Car Finance – what can you afford?
11 July, 2017
We cover your options and tell you how much that Porsche would cost a month. Sigh…
A man’s wheels are important (well, so you tell us!). As well as carting around children and elderly relatives, they also offer the means to escape every now and then and, if chosen right, to look cool. Whether your tastes run to a hot hatch or a sturdy SUV, you need to decide how you’re going to pay for it.
While cash is usually a more sensible option than taking on debt, not everyone has that luxury. There are plenty of other options to spread the cost:
Personal loan: You can take out a personal loan to pay for a car. This has certain advantages. It’s usually cheap, it’s pretty easy to compare loans and it gives you a pot of cash for bargaining with the sales negotiator.
There are plenty of price comparison websites, including USwitch (https://www.uswitch.com/loans/) and MoneySuperMarket (http://www.moneysupermarket.com/loans/). You can decide which of the ads are the least offensive. You should look at the headline rate, the period over which you are paying back, the monthly repayment and the fees.
Another option is to look at one of the peer to peer lending sites, such as Zopa (http://www.zopa.com/). The rates tend to be a little higher, but sometimes changing the length of the loan will make a difference. The lending criteria are different, so it may be that Zopa will give you a loan where conventional lenders won’t and vice versa. Just be aware that you’re not borrowing from big mainstream banks (that’s the point, right!?) and you’re taking on a bit more risk than with Big Boring Bank.
Hire purchase: These will be offered by some of the dealerships, often for both new and second hand cars. Terms vary, but usually you’ll pay a deposit up front and then a number of monthly payments (usually over 12 to 60 months). The loan is secured against the car. The car is only yours at the end of the term.
There are a range of cars that have hire purchase finance offers in place. There are everyday yet flash cars, like the Audi A4 Avant Sport Ultra, with 35 monthly payments of £309 + VAT and a deposit of £1.854. New, this baby would cost about £27,880. Then there are mid-range yet flash cars such as the Range Rover Evoque, which on average starts with 36 monthly payments of £399 with a deposit of £8,730. And then there are the dream cars – the Porsche 911 Carrera Coupe starts with 35 monthly payments of £700.08, with a hefty £19,400 deposit. Something to suit everyone (although not everyone in the family might agree that a Porsche is a fundamental part of the household expenditure).
(Note: these numbers were correct as at Feb 2017 but will change - use as a guide only!)
Leasing: leasing operates more like a long-term rental. These are available from specialist leasing companies – check them out here (https://www.moneysupermarket.com/car-leasing/) – or from the car dealers themselves. You will usually pay an upfront rental, monthly payments and have the option to make a balancing payment at the end of the term. It’s also worth bearing in mind that you may have restrictions on the amount of annual mileage you can do (usually around 8,000) a year.
It’s worth checking out whether any of these agreements come with sweeteners, such as free servicing. That can be worth a few quid, even if you’re buy a new car.
One additional note: Tread very carefully when it comes to any additional insurance such as payment protection insurance or GAP insurance cover – it can be expensive and may give limited cover.