Tag Archive | "car finance"

Age Affects Car Finance Preferences

Middle-age. Don’t you just hate terms like that? All encompassing expressions that take no account of individual differences. If you are middle-aged you will be between 35 and 44 years old. That’s the official statistic. This therefore implies that if you are 45, you are old. Charming.

Yet this terminology is still in use. Apparently, according to some new research, if you fall into this age group and intend to buy a car you are most likely to use dealer financing. Buyers over 65 – which, following the advice above, puts you in the same bracket as Stonehenge or the Dead Sea Scrolls – much prefer to use cash. Presumably this would be kept under the mattress as ‘old people don’t trust banks’. Actually, thinking about it, nobody trusts banks these days!

It is also suggested that these ancient Methuselah’s, being so very wise and careful with their money, are more likely to hang onto their cars for longer whilst saving the money for a new one. This, it seems, is muddle-headed thinking, you poor old souls, as keeping cars for the long term is false economy. Newer cars have better fuel economy and improved safety features; whereas the older car will be liable for more VED and will need more expensive repairs. A new car, changed regularly, will be under warranty. What isn’t mentioned in these stats is the stunning depreciation in your investment as soon as it leaves the forecourt. This is money that will never be recovered and is likely always to be more than the possible additional costs aforementioned.

So, forty four per cent of car owners would buy a car for cash whereas 13% of those polled would prefer some form of financing or contract hire. Less then ten per cent would go for the bank loan option (too shifty, the lot of ‘em) and three per cent would go down the borrowing from friends and family route. The rest of the respondents said they had no plans to buy another car, although this figure is skewed by virtue of the fact that some areas of the country are forced to be car-dependent whereas city dwellers have other choices.

The fact that women are less likely to choose dealer finance seems to suggest that the industry hasn’t yet gained the confidence of females in the still very much man-centric showrooms.

Most people appreciate that a nice car is a pleasure that also helps to make life better. However individuals or age groups choose to buy their next car one thing is for certain: Dealers are saying that with interest rates at an all time low there has not been a better to seek financing than through them. This may well be sound advice just now but then, of course, they would say that, wouldn’t they?

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Introduction to car leasing

Buying a car is of course a big decision to make. Cars are expensive, and many car companies seem to make it their mission to throw confusing and complicated finance options at you in a bid to suck you into what can often be a misguided decision – which may even cost you more than you need to pay. However, if understood correctly and in plain English, many car finance options can help make the purchase easier, as well as helping you stay in control of your finances. One of those options is car leasing.

Car leasing is, in its simplest form, like renting a car. In other words, the leasing company retains ownership of the vehicle and the buyer pays monthly payments for its exclusive use.

That’s the first part of leasing, and in some cases may be the only part: with monthly payments being made until the term of the agreement ends. The monthly price will be comprised of the car value, depreciation and a level of interest.

Some leases have two parts though. These include the first part that we’ve just mentioned and a second stage. The second stage takes place at the end of the lease agreement, where the buyer will have the option of paying a final payment – to pay off the remaining residual vehicle and take full ownership. This is sometimes called a balloon payment. Depending on the agreement this isn’t always compulsory, though, and the buyer can decide not to pay it and not take ownership of the vehicle, which will mean the car is then returned to the leasing company.

As with most sizeable purchases where you don’t pay the full price in one lump sum, you’ll need to pay a deposit. This is often described as ‘3 upfront’, whereby the agreed monthly payment is multiplied by three to calculate the deposit. This amount usually will be broken down into 3, 6, or 9 payments up front as the deposit with the amount you pay up front reducing the monthly payments.

In its simplest terms, that’s the main thing to know about leasing a vehicle. However, there are often restrictions and it’s important to fully understand these before signing on the dotted line. A number of the restrictions are optional – for example, if you pay a higher monthly rate then you can choose to have the car’s MOT and servicing included. Likewise, you will need to set a limit on the number of miles you’ll be driving in the car each year – the higher the mileage, the more you’ll pay each month, as the car will be worth less should you return it to the company at the end of the agreement.

Don’t be put off by the varying terms used for vehicle leasing. Contract hire, contract purchase and lease purchase are all examples of vehicle leasing, but they all have slightly different permutations. Some – as you can tell from the name – include compulsory purchase by the buyer, others include the cost of servicing and some include numerous options for maintenance. As with any vehicle purchase, the most important thing is to make sure you fully understand what you’re agreeing to when you sign the paperwork, and also what the total price you’ll be paying is.

That said, vehicle leasing is an affordable, risk-managed way of buying a car, and offers an excellent alternative to outright purchase. The extra price paid in total can arguably be offset by being safe in the knowledge of maintenance being included, or by many of the other numerous options.


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Top tips for finding a great used car deal

Buying a used car can be an exciting experience – when you finally drive it home – but the process can be time consuming and frustrating. I’ve been through it a number of times and ended up with some excellent buys and one very poor one, so now know a little about the pitfalls.

I’ve put together some top tips on how to identify the right car and secure a good deal. They can be summed up as using common sense and knowing the difference between price and value, but read on to find out more.

What do you need?

One of the big mistakes buyers make is to be unduly influenced by a tempting promotion and end up purchasing the wrong vehicle. A car that does not meet your needs can never be a bargain, however low the price.

Think about what you really need the motor for and draw up a list of essential qualities, such as boot space, room for children and their paraphernalia, good for dogs etc. That way you should avoid ending up with a car that looks great without being satisfying to own.

Take a look at used car values

When feminist activist Robin Morgan coined the phrase “knowledge is power”, she probably didn’t have buying a second hand car in mind – but the concept is certainly applicable. Having an idea of the market value of the car you wish to buy and the one you plan to trade in will mean you are in a position to negotiate a better deal.

I use a copy of Glass’s Guide or What Car? magazine as the starting point for research, but there are also a number of good online valuation tools available. Remember that condition and mileage will have a major influence on value, so the figures you find in advance of viewing vehicles should only be regarded as guidance.

Make sure you are realistic when trying to negotiate a price and part-ex value, as demands for thousands of pounds off are likely to be badly received. Dealers have less margin to cut prices on used cars than they do on new ones, so while you should always try to get a discount, do not budget for too much.

Car finance

Working out how to finance a used car purchase can be difficult, but it is worth going to the trouble of doing your research. I prefer to pay cash, but that is not always possible and is not necessarily the best way to do things.

A personal loan from a bank is worth considering, but it may pay to take a close look at the finance packages offered by the car supermarket or dealership you are buying from. Hire purchase (HP) deals and Personal Contract Purchase (PCP) packages can both have advantages.

It is often possible to tailor an HP agreement to suit your needs, so you have affordable monthly repayments over a period of your choice. A PCP can push your monthly outlay down even further, although you need to be aware of the final payment.

Some dealers are prepared to negotiate a lower price if you buy on finance, so even if you have sufficient savings, it is worth at least looking at what is on offer and sitting down with a calculator for a few minutes to work out which is the cheapest way to complete your purchase.

Car checks

My one bad used car purchase involved a vehicle that had endless mechanical problems. I bought it from a main dealer and was told it had undergone a thorough inspection and full service. This was not the case and, although I later managed to get some money back and a discount off repair bills, I wasted a lot of time and had long spells without a vehicle available.

The mistake I made was not organising an independent mechanical check, during which at least some of the issues would have been spotted. I would never buy a car without one now, although all they have done so far is confirm the vehicles I’d chosen at car supermarkets and local dealers were in good condition.

One other step you should take is to organise a car history check – also known as an HPI check – to ensure the vehicle you intend to buy has not been stolen or written off, and that there is no outstanding finance on it. Some used car retailers do this as standard, but make sure you ask to see a copy of the report.

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