Yes, I know this may sound slightly harsh, but you need to keep one step in front of the wolf – because when it comes to Car Finance, there are some unscrupulous companies who do take a bigger bite of flesh when selling you something which is supposed to help you, not cost you more.
There are many funding options available which meet the criteria of most, if not all personal finance requirements – from High Street Finance using major Banks and Building Societies, to loans for people with bad credit. But, no matter what your needs, you should still be treated as a customer with good service, and not as someone who doesn’t have the dissposable income to pay outright.
We have just gone through a pretty tough period when it comes to borrowing mone, simply due to the recession. But, as we leave that one period behind us, we enter a completely new era of funding with the double dip which the major finance houses are predicting.
Leaving that to one side, we still have needs and desires for transport, no matter what shape or size it is.
Below we have given some inside information which should help you when looking for Car Finance – so enjoy the reading and always keep in mind that ‘YOU’ are always a customer, no matter what your personal circumstances are.
Car Finance – From High Street to High Rates
If you are looking at buying a car one finance, you need to be slightly cute when striking the deal with the dealer. There are many ways of skinning this rabbit, so sharpen your blade and lets disect the animal we all love to hate – ‘Finance!’
If you are looking to borrow money for your next car purchase, you have a multitube of options available from High Street lending facitilies to Online Loans – including a moderately new system which you may have not heard of before, a lending exchange – but more about this later.
You can borrow money from Banks and Loan Companies each and every day, and sometimes the offers they present look sweeter when it comes to borrowing from them. But, don’t be blinded by the big lending star’s, because they can hit you with a higher interest charge without you knowing about it.
What most people don’t seem to know is the base rate of lending, because we have gone through a lifetime of APR being drummed into our daily reading. And why that makes a lot of difference is that you borrow money at a flat rate of interest regardless, and the APR (Annual Percentage Rate) will increase and descrease depending on how much you borrow, and the period of time you take the loan.
If you ask a dealer or bank what the flat rate of interest is, then you can calculate yourself based on the amount you are borrowing, what you will be paying back over the duration.
Example:
- 5% of £10,000 = £500
- £500 x 5 years = £2,500
- £10,000 + £2,500 = £12,500
- £12,500 over 60 months = £208.33
(this is an example only)
*So your total amount of interest works out at £2,500 for 5 years, and a monthly payment of £208.33 paid equally over the 60 months would pay the whole balance off. The only thing that most finance houses and banks do is iinclude a “documentation fee” on the first payment of anything between £50 and £150 – whilst some split it into two, one on the first payment, and the other on the last.
APR Rate for £10,000 over 5 Years
*The APR for the above example would work out at 10.1% with £75.00 on the first payment, and £75.00 on the last payment – at a flat rate of 5%
*Take the same amount of borrowing, over 2 years with the same documentation fee, the APR works out at 11.1%.
*Remove the £75.oo fee from the last payment and make the first one £150.00 instead, the APR works out at 11.3% over 2 years, and 10.3% over 5 years.
As you can see, the base rate of finance would still be 5%, yet I bet that if you looked at two finance agreements and notice one at 11.3% and the other at 10.1% – you would want the lower of the two, right?
Well, by taking the lower APR, you are actually giving the lender more money back because you are borrowing it over a longer period – so be wise my borrowing friends and ask the right questions when talking finance to a lender, and always take a calculator with you!
*-Examples Only – Should not be treated as accurate rates, always ask an IFA for advice and when borrowing money against a property, shoud you default the loan wiwthin the agreed period, you could have your house reposessed.