offered by all of our lenders