Cars are often a big-ticket purchase. Unless you buy a clapped-out old banger from a used car dealer, you will probably spend several thousand on your next set of wheels. Because most of us don’t have that kind of money sitting in a savings account, car finance is the most common way to fund a new car purchase.
In this article, we’re going to look at car finance in more detail, with some handy dos and don’ts.
DO Work Out an Affordable Budget
Car finance is no different from any other type of finance – if you borrow more than you can afford, things will soon unravel. Dealers are supposed to conduct affordability checks on prospective buyers before they offer a finance package, but it’s better if you can do your own checks before you set foot in a dealership.
Prepare a budget. List your income and outgoings. Work out how much disposable income you have spare, and how much of that can be set aside to fund a new vehicle. Do not leave yourself short of cash each month, just so you can ride around town in a fancy new car. Remember, car ownership is expensive, so factor in the cost of insurance, road tax, maintenance, fuel, etc.
In the event that you feel you were mis sold car finance, you can contact the PCP Claim Line. They will check whether the dealer completed a full affordability check or rolled over the loan without permission. If your claim is upheld, you might qualify for a refund.
DO Put Down a Large Deposit
Ideally, pay cash for the car if an interest-free finance deal isn’t available, but if this is not an option, the bigger the deposit, the less the loan will cost you overall.
DO Explore Your Finance Options
There are several different ways to buy a car, but the three main ways to fund the purchase are:
- Personal loan
- Hire Purchase
- Personal Contract Purchase (PCP)
It’s important to understand the difference between each option, so you can make an informed decision.
DON’T be Blinded by the Monthly Payments
This point links to the previous one, as low monthly payments don’t necessarily translate into a great deal. For example, PCP deals usually offer very low monthly payments, but the catch is that you have a large balloon payment to make at the end of the term, sometimes as much as half of the value of the original loan. Unless you have this money set aside, you’ll have to give the vehicle back or take out a new finance deal. Overall, you may end up paying a lot more than if you took out a personal loan.
DON’T Let the Dealer Bamboozle You with Figures
Dealers earn a commission from every sale they make, so it’s in their interest to make a car finance deal sound much better than it is. Try not to let yourself be blinded by the numbers. Take your time and go through the paperwork carefully. If you need some extra time to think about it, walk away. What looks like a great deal now may not be once you’ve slept on it.
Finally, remember that applying for a car loan means the lender will conduct a hard search on your credit file. Even if you don’t buy the car, the hard search will remain listed for 12 months. More than three hard searches will impact your credit score.