How to pay for your car

Car Finance

Car Finance

If you are considering buying a new or used car, you don’t need to be told about the huge variety on offer. City cars, SUVs, saloons, hatches and crossovers all vie for your attention and your hard-earned cash. Now you also have a choice of the traditional fuels of petrol or diesel or the newer power systems like electric cars, hybrids or fuel-cells. It is a vast market and most buyers will spend some considerable time evaluating many different options before making their choice. Sadly, having done so, far too few drivers spend a similar amount of effort in deciding how to finance their car. This can mean spending too much money, negating any good deal that was negotiated on the car. Looking at the main types of car finance on offer can help decide which type of finance produces the best deal.

Cold, hard cash

If you have sufficient funds, simply putting down a pile of notes (or more likely a debit card) has many advantages. You will be paying absolutely no interest on your car, and you will own the vehicle outright from the first day. There are no credit checks or agreements to worry about. Should you decide to part company with the car, the proceeds from the sale are yours. You are completely free to decide to sell the car whenever you want, and there are no restrictions at all on your car. This may all sound perfect, and for some it is, but there are some things to consider before parting with all of that cash. Firstly, you need to make sure that you are not over-committing, especially on larger purchases. If you leave yourself short of cash you could become exposed financially and be forced to sell the car at a considerable loss. Next, you need to decide if your money can work harder for you elsewhere. If your dealer is offering you a zero percent or low interest deal on your new car and your cash is happily making a bundle of interest elsewhere, paying in cash is costing you extra money.

Hire Purchase

This is a very well-known way of paying for a car and something many of us are comfortable with. Here, you will pay a deposit and then pay off the balance of the purchase price with monthly instalments. The loan is secured against your car, which can make the terms more competitive than an unsecured loan. There are a few things you need to check and be aware of. A major consideration is the interest rate or APR. This is how much borrowing the money is going to cost you. Make sure that you understand the amount of interest you are paying and that you are happy with that. Always ask for the APR of the deal and the total amount payable on the deal. Compare this with the cash price of the car to see how much you are paying and make sure that total price includes any administrative or one-off charges. You should also consider the terms of the agreement. You are committing to having the car for this period and any cancellation could incur penalties. You do not own the car until the final payment is made, and if you sell you will have to pay off the finance company in full.

Personal Contract Hire (PCH) and Personal Contract Purchase (PCP)

PCP and PCH deals have become very popular of late. This is largely due to the big car makers having large amounts of inventory that they need to shift and consumers finding it harder to get loans on the High Street. A PCH deal is simply a form of leasing. Many deals will see you making a larger initial payment, perhaps equal to three monthly instalments, and then a period of monthly payments spread over a few years. The key attraction here is that those payments only have to cover the depreciation of the vehicle over the duration of the agreement, making them sometimes cheaper than a car loan. It is important to realise, though, that PCH is a form of rental. You do not actually own the car. This means that you cannot modify the car in any way without permission from the finance company. There may also be financial penalties if you exceed a certain annual mileage. If your circumstances change and you find yourself doing lots of commuting, this could make your PCH deal very expensive. At the end of the agreement term, you can simply hand the car back or, in some cases, you may be offered a deal to buy the car by making a final ‘balloon’ payment. This option is not usually guaranteed in a PCH deal, and if you want to make sure that you have the option to buy the car, you should choose a PCP deal. This is identical except for that right to buy at the end of the term. The PCP and PCH deals can keep your monthly outgoings down, and they are predictable costs, except where excess mileage is incurred.

Credit cards

This is not as crazy as it might sound. If you have sufficient credit and a low or even zero percent interest period, buying a car on a credit card can be cost-effective and efficient. You will not have to undergo any credit checks or sign up to any agreements as your credit is already in place with the card company. You will also benefit from some additional protection offered to credit card customers. There are, however, a few considerations to bear in mind. If you haven’t paid off the car by the time that your interest free or low interest period runs out, your costs could well rocket, and using your credit card could prove to be an extremely expensive way to borrow money to finance your car. You will also be tying up a significant amount of your credit, meaning that it is unavailable for other uses.

Dealer finance

Dealer finance usually takes the form of a car loan or hire purchase agreement. Conditions are the same as those mentioned above, but be especially careful of the conditions. Remember that the car dealer will most likely be motivated to sell you the finance package they offer. They are not shopping around for the best deal and they are not considering how the finance suits your circumstances. That is your job and before accepting any dealer finance you need to be sure it is competitive and right for you. Don’t be seduced by your enthusiasm for your chosen car. It can easily be bought with other, potentially cheaper and more suitable, finance packages.

Using a car finance broker

Thankfully, there are car finance brokers online where you can type in your details and get a choice of finance packages. This gives you an objective comparison and allows you to make a judgement on what’s best for you in the comfort of your own home, free of any pressure. Getting your finance sorted out before you visit the dealers will put you in the driving seat for any negotiations and ensure you get the best deal possible. It will also save you hours or even days of time, traipsing around the High Street or calling up providers.

Controlling the cost of driving

car finance

Controlling Cost of Driving

2010 saw the first fall in the number of cars on the roads since the Second World War – a result of the national tightening of belts.  At the time the government was also running a scrap page scheme, which took older cars off the road and out of the second hand market.  As the green shoots of the economic recovery remain rather brown and withered, many households are facing the choice of keeping or ditching their cars.  Reports suggest that many second family cars have already made their way off the driveways of affluent middle England, destined for either the scrap yard or the second hand trade.  For those on less-than middle England incomes, losing one car many mean losing the only car.  So are there ways in which we can economise and keep ourselves mobile?

Savings you can control

There’s nothing certain in life other than death and taxes.  You can add car tax and insurance and the ever increasing cost of fueling a car to that list.  You can’t and shouldn’t skimp on either car tax or insurance.  Un-taxed and uninsured vehicles are now more traceable than ever, as regulations allow the DVLA and insurance companies to operate on an “I’ll show you mine if you show me yours” basis when it comes to records.  Untaxed, uninsured drivers face all kinds of fines and even crushing defeats – in the form of car crushing that is.  The long term cost of not insuring or not taxing are just not worth the ‘savings’ they appear to offer.  While tax and fuel costs are not easy to take control of, insurance at least can be shopped around for.  This is a must for any driver, of any age, gender or postcode!  The market is competitive and to some extent a buyers one.

If you have down-sized to a one car family – not by selling the kids, by selling the second car – insure the lowest risk driver as the main driver; beware of ‘fronting’ if you add a low risk driver to the policy who never drives the car you could fall foul of the law and invalidate your insurance.  However, for couples who both genuinely share the car, then this can save significant amounts.

Fuel efficiencies

You can’t set the price of your fuel unless you run a petroleum giant or a country – in which case you probably claim on expenses and don’t care anyway – but you can limit your consumption.  If it is feasible cut the commute – this will cut your insurance premium as well, so is a two birds one stone result.  If you can only partially cut it you’ll still make a saving; by a combination of car sharing, occasional exercise and the odd use of your own car to commute the effect on pounds can be impressive.  On the financial front you’ll gain some, on the middle-aged spread front you’ll lose some.

For the truly green and pleasant, converting the car to cooking oil can work.  The smell is not as bad as you think but there are side effects when it comes to your diet.  After even the shortest journey you’ll end up craving chips.  Also, beware the customs man; you still have to pay duty – not as much – but the penalties are harsh if you don’t.  Remember customs men will be able to sniff you out.  This is probably an option only for the true eco-warriors at the moment, but we’ll all be driving on cooking oil when petrol reaches £5.00 a litre; which it will.

Advantages of buying new

Get a new car.  Daft as it might sound to those looking to cut costs, buying new can save you money.  The main benefits are that new cars are more reliable than old, so less breakdown and recovery bills.  New cars are being designed with the most effective fuel efficiency measures that technology allows for.  There is widespread acceptance in the car manufacturing industry that we need to move to electric powered vehicles, but this acceptance is countered with a healthy dose of realism in that the infrastructure does not yet exist.  In the meantime fuel efficiency is the buzz word.  Costing less to run, a new car can make a big difference.

If you’re feeling adventurous you can go for a hybrid or even a fully electric car.  The later have some benefits as city run-around. The UK government will give you £5000 to buy one and they are investing in re-charging points in ‘selected cities’.  Another post code lottery, but if you’re in the right place, now might be the right time to consider taking up the offer.

Buying a new car using car finance may be an option too.  Hybrid, petrol, electric or diesel – whichever you choose it’s going to offer a better fuel efficiency if it’s new.  If new is out of your existing budget then consider finance as an option.  The savings a new car can offer can outweigh concerns about taking on further finance obligations and can be an option for many people.

Finding the right car finance deal for your car

Car finance is a very important part of owning a car and car finance deals thus play a huge role in this regard. By car finance deals, one means the various credit products available to let you afford the car of your choice. With profitable car finance deals, you can avail low Annual Percentage Rate (APR), which would enable you to pay up for a more expensive car in lieu of a flexible budget. You have to look into certain factors in order to avail the best car finance deal.

car-finance deals

The most significant factor regarding car finance is interest rate. Although each and every car company would present you a price chart as per your budget, you should compare all those in order to optimize it and come up with the best possible option. However, your choice of a new car and a used car would largely determine car finance deals. Once you calculate your incoming and outgoings and the amount of money that you would be able to keep aside for the purpose of replay, you task of budgeting would become very easy.

You would benefit to a great extent if you avail the service of finance professional. Such a professional can help you set your car finance deals at a low interest rate. Greater the number of features, higher would be the rate of interest. Fewer features would always guarantee a proportionately low rate of interest. Rates of interest keep varying with the prevailing market conditions. You can even get your best car finance deals with bankruptcy!

Another important issue influencing car finance deals is your decision of the car you would purchase. You need to look at the various models and their features and specifications. The size of the car, choice of fuel such as whether petroleum, gas or diesel would determine your car finance deals. In fact, car finance deals vary on the basis of a car’s make, body and class. Being a luxury car or a casual one would influence your deals greatly.

Carrying out a detailed survey is necessary for availing the best possible car finance deal. Having a detailed knowledge on the price range of various models in the market would let you freeze your choice. Factors like mileage, year of the vehicle become important in making decision. Keeping an eye on websites and magazines highlighting cars can keep you updated. You should never opt for the specific car finance deal you have been offered. You must carry out a rigorous survey before giving in to any deal. Extended warranties, opportunities for free upgrades, low interest rate and some extras too should be your target when you plan to go for an expensive purchase like a car!

Car Finance no Deposit

When considering car finance options you may have already come across no deposit car finance. Most car finance companies will offer this option for people who suffer from a poor credit history or have a low income. These finance companies will evaluate your current credit situation based on a variety of different methods depending on your needs at the time. The loan you will qualify for is based on your current capability to be able to pay it back on a monthly basis and therefore you will not qualify for any loan that is beyond your current economic abilities.

Many companies are designed to specifically deal with people in a low credit situation and to organize finance deals for people just like you. It is not unusual for these companies to have people with a poor credit rating as their main customer base. Whether you are self-employed, have a low credit rating or no credit history at all these companies will have a particular scheme they can offer you to get you the finance you need without putting their loan in jeopardy.

Many companies will offer tempting deals such as 0% interest rates on their vehicles but of course this money is more than made up in the size of deposit they require. Companies that demand large deposit sums upfront do so because they need the acquired interest that the sum can accumulate for them so either way they receive an interest profit. You can expect to encounter a 30% deposit from these types of deals which can be more than a little expensive for most average people.

This makes it much more beneficial to choose a car finance no deposit option so that you can take advantage of a much more competitive interest rate and not have to find a large deposit to begin with. Naturally if you are struggling with a poor credit history you may not necessarily have all the money upfront to pay with which is why you need financing in the first place!

Always make sure you treat special offers with caution when applying for car financing. Some brand new cars are actually second hand through a technicality in the system which means they can depreciate rapidly in value. It is therefore wise to make sure you investigate your chosen vehicle thoroughly before applying for finance options. You may find a great deal today but it might not be the best one tomorrow.

Once you have found the right car dealership and finance firm for you and you have chosen the finance package you need such as a no deposit car finance deal, you will need to make sure you know exactly what your budget is for the car you need. You may not be able to get the car of your dreams immediately, but if you do not overstretch your budget you can ensure you will get approved for financing without a deposit and start to prove your credit worth for future vehicle purchases.