Big Savings To Be Had By Comparing Car Loans
There are an increasing number of new cars on the road every year and as a result the second hand market is also expanding. Many people now change their car regularly, so the car finance industry is now huge and can be confusing. When you start looking at cars, whether used or brand new, you should also think about how you will finance your purchase. The key to finding car finance appropriate for your circumstances is to do your research thoroughly and shop around. While it may seem easier to accept the car loan offer from the dealer, this may not be the best option. It is best to make sure you get a written quote from the dealer then you can then look at other sources, such as internet companies, for competitive deals. When comparing loan offers check that you are looking at similar loan products. Headline interest rate or monthly repayment figures do not always tell the whole story when it comes to getting a loan. The Annual Percentage Rate (APR) is usually the first thing to look at when comparing loans. However it is also important to look at the total amount payable. This will take into account all the additional arrangement fees, costs and interest to give you the total amount you will have to pay before you own the car.
In general a shorter repayment period will mean higher monthly payments but lower interest charges overall. It is recommended that the repayment period should be no more than 4 years. If you do not plan to keep the car that long try to reduce the loan period accordingly. You should also check what will happen if you want to repay the loan early. There may be a discount on the amount you will pay, or you may have to pay as much as if you had continued to the end of the agreed period. You may even have to pay a penalty fee but this is unlikely.
The main options available to finance your car are outlined below. Internet sites may be useful to help with searching for and comparing loan products.
Hire Purchase Agreements
Hire purchase schemes are traditionally offered by car dealers but you can also go direct to a finance company. The price of the car is divided into equal payments over 3 or 4 years with interest charged on the amount borrowed. With this type of deal the car will belong to you at the end of the agreed period but not before. Therefore you cannot sell the car before the end date. The minimum deposit is usually from around 10% and interest rates can be lower than other options. However the monthly payment will be more than for a personal contract plan.
As the loan is secured on the car, if you have difficulties with the repayments the car will be repossessed. This can happen after as little as two missed payments. The finance company will then sell the car cheaply at auction in order to recover some of the debt quickly. You will still have to pay the difference between the price the company gets for the car and the amount outstanding on the loan. There will also be some costs to pay.
Cars over 2 years old are usually excluded from hire purchase deals. This is because the value of the car will be too low by the end of the loan period.
Personal Contract Plans (PCPs)
This is a particular type of hire purchase agreement which involves paying monthly instalments and a final lump sum payment. This specialised deal is offered by many different companies, for example Ford Options and Peugeot Passport but it is only appropriate for new and nearly new cars.
PCPs are particularly suitable for people who want to change their car regularly and whose priority is low monthly payments. However, although the installments are lower you should note that the total interest payable tends to be higher than other products.
If you opt for a PCP scheme you pay an initial deposit, possibly up to about 20%, and a balloon figure know as the 'Guaranteed Minimum Future Value (GMFV)' is agreed at the start. You then have low monthly payments for 2 or 3 years at the end of which you have 3 choices.
If you decide to pay the set 'balloon' payment you keep the car. Alternatively, if you have kept the car in good condition and stayed within set mileage limits, you can return the car and the deal is closed. None of you deposit or payments will be refunded but the advantage is you will not have to make up the shortfall if the car is worth less than the GMFV. Finally you can use the difference between the balloon figure and the value of the car as a deposit on a new car. This is only possible if the car is worth more than the balloon payment. Although this is usually the case you should be aware that it is not guaranteed.
0% Finance
Interest free deals may be available from the manufacturer or dealer. This may tempt you into making a purchase but there are likely to be strict conditions. Initially you may have to pay a large deposit - possibly 50% of the value of the car and the loan period could only be 1 year. If you do not or cannot repay the loan on time, within the interest free period, you might well incur hefty penalty payments.
Personal loans
A personal loan could be a good option when buying a car as there are many deals available from banks, building societies and loan companies. You are free to buy a car anywhere you like and it belongs to you immediately. Competitive rates can be found by shopping around and the loan is not secured on the car. This means that you do not have to repay the loan if you sell the car and the car will not be repossessed if you do not keep up with the payments. Monthly payments can seem high compared to a personal contract plan but the total amount of interest you pay will be lower.
People often think they will get a better price on the car they want by offering cash. This may sometimes be the case but dealers also earn commission by selling finance packages. Therefore they may actually be more likely to reduce the price of the car if they are also arranging the finance. Always get the dealer to provide a written quote which you can compare with other options. You can then confirm later if you wish to accept the offer.
Remortgaging
If you are are remortgaging your home you could use this as a way of financing a car. However although the rate and monthly payment is likely to be low, the total amount of interest will be high as the loan is likely to be over 15 to 20 years. There will be legal costs and other fees when remortgaging so this option is really only worth considering if you are remortgaging anyway for other purposes. Remember the car will probably not last for as long as the repayment period. For more Visit Website
In general a shorter repayment period will mean higher monthly payments but lower interest charges overall. It is recommended that the repayment period should be no more than 4 years. If you do not plan to keep the car that long try to reduce the loan period accordingly. You should also check what will happen if you want to repay the loan early. There may be a discount on the amount you will pay, or you may have to pay as much as if you had continued to the end of the agreed period. You may even have to pay a penalty fee but this is unlikely.
The main options available to finance your car are outlined below. Internet sites may be useful to help with searching for and comparing loan products.
Hire Purchase Agreements
Hire purchase schemes are traditionally offered by car dealers but you can also go direct to a finance company. The price of the car is divided into equal payments over 3 or 4 years with interest charged on the amount borrowed. With this type of deal the car will belong to you at the end of the agreed period but not before. Therefore you cannot sell the car before the end date. The minimum deposit is usually from around 10% and interest rates can be lower than other options. However the monthly payment will be more than for a personal contract plan.
As the loan is secured on the car, if you have difficulties with the repayments the car will be repossessed. This can happen after as little as two missed payments. The finance company will then sell the car cheaply at auction in order to recover some of the debt quickly. You will still have to pay the difference between the price the company gets for the car and the amount outstanding on the loan. There will also be some costs to pay.
Cars over 2 years old are usually excluded from hire purchase deals. This is because the value of the car will be too low by the end of the loan period.
Personal Contract Plans (PCPs)
This is a particular type of hire purchase agreement which involves paying monthly instalments and a final lump sum payment. This specialised deal is offered by many different companies, for example Ford Options and Peugeot Passport but it is only appropriate for new and nearly new cars.
PCPs are particularly suitable for people who want to change their car regularly and whose priority is low monthly payments. However, although the installments are lower you should note that the total interest payable tends to be higher than other products.
If you opt for a PCP scheme you pay an initial deposit, possibly up to about 20%, and a balloon figure know as the 'Guaranteed Minimum Future Value (GMFV)' is agreed at the start. You then have low monthly payments for 2 or 3 years at the end of which you have 3 choices.
If you decide to pay the set 'balloon' payment you keep the car. Alternatively, if you have kept the car in good condition and stayed within set mileage limits, you can return the car and the deal is closed. None of you deposit or payments will be refunded but the advantage is you will not have to make up the shortfall if the car is worth less than the GMFV. Finally you can use the difference between the balloon figure and the value of the car as a deposit on a new car. This is only possible if the car is worth more than the balloon payment. Although this is usually the case you should be aware that it is not guaranteed.
0% Finance
Interest free deals may be available from the manufacturer or dealer. This may tempt you into making a purchase but there are likely to be strict conditions. Initially you may have to pay a large deposit - possibly 50% of the value of the car and the loan period could only be 1 year. If you do not or cannot repay the loan on time, within the interest free period, you might well incur hefty penalty payments.
Personal loans
A personal loan could be a good option when buying a car as there are many deals available from banks, building societies and loan companies. You are free to buy a car anywhere you like and it belongs to you immediately. Competitive rates can be found by shopping around and the loan is not secured on the car. This means that you do not have to repay the loan if you sell the car and the car will not be repossessed if you do not keep up with the payments. Monthly payments can seem high compared to a personal contract plan but the total amount of interest you pay will be lower.
People often think they will get a better price on the car they want by offering cash. This may sometimes be the case but dealers also earn commission by selling finance packages. Therefore they may actually be more likely to reduce the price of the car if they are also arranging the finance. Always get the dealer to provide a written quote which you can compare with other options. You can then confirm later if you wish to accept the offer.
Remortgaging
If you are are remortgaging your home you could use this as a way of financing a car. However although the rate and monthly payment is likely to be low, the total amount of interest will be high as the loan is likely to be over 15 to 20 years. There will be legal costs and other fees when remortgaging so this option is really only worth considering if you are remortgaging anyway for other purposes. Remember the car will probably not last for as long as the repayment period. For more Visit Website
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