When you buy a car there are various options; some people choose to buy the car outright and this involves paying the full amount, while others choose to spread the cost of the vehicle over a set period of time, which usually involves making monthly payments towards the total cost.
Buying a car on finance has become increasingly popular, with fewer people able to afford to buy a new car outright. Car finance is widely available; most garages and private sales companies offer finance deals. Before you go ahead and take the plunge, it is a good idea to learn a bit about finance and to make sure you are aware of the terms of the finance plan and what it means for your monthly or annual budget.
What are the options?
Finance deals usually involve putting a deposit down and then paying monthly instalments. The car remains the property of the dealer or sales company until the total amount has been paid and you have no legal right to sell the car until the final payment has been made.
Some people prefer to use other means of raising money to buy a new car. This may involve borrowing money from a bank or building society to buy the car outright and then paying monthly or annual contributions towards the cost of the loan. This may be a good idea for people who want outright ownership, as well as the simplicity of fixed monthly payments.
Applying for finance
Finance deals are made subject to a number of factors, most importantly your financial situation. The dealer or company you are buying from will perform background checks to ensure that you earn enough money to cover the cost of the instalments. If you apply for a loan from the bank or building society they will also perform checks to determine whether you are a suitable candidate for the loan and also to decide how much money they are willing to loan you over what period of time.
Before you apply it is a good idea to take a moment and think about your income and your outgoings. Be sure that you can afford the car you want and be realistic when you are looking around. If you struggle to make ends meet, try not to get carried away with a sporty coupe which will see you longing for payday by the middle of each month. Here are some tips:
• Work out what you can afford to spend on a car; make sure you take into account all your outgoings, including petrol, insurance, road tax and extras, as well as your normal household bills and living costs.
• Check your credit rating.
• If your credit is poor, try to improve your score by paying off outstanding debts and making sure you pay bills on time.
• Think long-term; it is worth remembering that cars depreciate in value, so work out if it is worth investing in ownership or not; for some people, contract hire may work out cheaper.
• Ask a financial adviser for advice and make sure you are familiar with the finer details of the deal, including the interest rate and the term.