Driving down the cost of Car Loans
Usually the cheapest way to finance the purchase of your car is usuallywith a personal loan. But there are other methods. This article
Most car buyers spend hours researching the makes and models of carbefore deciding which to buy. Then four out of ten rush out to the
showroom and sign up for the car within 30 minutes of stepping inside.
Finance package or Car Loan - Some Facts...
But will their painstaking research extend to sourcing the cheapestfinance package? Probably not. Whilst around 50% of new cars bought
privately are purchased on finance, nearly 20% sign up in the showroomfor the finance deal offered by the manufacturer. Unfortunately that
could turn out to be a costly decision. With typical manufacturersfinance costing 13.7% per year over a 3 year and including a 10%
deposit, they could be throwing some £1,800 down the drain.
Take someone buying a new Renault Megane Sport Saloon Privilege 1.6 andlet's assume that it costs £16,000 on the road. Including 3 years
interest that means the full cost will be £17,384. However, there is amuch cheaper option. With a good credit history you could get a
personalloan at only 5.5% and end up paying just £15,631 - that's a full saving
of £1,753. This goes to prove the old adage that it pays to shoparound.
Rushing to accept the dealers finance package can hit your pocket hard-
it's effectively giving back the discount we hope you negotiated!
OK, I can hear talking about the special finance offers thatmanufacturers are forever advertising. Yes, there are some really good
deals - but always look closely. Some deals only relate to specificmodels with a set specification, often the cars that the manufacturers
are having trouble shifting. A beware some deals have a sting in theirtail. Take Volkswagens' current offer on the Polo E2. Their deal is
advertised at 5.8% with a monthly repayment of £99 over 35 months -sounds a great deal but look more closely and you'll find there's a
final balloon payment of £3,750 or alternatively you can trade in yourE2 for another Volkswagen.
The car manufacturers use these deals to promote brand loyalty andencourage another purchase in 3 years time. They know that most cars
will be traded in after 3 years rather than pay the large balloonpayment.
Alternative Means to Finance your Car
Of course, personal loans and manufacturer's finance are not the onlyway you could finance your car.
The traditional way to pay for your car is through hire purchase. WithHP you pay a deposit, usually of at least 10%, or trade in your
existingcar for at least the same value, and then use HP for the balance of the
price. The loan is then effectively secured on your car. So inpractice,
your car still belongs to the HP company until you have made your lastmonthly payment.
Then if you want to sell your car before you've completed the HPagreement, there will almost always be an early redemption penalty -
often up to three months interest. The HP company will also registerits
financial interest in your car with HPI the finance tracking agency.This effectively means that you will be unable to sell your car until
you have paid off the HP loan.
Another alternative is Personal Contract Purchase, PCP for short, andin
recent years PCP has become very popular. Here you also agree themileage you expect your car to clock up each year. You then pay a
deposit and part of the purchase price is deferred until the end of theagreed payback period. Your monthly repayments then repay the balance
and the interest. These schemes are highly flexible as you can selectthe length of the loan and the size of the deposit but you'll find that
interest rates vary considerably between lenders. The current averageis
about 12.8% - still well above the 5.5% rate for a cheap personal loan.
At the end of the PCP contract you'll have three options: -
Pay off the deferred balance and keep the car
Trade in the car using the trade in value to help pay off the deferredsum and hopefully leaving a balance towards a new car
Hand in the car and walk away with nothing more to pay.
This last option is always subject to your cars' condition reflectingnormal wear and tear and its mileage is in line with the annual mileage
you agreed when you purchased it. If the recorded mileage exceeds theforecast mileage, then you'll have an excess mileage charge to pay. The
cost per excess mile will always be specified in the PCP agreement.
One of the big advantages of PCP is that the guaranteed buy back optioneffectively protects customers against excessive depreciation of their
As you would expect, car dealers take a commission for selling PCPcontracts and to encourage you, you may find they'll agree a bigger
discount on your car if you take their PCP deal. If your lucky, theymay
even throw in a low cost servicing package or low cost insurance. Buttake care. You'll need to do some homework to ensure that these extra
goodies are truly worth the extra interest charged on the PCP contract.
Brokers Online educate their clients by writing uptodate finance basedarticles which cover important changes happening within the finance
markets. They also provide financial services which include Loans, TenantLoans and even Critical Illness Cover.
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"Yes but dont forget the car also depreciates within the 3 years that you have been paying £150, so you would have lost that money anyway just in the value of the car naturally going down, the question is if you've paid more than what the car has lost in value plus the extra interest you would have paid on other finance deals. I think its a good deal for anyone who is happy to trade in after 3 years."
"I took out a pcp on a polo 55reg thinking that £150pm is cheap. However I now have to either pay the balloon amount of £4500 to keep the car and to hand it back VW are offering me £4000, which means I have lost my deposit, I have lost all those payments and even though I have stuck to 10,000miles a year I have to pay VW £500 to TAKE my car!!! so BEWARE!"