After a house, buying a new car is the second-largest purchase that any household is likely to make. And, as with houses, very few people have the money in the bank to fund a car purchase outright. That means that most will be looking at some form of finance to purchase a car – either new or second hand.
There are a huge number of different types of car finance out there. From personal loans, to contract hire and hire purchase, it’s almost certain that you will find the right finance to fund your new car purchase and to ensure that the monthly repayments are affordable.
But as with the car, you should never just jump straight in and sign the first finance deal that you come across. You need to do your homework and find the best package for your circumstances. This means taking the time to sort through all the different sorts of packages which all come with different interest rates, different terms and different outcomes – either outright ownership of the vehicle, using its residual value to fund another finance package or simply handing the keys back to the finance company.
While negotiating a price on a vehicle may make it seem that you are saving money, negotiating the best deal on the car loan is just as important to make sure that you don’t end up losing what you’ve saved on the purchase price:
1. Shop around for car finance
Before you even walk into the showroom, remember that most car manufacturers make more money from selling you finance than from selling you the vehicle. All of the major brands have financial arms that the dealer will try to sell you when you’re buying the car. That’s because he or she is making a commission on both the car purchase price and the finance package. So make sure you work out how much you want to spend on a vehicle and then start looking at your various options before taking a test drive. Look at personal loans, 0% credit card offers and car finance offered by organisations independent of the manufacturer. You’ll probably find that the rate on an unsecured loan is a better deal than other packages but this may not suit your needs, particularly if you are going to want to trade the car in for a newer model in three years’ time.
If you settle on an unsecured loan, use one of the pre-eligibility checks offered by the banks and other sites to make sure you know you’ll be approved without a credit search being recorded on your record. It also means that you will have, in effect, a blank cheque to go to the dealer with and haggle over the price of the car.
2. Look at the total repayable, not the monthly amount
If you go with the finance package offered by the garage or dealer, don’t allow the salesman to draw you in with talk of the monthly repayments and how affordable they are. Look at the total amount that you will have to repay over the term of the loan. The dealer is going to want you to borrow more money to fund a better car and stretch those repayments out over a longer period. That’s because he or she knows that there’ll be more to repay and, therefore, a higher commission for them. You’ll be stuck with a car for longer with it worth less at the end of the loan if you go down this route.
3. Don’t believe the headline APR
Any lender is only required to advertise the APR that it offers to 51 per cent of successful applicants. That means that anybody with a less-than-perfect credit rating or those who don’t fit their particular criteria are likely to wind up paying higher rates. If you don’t read the small print or press the salesman on this, you could find yourself having to repay a much higher amount than you had thought. Don’t be afraid to walk away and tell the salesman that you’ll be shopping around for a better rate because he or she is likely to reduce the interest rate you’re being offered.
4. Be prepared to walk
If you look desperate for a particular car, then the dealer is going to spot that immediately and use it to his or her advantage. The person with the most power is the one who is more than willing to walk away if they don’t get what they want. That means that it is vital with any finance package for a car that you are 100 per cent comfortable with what you are getting into. If you aren’t, then you should walk away and go and look elsewhere. Signing up to a finance deal that doesn’t suit your circumstances or that you aren’t happy with just because you’re desperate for a particular car could be disastrous and lead to you getting into difficulty or the vehicle being repossessed.
Be confident about how much you can afford over the total term of the loan; how much you can afford to repay each month and still meet all of your other outgoings; be certain that you can afford maintenance, servicing, tax, etc; and know what extras you are prepared to settle for. Once all of this is clear in your mind, you will be much more willing to walk away from a deal that you don’t feel comfortable with.
Article provided by Mike James, an independent content writer working together with technology-led finance broker Solution Loans, who were consulted over this post.