An Important Decision...

A car - whether new or used - is often the second most expensive purchase you'll make in your life, next to your home. Because of this it is importoant for you to explore and understand the variety of vehicle financing options available. Only then will you be able to identify and decide which best suits you before making a financial commitment.

Cars are often your most second expensive purchase
so think about it carefully

Finance Options

In Weighing up the pros and cons for each of these options, it is also important to consider things such as terms offered (eg the amount of credit advance, amount of monthly payment, number of repayment instalments, APR , etc), and any special charges (eg for late or early payment). Here is a snapshot of some finance options, to assist you in weighing up the advantages and disadvantages of each.

Point of sale dealer finance

If you purchase your vehicle from a dealer there are several finance products you can chose. Opting for dealer finance means:

• The vehicle will be checked to make sure there is no outstanding finance or that it has not been written-off in an accident.
• Finance is secured against the vehicle so it may be easier to get approval.
• Because the finance company owns the car and has paid money directly to the retailer, the finance company is responsible for handling merchantable quality disputes.

Personal Contract Plans (PCPs)

• Lease a car for a set period of time, usually 12 to 48 months.
• Pay Initial deposit and a fixed monthly charge.
• Three options at the end of the contract: (1) hand the car back (2) Pay a final large payment (balloon payment) and keep the car; or (3) trade in the car and use the Guaranteed future value (GFV) as a deposit on a new car.
• You must adhere to the anual mileage allowance or face a hefty bill for exceeding it.
• Can be quite costly if you opt to break the contract before it is up.

Hire purchase (HP)/Conditional Sale (CS)

• Simple and easy to arrange at a dealership.
• Intrest is fixed so you have a fixed monthly payment.
• It is a convenient 'on the spot' finance option which offers flexible re-payments over 12-60 months suited to the buyer.
• Hire with the option to purchase at a later date.
• Pay a deposit to secure the car and make regular payments over a pre-agreed period usually 12 to 60 months.
• You do not own the car until the end of the contract, which means you cannot sell the car at any time during your contract without the financier's approval.
• Car can be repossessed if you do not make your payments.
• If you have paid a third or more of the value of the car, you have additional legal rights and if you default on payment, the financier would have to obtain a court order to repossess the car.

Personal Leasing

• Pay an initial deposit of up to 10% of the value of the car.
• Pay the balance, invoiced monthly, over a 24 to 48 month period - the overall sum paid includes the cost of maintenance and road tax.
• There is no option to buy the car at the end of the contract.
• Provides fixed cost motoring without residual value risks associated with traditional ownership.
• You return the car with nothing more to pay, provided the agreed mileage has not been exceeded and the car is in satisfactory condition.
• Leasing company takes all responsibility for depreciation, funding costs, administration, servicing and repairs.

Other finance options

Credit Cards

• Can attract a fee for card transactions.
• The limit on your credit card may not be enough to purchase the car you choose.
• Lots of companies offer 0% for the first 6 months but the rates after this time can be high.
• Many credit cards issue cheques which can be used to purchase a vehicle.
• Suitable for small ballances.
• If you don't clear the ballance interest charges can be high.

Personal Loans

• Can be arranged through banks or building societies and is separate from the car.
• Rates can be attractive for certain customers but they are based on individual circumstances such as term and customer credit history.
• Loans may be secured against your home.

Keep In Mind

You should really take the time to explore the many finance options when looking to purchase a vehicle. Also keep in mind the following....

• Establish your budget - Not just the sales price you are willing to pay but also what you will pay over the entire agreement including the deposit, intrest costs incurred (made up of the APR), and other charges monthly/annual payments (e.g. road tax, insurance etc)
• .....Keep to your budget!
• Compare apples with apples when looking at your repayment rate ie the annual percentage rate (APR). The APR is a measurement that allows you to compare diffrent loans offered by lenders, taking into account the closing fees on the finance companies and given the total cost over the period of the loan.
• Read the small print - make sure you know and understand what you are signing up to.
• If it is a second hand vehicle, make sure it has all its service records and that they are upto date. Companies that offer financing do not necessarily check vehicle records and it may be left up to you to do so. Beware of such common defects as hidden write-off damage and outstanding finance. So get the RAC or AA to check the vehicle over before buying.
• Keep in mind that it is illegal to drive without insurance and upto date tax disc - both must be bought immediately if not offered as part of the deal.
• Talk to your car dealer they will have years of experience and can tailor finance to meet your individual needs and circumstances.