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- Tips on getting car finance and arranging a car loan
Tips on getting car finance and arranging a car loan
Arranging a car loan can be confusing and finance companies can confuse you with the terminology. Our car finance advice and definition of car finance terms should help you out with some of the terminology and advice on getting the best car loans. There are also many pitfalls for the unwary person who is looking for a car loan, so here are some tips which should help you deal with finance companies and get the lowest cost car loan for the best car you can afford.
Before you start searching for cars
Decide on how much you can afford to pay for your car, how much deposit you want to pay and how much you can afford to pay monthly.
When budgeting to calculate your car finance options and how much you can afford, remember to include the running costs of your car. Some of the finance options include maintenance costs, but you must allow for other things such as car insurance, road tax and of course fuel costs.
Try to arrange your car loan or finance before you buy. Consider all of the car financing options available depending on your credit position before you look for cars. Different lenders will provide different rates for financing, so you can save lots of money in interest charges if you shop around. You will also be able to negotiate better if you already have your finance in place.
Always read the terms and conditions to make sure you understand how much your loan will cost you. Under the new FSA (Financial Services Authority) regulations these must be clearly visible and explained in plain English.
The only way to make sure you get the best car loan with the lowest payments is to shop around. The interest rates and repayment terms on a car loan will differ between lenders in the UK so you should compare the car finance options from several finance companies. Compare a number of lenders to find the loan that suits you.
Beware of lenders quoting you the flat rate instead of the APR as it is lower, so sounds a better deal.
Take your time and carefully evaluate the various options. The time spent will be rewarded in lower payments (more money in your pocket) over the coming months.
Where car manufacturers offer finance deals and zero or low interest rates, take care. You may lose out on discounts and extras that someone with another type of loan will get. Also check the amount of deposit required and the repayments.
When comparing loan payments between finance companies, compare similar deals. For example if you want to borrow £5000 over three years, make sure they all quote you for this period. Also check whether the rate is fixed or variable
The larger the deposit, the lower the amount you need to pay later as interest. Try to keep your monthly payments affordable. Low or zero deposit loans can be tempting, but you end up paying a much higher rate of interest later.
Watch out for hidden costs such as administration or early redemption fees. Some finance options have a mileage restriction that can be expensive if exceeded.
Weekly payments can look lower and more tempting, but if you check the APR, you'll probably find that the deal is not as good as it seemed at first.
Low monthly payments over a long period can be tempting, but you could end up paying much more for the loan than your car is actually worth. Work out how much you will end up paying overall for your car loan.
Some lenders may ask you to take out Payment Protection Insurance, which can add a bit more to your monthly loan payments. Check if this is necessary and how much it costs. Some lenders tack this on at the end as an 'afterthought' so be careful that you don't get stung.
Beware of dealers
If you are part exchanging your car, make sure it is cleaned thoroughly, inside and out. This can make a big difference in the price you get from a dealer. You may get a good deal on a part exchange, or you might be better off selling it privately. Consider both options before you do anything.
Don't accept the first finance deal offered by dealers as they will try the most expensive option, the one they will get the best commission on, first. Be prepared to negotiate and haggle for a better deal. If you can't get a deal that you are happy with, walk away. It's better to wait another day to get a better deal rather than being stuck with paying off a car loan you can't afford for years.
Many dealers make more money out of the finance options than they do from the sale of the car, so always be careful when asking them for finance as they may not be giving you the best loan. If they offer you finance, check it out against other loans before you accept any finance agreement.
Don't let the dealer rush you into a finance deal. They must, by law, give you a full written quotation which you can take away and consider. If they offer you a "deal for today only", don't let this fool you into signing a finance agreement.
Don't give the dealer too much information when requesting a quotation as this information can be used, by them, to shop around lenders to get themselves a better commission. You should shop around for yourself.
After signing the agreement
Hopefully you should have no problems after getting a loan, but if you have problems with your finance here is some of the things you could do.
- If you can't pay your monthly loan payments
Let the Finance company or dealer know as soon as possible. They can overlook a late payment or let you pay later. If your finances are seriously affected, they may be able to restructure your payments to make your monthly repayments more affordable. If the finance is secured on your car or home, you could risk repossession unless you work out a deal with the finance company. - Problems with a faulty car
If there are serious problems with the car, let the dealer know and ask them to fix the problem. If the car is under warranty the repairs should be carried out at no cost to you. Don't stop payments to force the dealer into action as this is breaking your credit agreement and could damage your case if the problem escalates into a legal problem. - Cancelling a credit agreement
Credit agreements have a section on your rights to cancel. Most have a 'cooling-off' period where you can cancel, but be careful that if you sign the contract in the dealer or lender's premises, you lose the five day in which you can cancel without penalty. If you have paid half the loan amount, you may be able to cancel certain types of credit agreements such as and Hire Purchase agreements.