Understanding Vehicle Finance

These days’ car buyers face a bewildering array of financing options and in today’s environment making the most effective use of your capital is essential.

In fact, choosing a finance package can be as tricky and as important as choosing the car itself. So how do you go about deciding?

Most importantly it makes sense to seek advice from a specialist who can offer comprehensive advice on a complete range of financial products and services.

Our finance specialists can provide tailor made buying solutions that suit your individual financial needs and requirements. He is fully FSA compliant and trained in all aspects of finance including further funding options such as contract hire and leasing.

At David Meek our aim is to give you the best possible advice available to make your buying experience easier, cost-effective and most importantly enjoyable. Please call us 01803 313553 if you need help or advice with your next car purchase.

Here are some of the options we can offer and how they work:

Hire Purchase

 

The traditional way of buying a car, it’s arranged through us and historically was the most common way to fund a vehicle until PCP’s arrived on the scene.

Advantages:

• At the end of the term, the car is your property
• Rates tend to be low
• Minimum deposits will also be low, generally from 10%
• The total amount of interest you’ll pay is low compared to other options
• There are safeguards built in called ‘Half and Thirds’, to protect you should your financial situation change.

Monthly payments will be higher than for PCPs over the same period.

PCPs

Personal Contract Plans go under a huge variety of names, but they all work the same way and are the most common way to finance a car these days:

• you pay an upfront deposit usually 10%
• then you pay low monthly payments
• after 2 or 3 years you have three options:
• Pay a final payment and keep the car
• Return the car and walk away (you must keep within mileage limits and have the car in good condition if you want to do this)
• If the car is worth more than the final payment, you can use the difference as all or part of your deposit on your next car. These schemes make most sense for people who like to change their car frequently and like to have a low monthly payment.

Advantages

• Low monthly payment (this allows you to get a more expensive car than you otherwise would have)
• Insurance products can be rolled into the payment
• It’s easy to change your car every two or three years
• Gives you a guaranteed future value, which means in today’s market when residual values are uncertain, you will know what the value of the vehicle is at the end of the term when you take out the agreement.
• There are safeguards built in called ‘Half and Thirds’, to protect you should your financial situation change.
• There is no chance of negative equity with this type of loan
• Keeps running costs down as the car will probably have manufacturers warranty to cover any problems and wont need an MOT while you own it.
• You can hand the car back and walk away from the car at the end of the term.

Negative equity

This scary-sounding term has a simple meaning. If your car is worth less than you owe on it, you have negative equity. Many buyers suffer negative equity, but often they don’t realise it, because by the time they sell their cars, it has passed. It most commonly happens because cars depreciate rapidly after purchase, but the outstanding amount of the loan is paid off more slowly. You can try to avoid or minimise negative equity by paying a higher deposit or reducing the repayment period of your loan (or both).

You should also consider taking protection insurance to help ensure you’ll be able to keep up your payments if you lose your income, also we would recommend you protect your vehicle in case it is written off or stolen with GAP insurance so you are not left paying for a car that you don’t have.

Whether you buy on credit or not, it rarely makes financial sense to sell your car within a few months of buying it.

0% finance

Everyone knows there is no such thing as 0% finance! Someone has to pay the interest somewhere down the line usually you the customer. From time to time dealers offer cars with a 0% finance offer – i.e. a loan where you don’t have to pay any interest. (This is actually because the carmaker or the dealer pays the interest for you.) This is obviously the cheapest possible way to finance your car but usually you get the worst deal as the dealer will have to subsidise the interest and there are often stiff conditions attached, for example, you may have to find a 50% deposit, and the loan may have to be paid off in one year.