Tips for Financing Your Next Car
While picking a new car can be an engaging and exciting experience, the thorny issue of paying for it will invariably raise its head.
Either a poor credit rating or simply inexperience in negotiating can see you landed with a high interest, long term finance deal which will leave you out of pocket. The following are a few suggestions for avoiding the common problems that you might encounter.
The first thing to do is to establish a workable budget which is really affordable rather than being aspirational. This needs to include not only the cost of the car but must take into account the ongoing commitment of insurance, car tax, maintenance and fuel. A clear understanding as to an affordable monthly sum is essential before you even begin the selection or negotiation process.
Secondly, you will need to properly understand the real cost of any potential finance deal. When you buy a new or used car, you will more often than not be offered finance by the dealership via one of its partners. Whilst this may seem attractive if you are looking for convenience, beware of salespeople working on commission! A more expensive vehicle financed over 4 years may have a lower monthly repayment than a cheaper vehicle bought over 3 years but the depreciation and interest may mean a substantially greater hit.
You will also need to understand whether there is a "balloon" lump sum payment at the end of the agreement, as with many personal contract purchase (PCP) and similar agreements. This must be factored into your calculations as to the overall affordability. If you are buying new or financing the majority of the purchase, you may also need to consider the cost of gap insurance which covers any shortfall between replacement cost and insurance pay-out, should the worst happen.
If you can afford it, try to pay as much as you can in cash. Whilst outright purchase is beyond the means of most people, the smaller the borrowing, the less interest you will pay over the life of any finance agreement. A deposit will be necessary in most circumstances and you must consider this when calculating your overall budget and shopping for finance.
Searching online will identify a wide range of finance providers and different plans, some of which will be better suited to your circumstances than others. Invest time in understanding the interest rates, balloon payments, deposit required and of course the monthly repayment. Even those with a poor credit history will find a range of finance offers tailored to their needs, although these will invariably attract higher interest rates than "prime" products.
This article was donated by netcars.com