Buying a new car is an exciting prospect, but figuring out how to pay for it can be a task in itself. Car finance deals allow you to spread out the cost by making monthly payments, but not all deals are created equal. Here are some key things to consider when evaluating car finance offers from a dealer or car loans from a lender.
Research Interest Rates and Fees
The interest rate and fees charged can greatly impact the overall cost of your finance deal. Take time to research and compare rates offered by different lenders and dealers. Avoid deals with high interest rates or excessive upfront fees. Look for competitive APRs and minimal processing fees to save money over the life of the loan. Be sure to read the fine print of financing used car dealers so you understand all costs.
Compare Deal Lengths
Most car finance agreements last 2-5 years. Opting for a shorter 12-24 month deal means higher monthly payments but less interest paid overall. Longer terms of 48-60 months have lower payments but more interest paid in the end. Find the term length that best fits your budget. Shorter deals cost less overall but require more cash flow. Extended terms make cars more affordable but increase total interest costs.
Understand Deposits and Down Payments
Lenders often require a deposit or down payment upfront on a financed vehicle, typically 10-20% of the car’s value. Higher down payments reduce the amount you have to borrow and interest owed. But not everyone can afford a large lump sum upfront. Look for deals that offer low or no deposit options if needed, just be aware your monthly payments will be higher as a result. If you are part-exchanging a vehicle, that might cover your deposit.
Check Early Settlement Fees
You may decide to pay off your finance agreement early. Make sure you understand any early or voluntary termination fees. These penalties are meant to cover the lender’s lost interest so they can be hefty. Look for flexible deals with low or no settlement fees so you aren’t stuck paying excessive charges if your situation changes.
Compare Personal Contract Purchase vs Hire Purchase
Common car finance options include Personal Contract Purchase (PCP) and Hire Purchase (HP). With PCP you only pay for the vehicle’s depreciation during the term then have a final ‘balloon payment’ to purchase the car. HP means you gain ownership gradually and fully own the car at the end. PCP tends to have lower monthly payments but HP costs less overall. Choose the option that best suits your long term plans and financial needs.
Shop Around for the Best Deal
Spend time researching and comparing finance offers from multiple providers. Rates, fees and terms can vary greatly. Look at deals from banks, dealerships and independent lenders to find the most competitive APR and overall cost. Using online comparison tools can streamline the process. Don’t rush into the first deal you see – a little time spent shopping around can save you hundreds over the loan term.
Taking the time to find the right agreement for your budget and needs will give you peace of mind during the vehicle ownership experience.