Auto Financing: How To Do A Deal On A New Or Used Vehicle | Money
Decide on a budget
The price of used cars has skyrocketed, increasing at “unprecedented rates”, according to the AA – amid a shortage of new vehicles coming off production lines. Incredibly, some models now cost more used than new. So even if you go for the second-hand over the new, still make sure you don’t run out.
Check the prices, operating costs and depreciation of different models using the comparison tools at Parkers and What Car? Once you’ve picked a model, Cargiant.co.uk and Autotrader.co.uk are good places to start your research.
Don’t pay the list price. Dealers will often be looking to hit targets and may be able to juggle the numbers to increase their chances of closing a deal. Negotiate using the cheapest online prices and, on used cars, negotiate even minor faults. If you want any add-ons, such as a satellite navigation system, ask them to include them as part of the offer.
Which car? lists a “target price” for negotiation on new cars that you should check before going to a dealership.
The cheapest way to buy a car is usually with cash. But a 0% purchase credit card may be a good option. You must repay the debt in full during the interest-free period to avoid charges.
For example, Santander offers 31 months at 0% on its balance transfer card with a fee of 2.75%. After the agreement ends at 0%, the rate is approximately 20.9% of APR.
Paying by credit card gives you section 75 protection, making the card provider just as liable as the reseller if something goes wrong.
MoneySavingExpert’s loan eligibility calculator finds offers you are likely to be accepted for using a gentle search that won’t leave a mark on your credit report.
Look at the hire purchase
Obtain lease-purchase (HP) or personal purchase agreement (PCP) financing directly from a dealer. Or use an online comparison site to research the best rate and find a car once you’re pre-approved for a deal.
Under HP, you pay the car and interest over the term of the contract, and the finance company owns the vehicle until you make the final payment.
Under the PCP, you take out a loan, but you won’t own the car at the end of the contract unless you pay a large âlump sum paymentâ. Alternatively, you can return the car or exchange for a new model and register again.
Be careful not to be fooled by the low monthly payments on PCP. These deals typically last three to five years, but the monthly payments are lower than HP’s because you only borrow the amount that the new car declines over time, rather than enough to buy the entire car.
For example, a Â£ 30,000 model may only be worth Â£ 15,000 after three years, so the payments will only cover Â£ 15,000.
Matthew Harwood, auto finance expert at Confused.com, says, âHP is the best option because the payments are spread evenly over time – with PCP you are faced with a lump sum payment. ”
Compare financing offers
Compare costs across the market before signing up.
For example, take a Ford Fiesta Zetec 1.0 EcoBoost with a road price of Â£ 12,000 and Â£ 0 deposit.
If you have a good credit rating, taking out a 5.9% four-year personal loan costs Â£ 280 per month. The total to be refunded is Â£ 13,461, according to Confused.com.
Under HP, if the monthly payments are Â£ 291 over four years at 7.9%, the total payable is Â£ 13,964 (including Â£ 10 purchase charge). Under PCP monthly repayments are Â£ 218 at 8.9%. The optional final payment after four years is Â£ 4,424 to own the car, bringing the total to Â£ 14,911.
Check the setup fee and prepayment charge. Erin Baker, Editorial Director of Auto Trader, says, âAdjust your deposit and the length of your agreement to get the right balance between upfront expenses and ongoing monthly costs. “
Get a deposit contribution
There are a growing number of non-deposit financing arrangements. But if you pay a down payment (and you’ll probably get a better rate doing so), you might be able to get a deal from the dealer if you take out a specific deal. A contribution to the deposit is free money, but compare the costs in the market.
Baker says, âAny contribution to the deposit is usually deducted from your upfront payment rather than the amount you fund. This can make the cost of a new car more affordable, but the monthly payments generally remain the same.
Rent the car
If you don’t feel like owning the car, leasing is an option. Also known as personal contract hire, it usually has cheap and flexible deals – for example, you can sign up for shorter terms of just a few months to try out a car.
You can rent a car directly from a manufacturer or through an auto finance company, many of which now operate online.
You pay a down payment and a fixed amount each month for two to four years. Compare the total cost of leasing offers on manufacturers’ websites if you are looking for a particular model, and on comparison sites such as Leasing.com.
But remember, while you won’t take a hit on the depreciation, you won’t be left with anything at the end of the trade.
Ask your employer
Leasing a car from your employer can be much cheaper than buying from a dealership. So check to see if your workplace offers a company car program.
For example, you may be able to cut the cost of renting a new electric car in half if your employer is affiliated with a work program.
Cash in your old car
You are unlikely to save money by partially swapping your car for a new one, as the dealership will want to make a profit. If you’re ready to set the stage for private selling, check out free listings on Gumtree, eBay, and Facebook, or you can pay to advertise on PistonHeads or Auto Trader.
You can also get a quote, without committing to sell, on sites like Webuyanycar, Auto Trader, and Autoroute.
But even if it’s not as profitable, the ease of exchanging parts appeals to many people. âThe lack of hassle with this option is often worth the little financial blow you will take when you trade in for a new model,â says Baker.