If you’re in the market for a new car, you may be wanting to go down the finance rote. Car finance is very popular because it means drivers can pay for a car over a term that suits them. Granted, you’ll need to be accepted for a car finance deal fist and factors like your affordability, credit score, employment status and driving license type can affect your eligibility. Car finance is when a lender agrees to give money to a customer to buy a car, or buy a car on behalf of the customer. The customer then makes monthly payments back to the lender, over an agreed term. Car finance deals work really well for people who want to get a newer car than they would afford with cash. Let’s take a look at some lesser-known car finance secrets which can help you to get a better deal!
1. Cheap monthly payments don’t mean the cheapest deal.
When you’re shopping around for car finance, it can be tempting to choose the deal with the lowest monthly payment. However, it may not be the most cost-effective deal for your situation. You may get a low monthly payment deal if you choose PCP or if you lengthen the loan term but the overall cost of your finance may be more expensive. Extending the loan term can make your deal seem cheaper but it can increase your interest rate and means you end up paying more back.
2. Brand new cars could be cheaper than used.
If you’re on a budget, you may have not even considered buying a brand-new car. Brand new cars are often more expensive than used cars. Using finance deals like PCP, which offers low monthly payments, can help make a brand-new car accessible to many people. In some cases, brand new cars could even have cheaper monthly payments than used cars! If you compare a used car on HP with a more expensive brand-new car on PCP, the monthly payments could come out lower due to the structure of PCP. Instead of spreading the cost of the loan into monthly payment, you instead make a part payment and then there’s a large balloon payment at the end of the deal to be paid if you want to keep the car. It can be beneficial to compare both new and used car finance deals to see which is best for your situation.
3. Car finance can be fast and easy.
It’s a common myth that car finance is a slow and long process. However, car finance has now been offered for many years and it can be an easy and quick process. You can often find an instant decision car finance deal online and can get an idea of your eligibility before you even make a full application. Our top tips to making car finance as simple as possible included setting your budget first, only applying for what you can afford and working on your credit score if its low. Simplify your car finance journey by using car finance broker. They make car finance easy and help you find the best finance deal from a wide panel of lenders and help you get a car within your budget!
4. Total Amount Payable is very important.
It’s very common for drivers to solely focus on the monthly payment when shopping around for car finance. However, on your car finance agreement, there will be a Total Amount Payable. This is the full amount you will be paying back over the term and includes the cash price, the deposit and any interest or fees. This gives you the most accurate summary of how much you will be paying overall. A deal with the same monthly payments but one with a higher interest rate would mean the Total Amount Payable would be more. This is why it’s important to compare loans based on their Total Amount rather than the monthly payment.
5. You can refinance a balloon payment.
A balloon payment is associated with Personal Contract Purchase deals. A balloon payment is a final lump sum payment at the end of a PCP deal. This payment needs to be made if you wish to keep the car at the end of your deal. This payment can be thousands of pounds to pay, especially on brand new cars. For many drivers, paying the balloon payment outright can be unrealistic. However, refinancing a balloon payment can be an option if you want to keep the car but are struggling to pay the balloon outright. Refinancing is when you replace a current loan with a brand-new loan to pay off the old one. So, in this case, the new loan would be sued to pay off the balloon and the car would be yours to keep. You then make monthly payments to pay off your new loan until the end of the term.
