Car Loan Finance: How To Secure a Deal That Works for YouThe days of turning up at a car dealer and handing over an envelope of cash have long gone, with more than 70% of all car sales being carried out using financing of some sort.
Understand the Types of Finance Available
It feels like there are as many financial products as cars for sale. A Personal Contract Purchase plan, or PCP. These offer low monthly payments and, often, a low deposit, with terms ranging from one to four years. At the end of the term, you have a choice; hand the car back, pay off the balance and keep the car, or roll any equity into the deposit on your next vehicle. The catch? That final payment could be very high and might even be more than the car is worth. You’ll face mileage limits and damage penalties, further eroding value.
A Hire Purchase (or HP) agreement will lower overall costs, and you’ll end up owning the car. However, even after a deposit has been paid, you’ll be paying off a larger sum over the one to four years you’ll have the plan, making the monthly payments higher than a PCP. If you can stand that, HP will provide a lower overall cost, and you’ll end up owning the car.
Modern buyers might not like to own their vehicle, preferring to simply hand it back at the end of a term. Personal Contract Hire (PCH) finance or leasing usually offers the lowest monthly payments, with 12 to 48 payments required before giving the car back to the dealer. You’ll never own it, though, and there’ll be strict mileage and condition rules to adhere to.
For maximum flexibility, a bank or personal loan is the best way to go, but rates tend to be a little higher, so you’ll face increased monthly payments. However, you’ll own the car from day one and can do with it as you wish – even selling it if you need to free up some cash.
Know Your Credit Score
With so many deals available, and so many different rates on offer for each customer, you must understand your credit score for a car loan
before you start the process.
The UK has several agencies collate your financial data, sharing the details with banks and finance companies to calculate your credit risk. The better your finances look to lenders, the lower your rates are likely to be, which lowers your monthly payments.
These agencies – Crediva, Equifax, Experian and TransUnion – hold vast amounts of power in their algorithms, but you can see what they know about you and correct any mistakes.
The likes of ClearScore or the MoneySavingExpert.com Credit Club will allow you to see this information and provide estimates of your credit score, allowing you to go and negotiate a deal armed with extra knowledge.
Some will even show offers to you before you visit a dealer, possibly opening up even better deals than you might have already found.
Stick To Your Guns
Buying a new car is an exciting time, and it’s easy to get swept up in the moment, signing a document that ties you into a finance deal that isn’t right for you.
Before you visit a dealer, know what kind of deal is right for you, and use online comparison sites to find deals in the right ballpark. You’ll then be armed with information before speaking with the salesperson and knowing if a deal is good or bad.
Don’t be swayed by the promise of a better model for less money unless you’re sure it’s right. Usually, you’ll find that the finance has been extended, lowering the monthly payments but leaving you paying more overall.
Despite that, do listen to what they say; many manufacturers run special financing offers, from zero-interest deals to deposit allowances. At the same time, don’t be bamboozled by the numbers and ensure you check the total cost – you might be surprised how much you can save by doing your research and using that to negotiate the right deal for you.