When it comes to buying a new car, online model configurators and showroom window-shopping can be fun, but they’re only the start.
It’s just as important to invest quality time into investing exactly how you’re going to finance the vehicle – and whether you can afford to buy it in the first place.
But don’t let this important aspect of car-buying research overwhelm you. Here is a checklist that shows how you can streamline some of your research into one easy lunch hour, broken down into five top tips and some other areas to research.
Follow these tips and you’ll be one step closer to purchasing the car of your dreams. So grab a coffee or a sandwich and get stuck in.
Five top tips
Work out what monthly payment you can afford
Imperative when figuring out a potential finance plan. The higher the monthly payments, the shorter the loan period might be. And, with a Personal Contract Plan (PCP), higher monthly payments mean a lower final payment to own the car.
An online finance calculator will help you to work out what you can realistically afford.
Calculate your deposit
The more you can afford to pay up front – via cash, a trade-in or a manufacturer deposit contribution – the lower those monthly payments will need to be.
Estimate your annual mileage
This is very important. Underestimate your annual mileage and you might be charged extra if you go over the agreed amount. Overestimate, and you might end up with a higher monthly payment than is necessary.
Your estimated annual mileage could also influence your choice of finance product.
Decide your preferred agreement length
How long do you want to keep up your monthly repayments? Longer or shorter payment periods will impact the final price you pay, so plan for the future.
The length of your agreement will also dictate when you can upgrade or own your car outright, if your finance plan accommodates those choices at the end of the term.
Do you want to own the vehicle at the end of the plan?
Some people happily enter into a long-term relationship with a new car; others will want to trade it in for a new model every few years. Your preference will affect which finance options are available to you.
Some more things to explore
What are your options?
How do the various types of finance product work, what are their benefits and which broadly fits your own circumstances?
PCP is a flexible purchase plan in which you put down a deposit and then make monthly payments, typically lower than they are for other types of finance. After an agreed term you’ll choose whether to keep the car by making a ‘balloon payment’ (which covers the Guaranteed Future Value, or GFV, calculated by the finance provider at the outset), give it back subject to mileage and vehicle condition, or trade it in and choose a new car.
PCH is a hire agreement after which you don’t own the car. Neither do you get bogged down with ownership responsibilities such as servicing, or worries about depreciation. Simply pay an initial rental fee and then fixed monthly payments. After the agreed term hand the car back at no extra cost, mileage and fair wear and tear allowing. PCH allows you to change your car every few years.
HP avoids mileage restrictions and lets your own the car at the end of the term. Just pay a deposit, then make set monthly payments until you have paid off the agreed amount. Then the car is yours. It’s a popular choice for buyers of used cars.
How’s your credit?
Finance companies are regulated by the Financial Conduct Authority (FCA), so any applications will be subject to credit checks. A healthy history shouldn’t throw up any issues.
Do you have a black mark against your name? Find out more in our Bad Credit Car Finance Guide.
Is the car you want affordable with finance?
We might all want to drive a range-topping sports roadster but if your budget is more city car than super car then high monthly payments aren’t realistic. Ensure that financing the car you’re looking at is achievable without overstretching your bank account.
What offers are available?
The availability of offers on finance plans changes frequently. You might sign up for an enticing offer one day, only to discover an even better one the next. Comparison is key; if you have a shortlist of preferred cars from different manufacturers, shop around for inducements such as discounted price or fees, manufacturer deposit contributions, trade-in bonuses and low-rate interest plans.
Once you’ve consider all that, you’ll be that step closer to financing your new car. That was a lunch hour well spent!