When it comes to ranking the most trusted professions, you won’t be surprised to find that car salesmen and women don’t usually appear high on the list. They have a poor image – often because of the sales techniques they use to bundle the purchase of a new car and the finance for it.
It’s not well known but many of the major car manufacturers make more profit from their finance arms than from the manufacture and sale of their vehicles in the first place. So when you walk into a car showroom, be prepared for the hard sell on both car and finance package and be under no illusions that the dealer is going to be just as keen, if not more so, to sell you a profitable finance agreement as well as the car.
The best advice when it comes for finding a good car finance deal is to separate the credit from the vehicle. Sorting out finance in advance will give you leverage over the dealer and can help to drive discounts, optional extras thrown in for nothing and save you a small fortune in total interest payments. But be aware that having finance agreed in principle in advance of your visit won’t always secure you the best price on the vehicle. Because many dealers earn commission on the finance as well as the sale that may make them less inclined to discount the price of the vehicle if you are not willing to sign up with them to fund it.
But don’t let that put you off. Here are our other tips on finding the best car finance deals:
Make Sure You Know the Total Cost
When you’re negotiating the purchase of a new car, always remember to focus on the annual percentage rate (APR), which can vary wildly between manufacturers and even between garages that sell the same marque. Don’t allow yourself to fall for talk of how low the monthly payments are: this is a tactic to divert you from the overall cost of the finance package. While what appears to be a low monthly repayment may appear to be attractive, it will almost certainly be based on a longer repayment schedule and a higher APR. A lower overall APR is more likely to give you savings over the long term. For example, a three-year, £15,000 car loan offered at an APR of 5% would save you nearly £500 over the lifetime of the loan compared with a loan offered at 7%, particularly if the repayment term on the latter is a year longer. In general, the shorter the term of the loan, the more money you are likely to save. While the monthly repayments will be higher, the total amount that you have to pay back could be considerably lower.
The Car’s Value
Another thing worth bearing in mind is how soon you will want to trade your vehicle in for a newer one. A longer term loan will actually lengthen the amount of time before you actually have some equity (the difference between the outstanding finance and the value of the car) in the vehicle. With a five-year loan, it could take up to 18 months of repayments before the vehicle is actually worth more than you still owe on it. If you come to trade the car in at this point, you’ll find that there is a gap between the trade in price offered and the ongoing monthly payments which will mean that you may end up having to pay for the finance on two cars at the same time. Avoid this trap by taking out finance over a shorter period – a three-year loan will mean that you probably have some equity in the car within a year of making repayments.
Have a Larger Down Payment
Aside from personal loans, virtually every other form of car finance will require at least some down payment. You can reduce the cost of the loan by having as large a deposit as possible with a figure of at least 15% something to aim for.
Where to Find Car Finance
If you’ve got your loan or finance arrangement agreed in principle in advance, you’ll have the upper hand with the dealer. You can separate the cost of the car and the loan in your mind and concentrate on what you can actually afford over the long term. While the dealer may still have some very good deals, you should always do your homework in advance.
When You Have to Take the Dealer’s Finance
There will be circumstances when the dealer has the best finance deal for the particular car that you want. When this happens, make sure that you are clear exactly about how much you can afford to repay each month but do not tell the dealer this. If you tell the salesman or woman that you can afford, say, £200 a month, you are immediately relinquishing your control over the total amount that the car is going to cost you. The dealer will then be able to craftily hide the other costs of the package like the APR itself and any mileage penalties should you go over the agreed amount in a year. Ensure that you only discuss the overall purchase price of the vehicle, what’s included in the package and any hidden fees before you start comparing it with what you can actually afford to make in payments each month.
Article provided by Mike James, an independent content writer working together with technology-led finance broker Solution Loans, a reputable company with many years’ experience in advising clients of their most suitable types of credit.