Car finance schemes can be a major source of profit for businesses, due to the APR added – so almost every dealer, car broker or car supermarket offers a variety of finance options for consumers.
Thanks to low-interest deals and a growing credit industry, finance deals can be a great way to get a better quality used car in a more affordable manner.
However, there are a few key things to be aware of before committing to any deals…
Hire purchase (HP)
This is perhaps the simplest type of car finance plan. After paying a deposit of around 10 percent of the car’s value, you hire your car with the option to buy it by the end of a 12-60-month contract. Hire purchase is arranged by the car dealer, but brokers also offer this service. The rates are often very competitive for new cars, but less so for used cars due to a higher rate of APR.
This option is often best for those with a good credit rating, as this means you’ll get hire purchase deals at the lowest interest rates.
Drawbacks include potential repossession if you miss a payment and it can sometimes be more expensive than an independent bank loan.
Personal contract purchase (PCP)
Based on a ‘minimum guaranteed future value’ for the car, this involves paying a deposit, then low monthly instalments over a fixed period. At the end, you can either pay a lump sum to purchase the car outright or return the vehicle.
It’s important to stick to agreed mileage limits to avoid costly penalties of up to 30p per mile – so if you are doing a lot of miles, this option may not be for you.
PCP financing on used cars rarely offers the same incentives as new cars as they are not as lucrative for manufacturers. However, it’s worth keeping an eye out for used-car sales events as some may offer the option of a deposit contribution.
You may consider a personal loan if you have a strong credit rating, as this could work out cheaper in the long term than a finance scheme. There may be a higher APR, but this could be offset by lack of deposit and spreading the loan over a period of your choice. You will also own the car from the outset.
Check the APR between the different payment plans you’re offered and compare it to the rate charged on a personal loan to see what would be the best overall value.
Check the small print
Whichever method you choose, you’ll need to be certain you can afford the repayments throughout the agreement, even if your circumstances change. While some deals give the option of ending the contract early, there can be significant fees for doing so.
You could also buy a used car that has outstanding finance on it, without realising. If it does, the finance company that paid for it will have a vested interest and could reclaim the money or the vehicle from you.
For this reason, it’s advisable to get an HPI check on any used vehicle before you buy it. This is a check of the vehicle’s history that will uncover any outstanding finance on it, protecting you against this potential pitfall.
If you’re buying a used car on finance it’s worth investing in GAP insurance. This covers the ‘gap’ between the current market value of your car and the value of your outstanding loan or the cost of replacing your car, should it get stolen or written off. However, it is worth bearing in mind that some providers, such as Warranty Direct, are unable to accept leased vehicles on GAP insurance.
When choosing a new car, it’s easy to spend as much on optional extras as it is on the car itself. From being seduced by the latest mod-cons to the occasional, dodgy dealer trying to promote unnecessary extras, consumers are inundated with options.
While some extras won’t add value, not having certain options on a modern car can make it almost impossible to sell. Choosing which to purchase can be confusing, so we’ve put together our top tips on what’s really worth it…
Built-in sat nav
Traditionally, integrated sat nav units were an expensive luxury. However, they are increasingly being offered as standard, and even optional or upgraded units can be cheaper than what you’d have paid a few years ago.
A built-in sat nav can help a car retain value, especially in executive models where it’s often considered an essential. It’s worth knowing it can be more expensive to update maps than with standalone GPS, but lots of manufacturers are now offering free updates with their integrated systems for fixed periods. Keep an eye out for these deals to save on future costs.
Air conditioning/climate control
Very few cars are sold without air con. However, several smaller city and supermini cars may not include air conditioning, or only make it available as an extra.
It’s worth adding air conditioning if you have the option, as you’ll be thankful for it on warm days and it can keep your windows frost and mist-free in cold weather.
Not only this, but air conditioning and climate control are among the handful of optional extras that help to boost cars’ resale value. Some compact hatchbacks can even be worth a few hundred pounds more with it fitted.
It’s worth bearing in mind problems with A/C can sometimes occur in built-in systems. Make sure your warranty covers air-conditioning to avoid unplanned costs.
Parking sensors have been widely used for some time now and are the most common parking device on the market. They not only help to improve resale values, but some models come with both front and rear sensors, which give an audible/visual warning of approaching objects. Not only does this help to make parking easier (especially for larger cars), vehicles with parking sensors can see the average insurance premium fall by 13 percent.
Which aren’t worth it?
Personalised or statement colours
While you might adore your bright pink Fiat 500, there is a chance not all would be as bold in their colour choice. Silver, black and blue are the most common car colours in the UK – while not the most exciting, personalising your car colour to something more flamboyant could limit the number of potential buyers for your car.
Gaudy body kits
If you’re looking to fit a full body kit, a bigger exhaust, or alloy wheels you may wish to reconsider. Just as with personalised colour, these options are very much down to personal taste. You could find it harder to sell and some modifications can raise insurance prices by up to 66 percent and even invalidate your car warranty.
Usually an option on premium or performance vehicles, adaptive suspension constantly adjusts in response to changing road conditions to ensure a continuously smooth drive. While this is a great perk, it typically raises the cost of a car by nearly £1,000, without necessarily adding enough value for it to be worth the cost when it comes to selling your car on.
The prospect of buying a brand-new car is an exciting one, especially as some of the newest models give access to the latest features in terms of safety, performance and comfort.
It’s vital you give your decision careful consideration though, as different needs, budgets and features, means finding the right option can be confusing.
That is why we’ve put together our Warranty Direct guide on what to look for when buying a new car.
Before you start looking at favoured options, you should finalise a budget and know how to maximise it. Some will be able to buy a new car outright, but many of us will need to consider finance options. Some of the most cost-effective finance deals are available with 0% APR and if size is not an issue smaller models can be a good option as many are available from as little as £150 per month.
How much your loan costs will depend on your credit history, and knowing this can be useful as it will give a better idea of what to expect from lenders. The Consumer Credit Act allows consumer access to credit reports by post or online.
Taking a more practical view when it comes to vehicle choice is a good way to pick a car that’s best for the long-term. Whilst a small sports car may retain its value well and be suitable for your current lifestyle, it might be completely inappropriate for your needs a few years down the line.
Economy, in terms of MPG and fuel type, will also be important with the new diesel tax on the horizon. Smaller petrol cars will be good to consider after this change, as they will most likely retain their value better and have lower road tax.
Features and extras
Motoring technology is advancing at an unparalleled rate and in-car systems such as WiFi, 4G connectivity and voice control are becoming commonplace. However, technology will continue to develop features such as parking assist, night vision cameras and autonomous safety features, meaning more improved safety and comfort.
Assessing and researching these latest features will allow you to work out which deals are the best value for money when it comes to meeting your own, personal requirements.
Models that hold their value
The biggest issue when buying a new car is they can lose their value quickly. Most cars depreciate at a rate of around 20% per year over the first three years of ownership. Some models shed cash quicker than others, meaning you’ll get a lot less when you come to sell it on.
It’s important to research which vehicles usually retain their value better than others, such as budget SUVs or smaller sports cars.
For more information on depreciation, you can also consult our guide.
You can guard against any potential loss of value by investing in a GAP insurance policy, which is particularly worthwhile if you’re paying for a new motor on finance.
When it comes to a car, assessing your needs, financial situation, and forthcoming industry developments will mean you’re well-placed to get the maximum for your money and your vehicle will retain more value for longer.