Things to know before financing a car
If you’re thinking of buying a new car, financing can make it possible to get the vehicle you want for a price that works for you. Whether you’re purchasing your new set of wheels for personal use or as a commercial vehicle, we offer a range of financing options on new Ford cars and vans here at Dinnages.
Before you jump in, though, it’s crucial to understand what exactly financing entails. Here are some of the most important things to know before financing a car.
1. There are different types of financing options
While all financing is essentially a loan that helps spread the cost of your new car, it comes in several formats. Here are the most common types:
Personal Contract Purchase (PCP)
This is a popular choice where you pay a deposit, followed by monthly payments. At the end of the agreement, you can choose to return the car, keep it by paying a one-time payment, or trade it in.
Hire Purchase
You pay a deposit and then pay off the value of the car in monthly instalments. At the end of the term, the car is yours.
Lease or Personal Contract Hire
You lease the car for an agreed period and mileage, making regular rental payments. At the end of the lease, you return the car. With a lease, you don’t own the vehicle.
2. Additional fees you may encounter
Like any kind of credit, car financing offers you a payment plan to make a larger cost more affordable. However, that agreement then comes with some additional costs to offset the lower upfront rate on top of the cost of the vehicle itself.
In your car financing contract, you will see the APR (Annual Percentage Rate). This can be fixed - i.e. it remains the same over the course of the loan - or variable. The APR includes interest and other charges, giving you a complete picture of the total cost of the loan.
When calculating the total cost of buying the car, you will want to take into account the total cost of financing the car, including the deposit, monthly payments, servicing, insurance, and potential repair costs. This helps you understand the overall financial commitment.
3. Conditions of the financing
The main thing you’ll be looking at when choosing a financing option is the costs involved, but sometimes there are other conditions that could be relevant in helping you make your decision.
For example, some financing agreements come with mileage limits - something that may be a dealbreaker if you need to regularly make long distance trips. PCP and other leasing contracts may also stipulate that the car must meet other certain conditions when it is returned at the end of the lease period. Exceeding these can lead to additional charges.
While many conditions of the car financing will be fixed, there may be some places in which there is more flexibility in the contract. The most common is the option to repay your loan early. If you plan to do this, it’s worth checking if the financing plan you are considering offers early repayment options so that you can repay your credit early without any hefty penalties.