Informed Car Finance
Financing Your New Car
Even if you’ve just hit the lottery jackpot, chances are you’ll still want to organise a finance deal to help you buy a new car. With as many different finance options to choose from as makes of cars, Informed Women investigated what the market had to offer. Read on and find out how to make an Informed choice to finance your new car.
|
Financing Option |
Who’s it For? | Deposit |
Monthly Instalments? |
Approx. Interest |
Risk |
| Hire Purchase | Cheap Hassle Free Purchase | 10% | Yes | 7 - 13% | Low |
| 0% Finance | Saved up a large deposit | 40% | Yes | No | Low |
| Personal Contact Plan | Likes to change cars frequently | 10% | Yes | 7 - 14% | Med |
| Leasing | Want a car but not to own | 2-3 months instalments | Yes | 0% | Low |
| Personal Loan | Good Credit Record | No - car is purchased outright | Yes | 5 - 12% | Med |
| Mortgage | Home-owners looking to consolidate monthly outgoings | No - car is purchased outright | Yes | 5 - 7% | High |
| Credit Cards | Self Disciplined Individuals | No - car is purchased outright | Yes | 10 - 29% depending on C/C | High |
Dealer Finance
The car showroom is the territory dealership finance, and unless you’re buying a car online, you’ll be standing right in the heart of it. Don’t be fooled by their charm; dealers can make huge profits by signing customers up to finance packages. Chances are you’ll be offered one of the following:
Probably the most common, HP is a simple, hassle free solution for car buyers. You pay an initial deposit for the car upon purchasing, usually about 10%. The remainder of the cost is split into monthly payments, with interest of up to about 13% APR, depending on the lender. Expect to pay an admin charge on the first payment, and you’ll receive an option to purchase with the final instalment.
Top Tip: According to Which.co.uk, people with good credit records are probably cheaper opting for a Best Buy personal loan.
This is the ideal option for someone who can offer the dealer a substantial deposit. It could be that you are trading in your existing car, which can be used as collateral against the new one. Another appeal is there is no interest on monthly payments, so you don’t end up paying out even more money!
Top Tip: 0% Finance is not available on all cars, and negotiating a discount on the final price is harder on these options.
If you like to change what’s sitting in your driveway every couple of years, then PCP is probably best for you. It works as a sort of combination of HP and 0% finance. You pay a small deposit upon purchasing and monthly instalments are set up for the length of the contract. A lump sum, called the ‘Minimum Guaranteed Future Value’, is set by the finance company, which you need to pay when the contract ends.
There are 3 ways to approach the final payments, and herein lies the carrot on the stick for women who like to change their cars:
1. You can hand the car back to the dealer at the end of the contract and start all over again with a new car.
2. Sell the car privately and use the money to pay the final bill
3. Pay the deferred amount and keep the car for yourself.
There are some drawbacks to PCP, which could work out particularly costly. Unfortunately the interest on the monthly payments can be greater than HP contracts. If you’re handing the car back to the garage, it needs to be in a good condition. And, if you go over your estimated mileage, there is a charge for every additional mile you have driven.
Do you keep your car looking like its just been driven out a showroom? If so, then leasing could be your option – you get a car to use without the hassle of ownership. You simply choose the car you want, how long you want it for, and how many miles you think you’ll drive in that time. Monthly payments depend on what model and specification of car you choose, and you may need to pay a few months in advance before driving off.
Top Tip: Comprehensive insurance is necessary for all leased cars.
Independent Finance
If you are not keen to go with any of the options a dealer offers, you may want to think about financing the purchase of your car independently.
Banks usually have very enticing offers on their personal loans, especially the rate of interest on repayments. Check out Moneysupermarket.com to compare the latest interest rates for personal loans. If you have a good credit record, you could get a loan to cover the cost of the car, and enjoy smaller monthly payments than any of the dealership options.
Top Tip: You may be hit by fees if you sell your car and use the money to end the loan contract earlier than agreed.
You probably never associated your mortgage with buying a car, but it is possible. You’ll benefit from an extremely low rate of interest, but the payments will be spread over a longer period of time. If you default on a payment, you not only risk losing your car, but your home too!
If you have a lot of self discipline and a large enough credit limit, you can use your credit card to buy a car. Before you use your card, do some quick sums to calculate your monthly interest – it may well be that you’re spending way over the odds, even if you do jump your balance between low introductory rates.
Have your Say
What do you like about YOU car? What made you choose it? Would you choose differently now? Click here to visit our forums or why not post a comment below...
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