There are a couple of options when it comes to purchasing a new car: Save up and buy the car or purchase the car on finance. Both of these have their individual merits but for people who need their new vehicle straight away then financing is the only way to go. If this is the option you decide to go for there are a few financing options available and some financial obligations you will have to understand fully.
Understanding Your Loan
Car loans are fairly straight forward but if you are not someone with a great deal of experience or interest in finance their a few key terms you may need to be aware of. Firstly, the “term” or “tenure” of a loan is likely to be mentioned by your financer; and this simply refers to the length of time you have agreed to pay the money back to your lender within. So, for example, if your loan has a 24 month “term” or “tenure” then you have two years to repay your lender.
Your lender will also have to inform you of the interest rate on your loan. The interest is the amount of money you will pay over and above the amount you borrowed and the rate is the percentage of the loan amount the interest rate will be. So, for example, if you borrow £9,000 for new hatchback at a 9.5% interest rate over a term of 36 months you will have three years to repay £9,855 (£9,000 + 9.5%) to your lender.
You may also be asked to pay a down payment. A down payment is an initial amount of money you must pay that is significantly larger than the remaining monthly or weekly deposits you would pay back to your lender. The purpose of this is to protect your lenders investment in you if you fail to repay them. Not all lenders will ask for a down payment but those that do are more likely to have lower interest rates on their loans.
There are a large number of car dealerships out there and each one will offer their own distinct finance packages; so it pays to shop around and find the best one for you. A lot of dealers have tie-ins with certain banks or lenders so, if you are currently a customer of these banks or lenders, you may be in for a discounted rate. The most important thing to remember though is never completely trust the dealer; they are unlikely to lie to you but they are salespeople so they will attempt to make their deal sound like the best one available; even though that may not be the case.
If you are unimpressed with the finance packages offered by dealerships you may consider taking out a secured loan from a finance company. This is appealing when the interest rate offered by the finance company is considerably lower than that of a dealership or bank. Secured loans are loans where you use a personal asset, usually your home, as collateral (you will often see these loans referred to as homeowner loans). Now, these loans do carry the risk of losing your property should you default but if you are comfortable in repaying your loan you can often find them competitive in terms of interest and variable payment terms; these loans are also easier to get and less likely to result in a rejected application.
This post appears on behalf of loan, debt consolidation and remortgaging experts Norton Finance.