Choosing Finance

Its amazing the number of buyers who haggle for Ł100 off the price of a car and then happily accept a finance deal that will cost them at least 10 times that.

CASH

The simplest and best method for you the buyer, if you have it? Dealers can sometimes make it look like cash is a bad deal by offering you discount if you take out finance, or a better PX price. but remember the Dealers commission alone will cover that difference before you start to pay the Finance companies profit.

Pros: Fast, Flexible Always the cheapest in the long term

Cons: Carrying cash can be risky, though a cheque and a little patience cover that, some dealers will even transact it against your cash card if your balance covers it.

Bank Loan

Flexible the Bank cares little about what you buy with the money. The more you borrow the lower the interest rates tend to be. Bear in min you can borrow from any bank not just your own so shop around for the best deal

Pros: Fast, easy to arrange, no deposit, no repossession of the car or your house if you default.

Cons: Sometime Dealers can get lower rates on smaller amounts. Banks do go in for the hard sell on PPI payment protection insurance (avoid like the plague)

Dealer Finance

Like a Bank loan but sold through dealers who have flexibility with interest rates. (Note the word flexibility make sure you get the best deal you can not the first deal offered)

Pros:Can be cheap, can be extended to finance a more expensive car; car can not be repossessed

Cons: Often comes with a big deposit or paying top whack on the price

Hire Purchase

Like dealer Finance, but you do not own the car until the last payment. Often aimed at and the last resort of those with poor credit ratings. Hence often seen in the car super/hypermarkets with inflated car prices and inflated interest rates.

Pros: If you can not get HP somewhere you really are in serious difficulties and should not be buying a car anyway. (Some would say if you have to go the HP route you cant afford a new car)

Cons: High Interest rates and penalties for early settlement.

PCP

Personal Contract Plans:

Lets you pay a deposit, then relatively small monthly payments for a fixed term to lease the car. At the end you pay an agreed sum to buy the car or hand it back/part-ex it for and second agreed value.

Pros: Low Monthly payments, cheap way to drive a posh car

Cons: High Interest rates , Mileage limits, must be main dealer maintained, big deposit required, need to save for final payment, agreed sum often more than the value of the car after depreciation. Second Agreed value probably wont meet the deposit needed on the next one.

Remember Dealers need to make a profit on you, and cover the worst case scenario in depreciation terms.

Well of course you can ask why, if you want to check your own credit rating and make sure it is correct then contact either EXPERIAN (0870 241 4297) or EQUIFAX (0990 143700) for credit information it costs about Ł2.00 (circa 2004)

Admin Fees are a rip off , they are making plenty out of you in interest its not like they are doing you a favour, if they really want your business they will waive the admin fee if you scream hard enough.

Basically it works like this you borrow Ł5000 over four year for which they charge you say Ł1000 in PPI that the cost of insuring Ł5000 for 4 years. The payment is due up front so they lend you the money to pay it lump it into your loan and then charge you interest on it.

If you decide to pay off early or re-finance you have just paid Four years insurance for nowt.

But its so complex that it can be worked out differently so that a lower APR can cost more money.

If in doubt simply multiply up all your payments, deposits, doc fees etc and judge against the total price paid for the car.

Of course it going to cost you to settle early. Try to find out up front what the settlement terms are. If you are going to refinance on another car with the same company , then try to get out of the penalty by threatening to take your business elsewhere.