For most people a car is the second most significant purchase they will ever make after their home. Buyers often spend weeks and months hunting out their perfect car – but oddly, most don’t put a similar effort into sourcing the right car finance deal.
Research shows that buyers often spend huge amounts of time shopping around several dealerships for the best bargains and will then haggle over relatively small issues such as a tank of petrol or a spare tyre. However many then simply agree to the first finance agreement that is offered to them.
Choosing the wrong finance deal for your vehicle can be costly. Research undertaken by a senior financial watchdog found that more than 80% of used vehicles are bought using finance deals offered by the seller. This results in many buyers paying around £1,000 extra over the loan term than they would have had done if they had shopped around.
Car dealers will sometimes offer to reduce the price of the car if the buyer takes out finance through them. This is often a false economy but seems like a good deal at the time. Without all of the figures in front of you, it is very hard to work out what the best deal is so don’t sign without considering other options.
How do Savvy Buyers find the Best Finance Deals?
Firstly – and most importantly – they shop around. There are now lots of independent car finance providers, such as justcarfinance and it is worth contacting a number of potential lenders to ask for a quote. The deregulation of the finance industry had led to more competition and this has helped with the cost of finance coming right down. This is obviously good news for buyers – but only if you are prepared to hunt out the best deals.
Buyers need to consider the amount they can afford to spend on their car every month. Of course there is always a pay-off between reducing the amount of the monthly repayments and increasing the repayment period. If you take a loan over a longer period, it obviously increases the overall amount of interest to be paid back. It is best to pay as much back every month as you can afford but this needs to be calculated using an honest and reliable budget. Budgets prepared by most buyers tend to be very optimistic.
Even if a dealer offers an upgrade or discount for taking their in-house finance, you must do your sums to make sure that it offers the cheaper option overall.
If you receive a windfall, it is usually possible to pay off a chunk of any remaining debt. Often there is a charge for this, but it may still be worth it if it reduces the overall interest.
Poor Credit Rating?
Those with a low credit rating may find it more difficult to secure a finance package and if they are accepted by a lender, they may be charged a higher rate of interest. In this case it is even more important to shop around as there are now many of companies catering for those with poor credit ratings.