When you're looking at changing your current vehicle to something new, whether your car has reached a ripe old age, becoming more expensive to maintain, or you fancy a change, you'll want a good finance option. There is always the option of going with the car dealership's higher finance options, who are always on the lookout to provide car finance direct. However, higher purchase agreements and logbook loans, in general, will charge higher rates of interest. As there are many options available, finding one that works for you and doesn't charge too much is key. But where can you look and what do you need to be aware of?
Embrace Your Options
With a rise in direct lenders online, if you haven't had to venture into car buying for a few years, you'll notice the landscape has changed. To rival the dealership's own motor finance options, there are many different variations of car loans that may work out to be a better option for you. The difficulty is deciding which have your best interests in mind and which do not. The best avenue to take is using an online comparison tool so that you can take the hard work out of searching. These tools will present all of your available options in one place so that you can easily compare the rates and costs together. You can find car loans in the UK that can be applied for as an alternative to dealer finance options easily. The great aspect of this is you will see the interest charge upfront and be able to decide if you are happy to pay it, rather than accruing monthly interest, like on a credit card. You'll be able to keep the interest rates low and mean you'll pay back closer to the vehicle value over the loan term. Another option might be a cash management account; like https://www.sofi.com/money that charges no account fees and rewards you when you spend and save. Hopefully, by searching the market using a comparison tool, you'll be able to see all the best lenders of car loans together and pick and choose who you want to explore more information on.
Be Wary of Deals
Not all lenders will be acting in your best interests. One thing you'll need to be wary of is lenders who can offer you fast cash and more relaxed criteria. It may seem like a great option at first, but it could mean you'll be paying a higher rate of interest over a longer period of time. Ideally, you'll want to find car loans that are not overly long, even if it means paying slightly more each month. Spreading the cost over 10+ years may seem like a manageable way to repay a large loan, however, you could end up paying more interest than if you had the loan for a shorter term. This really comes down to what you can afford to pay each month of course, but you should avoid having the loan term longer than you really need it. Most deals are designed to entice you in, but may not be as great as they seem when you start to break them down and look at the terms. The best advice is to thoroughly check the charges involved. Are you happy to pay a higher deposit? Could you trade in your current vehicle to bring costs down further? Read the terms and ensure you're happy with the amounts quoted. If you're not sure, then compare the deals you find with others to check.
Is Leasing a Better Way?
It could seem that purchasing a car is becoming less and less common, with last year car sales falling to a 6 year low. Whilst this points to worrying times for car manufacturers if the trend continues, it confirms that buyers are looking at alternatives. One of the attractive options for some is that of car leasing. Why buy when you can rent? Although leasing has been around for many years, it has become a much more popular option as we tend to 'lease' many things in our life. The majority of us pay our phones via contract, for example, never actually owning the device before going for an upgrade. The same can be done with leasing, with the option to change cars more regularly at the end of a term or then choosing to buy outright if you want. Leasing has grown by 14% last year according to the British Vehicle Rental and Leasing Association (BVRLA). The trend has seen many people save money by agreeing on service plans and repairs through their leasing companies, meaning they can change to a new car every few years. If this is something you want to take advantage of, then look out for personal contract hire (PCH) options on new cars and see how it compares to the most popular forms of ownership.
Personal Contract Hire (PCP) and Hire Purchase (HP)
As the two most popular methods of car ownership, you've probably considered one of the options in the past, or are currently in one. Most dealerships will offer these options as it is a much easier way to pay for a new car, or used, without stumping up a large sum of money. Unless you have a credit card or personal loan that offers low interest and will provide you with the full funds, PCP and HP tend to be valid alternatives. Both require an initial down payment followed by instalments to pay off the value. HP means you will own the car at the end of the term, unlike with PCP where you have to pay a final payment or give the car back. Recently, there has been negative press surrounding the way these types of products are sold to consumers, with the FCA (Financial Conduct Authority) looking to crack down on high interest that is linked to commission. This practice reportedly has cost motorists millions with unnecessarily high-interest rates and is something you should be wary of before choosing this option in the meantime.
What Changes Could Mean For You
With the FCA looking to shake up the industry this year to put things more into a customer's best interests, it could affect the way you decide to buy a vehicle in future. You should definitely shop around no matter what happens. Very rarely will you find the best deal for you on the first search or first result you see. Until changes take effect, the PCP and HP options could still see similar interest rates applied, as there is no telling how much this could be changed later in the year. If you have the money saved, it will still take away the hassle of entering a credit agreement and you will own the car outright. However, this is unlikely for the vast majority of people looking to buy a new car or used car unless it is a number of years old or very cheap. Car loans are no different from any other form of borrowing available; it still involves ensuring you can afford it and having a reasonably good credit rating. If the latter is not something you have, you could find, although there are lenders willing to help bad credit applicants, that the interest charge will be much higher. What you don't want to do is enter any agreement without fully understanding the terms. Generally, if you were looking for finance above £25,000 for a car, there won't be many options for an unsecured loan. This means you'll have to opt for secured borrowing, where a personal asset will need to be attached to the loan to guarantee it. As it is a vehicle you'll be purchasing, it will be this. Even without PCP or HP, if you take out a secured car loan from an alternative lender, the car can be repossessed if you fail to make repayments.
Ensure You're In the Best Position for a New Car
Whether you opt for a leasing option or hire purchase, you should ensure that you can afford to do it. Personal debt in the UK is rising, with figures showing five million people owing between £10,000 and £100,000. If you take out further credit for the wrong reasons, then it could cause you to enter bigger problems in the long term. You should fully check your affordability before pursuing any new loan terms, otherwise, you may overextend yourself and struggle to maintain payments. If you do have to purchase a new car, then consider the type of car you want. Do you need to go for the sport version and heated seats if you don't really need them? Do you need to go for a premium brand? There are ways to get all the features you need and low running costs without having to buy the most expensive option. Could you go for an electric vehicle? It may cost slightly more but the running costs are extremely low. There are many options available and making the right one can seem daunting. As long as you check with trusted lenders and fully inform yourself about what you need from a new car compared to what's available, you should be able to make a smart choice in 2020.
