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Author: Internal Customer Services Agent

 

Understanding the implications of car based finance offers

There are a number of different ways we as consumers are offered the ability to borrow money to finance the purchase of a new vehicle. When discussing a new vehicle in this context it does not specifically mean a brand new vehicle but instead relates to any purchase of a vehicle which is not currently owed. This means deciding to fund a car, be it brand new or what the motor trade consider ‘used’, by means of a form of credit. There are several routes to obtaining credit to fund a purchase of this size and with that several different avenues to consider. The purpose of this article is to explore the different options which exist and in doing so, understand which may be most suitable to the needs of a selection of individuals.

Editor: This article is for information only and not designed to give credit advice. If you are considering a car purchase on credit and want help it is advised to seek independent advice, which will be tailored to your situation.

As consumers looking to make a purchase in any market place there is often a particular set of deals which will be more heavily promoted by the seller. This is because as well as the desire to sell a product, there is also a desire to sell specific services which accompany the product. This is absolutely the case when it comes to vehicle sales. There are at any one time a number of different marketing campaigns which are presented through a range of different mediums designed to encourage us towards a specific brand and accompanying service. In the case of brand new cars this is often made up of a combination of the products unique selling points; such as the features offered by the car and its individual style, which is then coupled with a finance offer exclusive to the vehicle in question. With the vast majority of brand new vehicles the offer in terms of finance is likely to be based on maybe an interest free repayment term which we will discuss in greatly detail shortly. The advertising campaigns of used cars in contrast to this is usually focused more on the amount of money that can be saved in terms of the list price of the car; which sometimes is then displayed to potential consumers in a manner which is suggestive of credit being the best option for repayment. The point being that the vehicle retailers want to be able to offer what is deemed a complete package including the purchase of the goods and also the service in the form of the funds needed to facilitate it.

Although the vehicle retailers would like to offer what they deem to be a complete service, there are other options outside of the provider’s product portfolio which can should be considered. We will look at these shortly following a discussion on the actual financial products offered by vehicle providers. As touched on above there are a range of different finance offers which can be considered when looking to purchase a car and these will vary from dealership to dealership but typically fall into several specific terms. The first of which is the offer to repay the cost of the vehicle on an interest free basis. This means the vehicle can be purchased at the agreed price and repaid over a repayment term offered and during this term no interest will be charged to the customer. Without stating the obvious this is often by far the preferred option should it be available. Not only does it often have the minimum possible monthly cost compared to other packages but also, in terms of the total sum repayable, it will normally be the same as the purchase price of the car (unless there are other charges which should be carefully researched).

As well as interest free finance dealerships will also often offer typical Hire Purchase finance as well as a form of Personal Contract Purchase. Hire Purchase allows a monthly repayment amount to be repaid over an agreed period of repayment at a predetermined interest rate. The interest rate offered will of course vary depending on the ‘deal’ offered by the individual dealership but the key here is ensuring the monthly repayment amount is realistic and affordable. Once the agreed term of repayment has been reached the Hire Purchase agreement will be deemed repaid and nothing further will be due by the customer and the vehicle is therefore effectively owed. A Personal Contract Purchase on the other-hand allows the opportunity to reduce the monthly instalment, in direct comparison to a Hire Purchase agreement, with different options to then be considered at the end of the agreed repayment period. This reduces the monthly repayment amount by ‘holding back’ a proportion of the total sale value until the end of the agreement. This lump sum can then be repaid in a number of different ways. The most popular option is to exchange the vehicle against this sum and effectively commence a new agreement with the dealership.  This is providing the vehicle has been maintained in the manner which is set out by the dealership at the point of agreement. The second option in some cases is that this lump sum can be refinanced, either with the dealership or privately and therefore effectively extending the term of repayment. The final option is that the vehicle can be simply handed back.

The most suitable type of finance will depend entirely on the specific needs of the individual in question. The common factor is the fact that the monthly repayment agreed to must be affordable and able to be maintained over the agreed course of repayment. The different options which exist are designed to give consumers choice and therefore flexibility in the purchase of a new vehicle. Depending upon the life style and financial needs of the customer, there is often a finance choice which can suit. That said as mentioned earlier on in this discussion, it is always worth exploring all the options which are available and this includes external financial resources such as a traditional bank loan.