So, if you have been keeping up with our series on buying and choosing a new or used car, we are now at the stage where you have to find the money to finance it. Now unless you are extremely weathly or a Del Boy type who will pay with a wad of cash, you’ll be wanting to secure the best deal you can get and that’s where we come in. As there are a number of ways you can take out finance, we will look at them all and you can see which one suits your needs.
Total Loan Amount
It may seem strange to be talking about the final loan sum at the start but this is one of the most important factors when it comes to deciding what type of loan you agree on. It is crucial to know what the total amount is that you will be paying over the term of the loan period. You can work this out for yourself by studying the Annual Percentage Rate (APR). Basically, the lower the rate, the less you’ll pay in interest, the better the deal. Check for any hidden payments such as setup fees or early repayment charges. Be sure to compare the total amount you’ll be paying with other loans; for instance, a lower APR over a longer period may sound like a good deal, but it could cost more in the long run. See if your circumstances warrant you getting Payment Protection Insurance (PPI) . Your loan provider may offer it but it could be cheaper to look elsewhere.
Unsecured Personal Loans
Most people, if their credit rating is good, opt for a loan of this type. Basically it means that you have no assets, such as your house or car, that can be used as security for the loan and you have the ability and credit standing to be able to make the monthly payments. These payments and the length of the loan are fixed, but the car will be owned outright by you and you can sell it at any time. If you sell it before you have finished paying off the loan, your payments will still continue whether you own the car or not. If you want to repay the loan earlier than the term states you will probably incur a penalty fee. Flexible loans may offer a break in payments or the option of repaying early, without a penalty.
These types of loans are secured againgst your home, or any other large asset, which means that typically you can borrow larger amounts over a longer period of time, depending on the equity and value of your home. Secured loans usually offer lower monthly repayments than the equivalent unsecured loans but if you do not keep up with the monthly repayments, the asset you used to secure the loan will be repossessed. You should think very carefully about these types of loans and always take out some sort of protection with them.
Personal Contract Purchase (PCP)
Having a PCP agreement means that you can pay a large deposit at the start, and lease a car for a fixed time with lower monthly repayments. At the end you then have a number of options whether you want to keep the car or not. You can either pay the final installment or ‘balloon payment’ (as it’s called) and keep the car, give the car back and that’s the end of the transaction, or, use the value of the car as a deposit for your next car.
For example, a PCP Plan for a car worth £30,000 could be:
Start off deposit of £10,000
Monthly payments 48 x £250 (Totalling £12,000)
A final payment £8,000
The balloon payment is always calculated at the start of the agreement and is based on the predicted future value of your car and the value of the car is always guaranteed.
Be aware though that you do not actually fully own the car until the balloon payment is made and therefore you cannot sell it until then. If you go over a certain mileage you will incur extra costs and some PCP contracts include maintenance costs of the car.
Hire Purchase (HP)
Hire Purchase is another way to buy your car over a set period, with fixed monthly payments whilst making an initial deposit. If you make a large deposit your monthly payments will go down, but, as with the PCP contracts, you will only fully own the car when the last payment has been made. You therefore cannot sell the car until you have finished paying for it.
Getting The Best Deal
As with everything in life, you have to shop around to get the best deal so do not just go to one bank and accept what they are offering, try several before you make your final decision, it could save you hundreds of pounds in the long run. Make sure you are aware of the best deals before you head off to the brokers or banks, they may not offer you the same deal when you walk through the doors and might have to be reminded. If you take out finance with the garage you could get a sweeter offer as garage owners may get discounts or special deals if they pass on customers to a specific broker. Good luck!