subject: Thinking Through Car Finance [print this page] This article is aimed at the UKThis article is aimed at the UK. The points raised may apply to your country. You must think things through before you take out finance of any sort.
Having said that the research suggestions will apply to most countries.
You have passed your driving test. That is the end of driving lessons and time to say good bye to your driving instructor.
You need a car of your own now. You might or might not choose to buy the type of car that your driving school used.
This article will help you to think through the best way to finance your new car. We will assume that you have researched the sort of car that you want. You have looked over the papers, magazines and the internet. You have chosen your ideal car.
Try to buy the car that is in the best conditions. You may have to pay more, but you will spend less on repairs and fuel. The money you have saved, or been given, might not be enough for a good quality first car. You may have to borrow the money.
You might try a loan company or high street bank. They will ask you to say how much you can afford to pay back every month before you sign up for a loan. The banks and loan companies need to know that you can afford to pay them back. This means that you have to work out your budget.
When you look for car finance, you need to work out how much you can afford to borrow. It is also important that you understand the terms used in finance.
Key terms
Loan - the amount that you agree to borrow.
Deposit - the amount of your own money that you need to hand over before you take the loan.
Finance - A type of loan.
APR - Annual percentage rate. How much interest you are really paying.
Fixed rate - The APR will not change.
Variable rate - The APR will change.
Secured loans - The loan is secured against some form of property. If you do not repay the loan, the bank takes that property.
Unsecured loans. If the loan is not repaid the bank takes you to court and then sends the bailiff to take some of your property.
Interest - The extra that you pay for the loan.
Charges - The fees charged for arranging the loan.
Repayments - The monthly cost to you.
Term - How long you have to pay the money back.
Personal lease higher - A way of buying a car with an option to return it after a certain time.
Who might lend it to me?
Banks - A good place to look for a loan, but they really do check that you can afford the loan first.
Dealer financing - Easier to get, but tend to cost more.
Loan companies - You see the ads in the paper.
Credit Cards - This is an expensive way of borrowing money.
Doorstep lenders/high-street loans -Very easy to get, but you pay the most.
Questions to ask when borrowing money
These are very important questions. It could save you some money.
What APR are you charging?
What are the arrangement fees for this loan?
Are you an FSA regulated licensed credit broker? Only banks and licensed credit brokers can lend you money. Any one else is committing a crime and will charge you to be a victim of crime.
How long is the loan for?
What repayments are you expecting?
Costing a loan
You want find the best value loan. Make sure that you compare the loans on offer. This means that you need to work out the total cost and total loan.
Total loan = Loan + charges + interest
Total Cost = Repayments x term in months
Lease Purchase plans
Many car companies have LPP plans. These allow you to buy a new car without buying the car. Although they are good way of getting a new car, LPP plans are difficult to understand. This section will help you to understand them.
How LPP work
You find a car that you want.
The dealer tells you the cost of the loan
You put down the deposit
The dealer takes the deposit from the cost of the loan. This is the amount to finance
You then agree how many miles you will do over the three years of the plan. The dealer uses this to work out the return value (GRV)
The GRV is then taken from the amount to finance. Cost of car - deposit -GRV = amount to be financed .
The finance offered is divided by 36 to give your repayments.
At the end of the plan you can either pay the GRV (ballon payments) or hand back the car
by: Tim HillerbyMorgan
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