The truth about car finance
If you are looking to buy a new car, there will be a whole host of finance options available for you. The dealers themselves will nearly always offer you a finance deal as it is a great profit maker for them, but the choice can leave a consumer very confused.
Here we take a look at some of the things you should look out for when taking on car finance:
The overall payable amount
This is the full amount you will end up paying the car finance people over the duration of the loan. This will typically be the cost of the car plus the accrued interest over the duration of the loan plus any other fees, such as an admin charge that might be added on. Take a note of this overall amount and look to other places for the loan as well. Places such as your bank or building society may well be able to offer you the loan at a much better interest rate for the same duration so you end up paying less overall.
You should also have a think about the deposit you are putting down on the car. Could you afford a little bit more? This may help lower your monthly payments or secure a better interest rate. Quite often, the bigger the deposit you have to put down on the car, the better interest rate you are offered as you are borrowing a lower amount overall.
Be careful about signing up to PPI. Your finance dealer will tell you that it is insurance that will pay out in the event of you becoming unemployed or getting sick. In reality, it doesn’t offer cover for everyone and this isn’t always obvious. If you are a contract worker or are self-employed, or maybe you have a pre-existing illness, the chances are the insurance won’t pay out.
Drawbacks to dealer finance
The main drawback to taking out a finance plan with the dealer is that you don’t own the car until the end of the plan. Quite often the last payment on the loan also includes an “option to purchase” fee which is the final amount you owe for the car. If you know that you can’t afford this payment and don’t want to end up owning the car, many dealers will allow you to take on a new plan with a new car once your old plan comes to its end. There is usually an admin fee to pay upfront with the initial monthly amount too.
If you are able to put down a large deposit, you can sometimes sign up to a 0% finance deal for your car. This means no interest is paid on the car purchase price. This is best for people who are able to make a large deposit in the region of 35-50% of the car’s value.
Car finance can be a great way to secure a loan in order to buy yourself a new car. Make sure you check out all the options available to you so that you end up with the best deal overall.
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