BEFORE YOU START SEARCHING FOR A CAR TO BUY
Calculate how much you can afford to pay for your car, how much deposit you can pay (the higher the better) and how much you can afford to pay monthly.
Remember to include the running costs of your car - car insurance, road tax and fuel costs.
Consider all of the car financing options available to you before you look for cars. Different lenders will provide different rates for financing so it pays to shop around.
Always read the terms and conditions to make sure you understand how much your loan will cost you. Under the new FSA (Financial Services Authority) regulations these must be clearly visible and explained in plain English.
Beware of lenders quoting you the flat rate instead of the APR as it is lower, so sounds a better deal.
Take your time and carefully evaluate the various options. The time spent will be rewarded in lower payments.
Be cautious of car manufacturers offering finance deals with zero or low interest rates. You may lose out on discounts and extras that someone with another type of loan will get. Also the amount of deposit required for such deals an be high.
When comparing loan payments between finance companies, compare similar deals. If you want to borrow £4000 over two years, make sure they all quote you for this period. Also check whether the rate is fixed or variable
The larger the deposit, the lower the amount you need to pay later as interest. Low or zero deposit loans can be tempting, but you end up paying a much higher rate of interest later.
Watch out for hidden costs such as administration or early redemption fees. Some finance options have a mileage restriction that can be expensive if exceeded.
Low monthly payments over a long period can be tempting, but you could end up paying much more for the loan than your car is actually worth. Work out how much you will end up paying overall for your car loan.
Some lenders may ask you to take out Payment Protection Insurance, which can add a bit more to your monthly loan payments. Check if this is necessary and how much it costs. Some lenders tack this on at the end as an 'afterthought' so be careful that you don't get stung.
WHEN TAKING FINANCE FROM A CAR DEALER BEWARE
Never accept the first finance deal offered by the dealer as this will likely be the most expensive option, the one they will get the best commission on. Always negotiate for a better deal.
Dealers can make more money out of the finance options than they do from the sale of the car, so always be careful when asking them for finance as they may not be giving you the best loan. If they offer you finance, check it out against other loans before you accept any finance agreement.
Don't let the dealer rush you into a finance deal. They must, by law, give you a full written quotation which you can take away and consider. If they offer you a 'deal for today only', don't let this fool you into signing a finance agreement.
Don't give the dealer too much information when requesting a quotation as this information can be used, by them, to shop around lenders to get themselves a better commission. You should shop around for yourself. |
