Saturday, 26 October 2019

Is It A Good Idea To Finance A Car?

Finance A Car

Today I am will be talking about car finance, I know this has been discussed before but honestly I don't think it's been covered in the right way, I think that finance is an important topic, it's how most people buy their cars but honestly, not a lot of people buy their cars sensibly through finance.


Why Do You Want To Finance Your Car?

The number one reason for people using car finance is because they want to essentially get a car that they don't have the full amount of money to pay for. So what they want to do is to put a small amount of money down and then they want to pay a certain amount every month.


There Are Different Type Of Car Finance

It can apply to different people in different ways based on how much you earn. The biggest problem that I genuinely believe in, it is that when you walk into a showroom and the first question they ask you when you are looking at a car is, how much can you spend a month?

That is not actually the right way to be looking at spending money on a car, because finance deals can be tailored to meet your monthly requirements, what you don't realize is you are actually paying a lot more for the car then the dealer tells you.

There is been a lot of changes in the law and how they can sell you car finance. So totally understand that everything that the dealer said to you, you get the full information.


People Finance Cars For Different Reason

As I mentioned and obviously the number of the reason is they can't afford a car, essentially they can't pay for it in full. But what is important to remember is that financing the car can also be a sense of a way of using your money. 

First things being is that, if you are buying a $300,000 car, if you do finance it for a rate of 3%, which is a very good rate, in fact, if you use that money elsewhere, lets say you put $50,000 into a car and you borrow $250,000, if you put that $250,000 elsewhere and you make a higher return on it, so your money is making say 4% in a year. 

There is no point you having your money sitting in a car. That way you can make an extra percent. That is the way I look at it, I think you should also to be looking at car finance in that way.


Super Car Finance Is A Different Area Compared To Normal Car Finance

A lot of the time especially if you are buying cars that are very desirable, cars that have a waiting list, a lot of times you can take out car fiance and you will end up paying more than what the car price or sticker value is. A $300,000 car, if you are putting down $50,000 into the car, and when you sign an agreement, that means you pay a certain amount every month.

If you get a very good rate, the amount that you will be paying every month is around about $3,000 to $3,500 a month and that allows you to have that car. As long as you make this payment every month, you keep that car.


Now, What Happens, What Is The Term Of The Agreement?.

It can be a number of different years, like 3-years agreement or 4-year agreement, if it's a longer period of time, you paid less every month. 

A lot of times when people buy cars and this is something not just about supercars is that it take them to a long-term plan, for example, 4-years, that is going to bring your monthly payments down, that is how some dealers do it.

Financing a car for a longer-term will bring your monthly payment downs, but, you are borrowing money for a longer period of time, so you do end up paying more money. The other thing is, just because you take out car finance and it last 3-year or 4-years, doesn't mean that you will keep the car.


  • Some car finance companies will say, listen, if you are going to terminate your contract early, then we are going to make you pay a certain amount of fee

But the main thing to be looking out for is the rate you are paying up. The rate you are paying determines basically whether you are getting a good deal or not.


3 Things You Should Be Looking At When Financing a Car

  • 1. When You Are Taking Out a Financing Agreement, Make Sure You Know What It Is.
  1. PCP (Payment Contract Plan)
  2. Hp (Hire Purchase Agreement)

Make sure you understand what is the difference between the two. I will go down into more detail maybe in another article, but make sure you understand the difference between the two, because you are signing a contract to make payments regular every month and it's really important to know that this does not affect your credit score rating.


2. Don't Get Lured in By The Monthly Payments

Their monthly payments are not the thing you should be focusing on that much. I understand people have budgets, that is understandable, but don't be lured in by somebody trying to lower payment from you and increasing the length of a plan. On top of that, remember that the rate that you are getting is really important.


3. When Buying A Car, Think About The Residual Value Of Your Car.

The most important thing is when buying a car you need to think about the residual value of your car, what the value of your car is going to be when you decided to sell it.

6 month or 1 year, whatever your personal preference is, work out how much your car is going to be worth after 6 months or a year, because, when you take out a finance agreement, at the end there is a final payment in a PCP agreement.

If there is a final payment, and your car value in 6 months or a year's time is worth less than the payment you have to make, you will end up owing money. Even if you are not on finance, that is something you should think about.

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