Buying a car is usually the second biggest investment in a person’s life, and financing the purchase of a car is commonplace nowadays, especially if the vehicle in question is of any substantial value. For most people, buying a new or used vehicle of any worth outright for cash isn’t possible. So car finance gives you the option to purchase and ultimately own a vehicle that you may not otherwise be able to, much like how a mortgage is taken out to pay for a house.
Even if you do have the savings or means to buy a car outright, it is still sometimes a more sensible option to finance the purchase, as it allows you to release your money bit by bit in a controlled manner instead of having all of it tied up in a vehicle, that could potentially get stolen, written off or depreciate considerably.
The car finance industry is massive, and if you are considering financing a new car, there are many things to consider and be aware of to help you get approved car finance. There are several different sources to apply for and obtain car finance, with the obvious one being from the vehicle dealership itself. Still, you could also obtain finance from major banks only, in financial institutions and companies.
Financing the purchase of a vehicle through the dealership is usually the most convenient option. However, there are a few things you should be mindful of before approaching one. Financing through a dealership can often be ‘high pressure’; this is usually because the salesperson will be working on a commission basis, so they will be pushing for certain add-ons and packages that, at the outset, may look worthwhile but may cost you considerably more. Examples of this commission-based ad include insurance, extended warranties, and extra options for the actual vehicle itself to push the sale value up. If you are financing, it can be harder to see how much these things cost as they are effectively ‘hidden’ and divided over the loan’s monthly payments or the term.
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Obtaining
car finance away from the dealership with a bank or online institution can give you more control without the pressure of the sales push. Once approved, you have your budget and know exactly how much you can spend, again giving you more control when negotiating a price with a salesperson. However, because the finance has nothing to do with the dealership or wherever you’re purchasing the vehicle from, you may not get as much
support and after-sales care as you would if you financed the purchase through them.
When applying for vehicle finance, several factors determine whether you get approved and, if you do, what rate you will pay.
Interest rates can vary vastly, and probably the most influential factor on the interest rate offered to you will be your credit history. But, the better your
credit rating, the lower the rate will be, and the worse it is, the higher the amount you pay back to the lender due to an increased rate. Another major factor impacting the interest rate of car
finance is the loan term – i.e., the actual period it will be paid back over. Usually, the shorter the period, the lower the rate, and it increases correspondingly as the term period is extended. Also, if you want to finance a used car, you will probably have to pay a higher rate than buying a brand-new vehicle, which is an important factor to
consider before buying.
Your address and geographic location can also influence the interest rate offered, as can your profession, work history, etc. When applying for car finance, be prepared to answer several questions based on these areas. Before going to a dealership to purchase and finance a car, it is good to research and be aware of current rates. It offers from competing companies and banks so that you are not entering into it completely blind and can bring them up during the application process if necessary to aid you in any negotiations. When financing the purchase of a vehicle of any substantial value, you will most likely have to pay a deposit upfront, which will represent a minimum percentage of the overall value of the car and demonstrates your commitment to the lender and the dealership, as well as helping to cover any admin
costs, etc.
It is always advisable to put down as much as you can afford on the deposit, especially if it is an expensive car, as this will help to lower the monthly payments, give you a little breathing space and control, lessen the likely hood of you going into negative equity if you want to get rid of the vehicle, and also increase the likelihood of you getting approved for the car finance in the first place.
This is probably the most important thing to consider when financing the purchase of a valuable vehicle. If, at some point down the line of the agreement, you become unable to continue paying the monthly payments, or if you
don’t want the car any longer for whatever reason, you want to either effectively be able to hand it back to the dealership without owing anything outstanding or to sell it yourself privately without having to cover any potentially sizable negative equity before doing so. It is your initial deposit that can help prevent this from happening in most cases.
It is never a good idea to
finance a car purchase with a very low or even nil deposit, as it will likely result in your payments being much greater. If you want to release or
sell the car, you could very well still owe the lender more than the current value of the vehicle itself, as many cars (especially brand new ones) can depreciate considerably and surprisingly quickly after the purchase, so put down as much as you can upfront to cover yourself for any such eventualities. Before committing, you should ensure you are completely aware of the total financed amount, as this will properly illustrate to you the amount you are ultimately paying for the car and whether it is actually worth it or not.
Generally speaking, you should consider car finance as long as you can obtain a competitive interest rate and sensible terms that will allow you to afford the monthly payment comfortably. You should also be able to comfortably put a decent deposit down upfront that represents a substantial percentage of the overall value. Finally, remember that even if you can comfortably afford the deposit and monthly payments, whether or not the overall financed amount is representative of the actual worth of the vehicle you want to own.
