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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

 

MISSING PAYMENTS ON A LOAN WILL HAVE SEVERE CONSEQUENCES AND MAY MAKE OBTAINING CREDIT MORE DIFFICULT IN THE FUTURE.

 

SECURED LOANS: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE, LOAN OR ANY OTHER DEBT SECURED ON IT.

 

Car finance deals

Buying a new car – whether it is a brand new model or a secondhand vehicle – is exciting. Arranging the finance deal you need to cover the cost, however, is not.

While many people spend hours comparing and contrasting different makes and models and then haggle hard to get the price down, the number of people who take the time to scour the market for the best car finance deal is much smaller as a result.

However, paying over the odds to borrow the money to pay for a car can easily wipe out any reduction you manage to get on the price paid and make the vehicle cost a lot more overall.

In fact, you could end up paying thousands of pounds over the odds, which is why it’s worth understanding the various options and checking the interest rates and charges available.

The different types of car finance

Hire Purchase plans

Hire purchase (HP) plans typically require you to put down an upfront deposit (though in some cases this can be your existing car) and commit to a set number of monthly instalments.

Once all the instalments have been paid, the car – which you can drive from the start of the agreement – is yours.

In the meantime, however, the HP provider has the right to repossess your vehicle at any point if you fall behind on your payments. But repossession is a detailed process not to mention one of last resort. For example, you will first be sent written notice to give you the chance to pay your arrears. And if you can’t, a specific court order is required before your car can be taken back.

It is also worth noting that you will not be able to privately sell the car until you have paid the final instalment (which may be larger than the others) and, while it's worth looking at Voluntary Termination rights, ending the agreement early is likely to result in a penalty. You may be able to part-exchange your vehicle and refinance the existing loan, though this could incur higher interest rates and longer tie-ins.

Personal loans

A low-rate loan is almost always a much better way of paying for a car than a hire purchase agreement. What’s more, you can sell a car to pay off a personal loan should you become unable to keep up with the repayments.

However, the lowest personal loan rates are often limited to loans of between £7,500 and £15,000. So if you were thinking about borrowing £6,000, it may be worth increasing the amount to £7,500 to take advantage of the cheapest interest rates.

If you need to borrow as larger amount, on the other hand, you may find that you can get a lower rate by using your home as security. Just remember that your property will be at risk if you default on the repayments.

Either way, the MoneySupermarket loans channel is a great place to compare hundreds of deals from a wide range of lenders.

0% credit cards

For cheaper second-hand car purchases, a credit card offering 0% for an introductory period could prove the smartest choice.

However, you will need to be disciplined enough to avoid incurring high interest rates at the end of the 0% period.

It is also worth noting that these deals – like the cheapest personal loans – are limited to people with good credit scores.

Leasing agreements

Leasing agreements are basically long-term rental contracts with which you pay a monthly fee to use a car for an agreed period and number of miles.

They are popular with those keen to drive a brand new car without paying for it upfront, and come in two main forms: Personal Contract Hire (PCH) and Personal Contract Purchase (PCP).

With PCH, you can have a new car every few years without having to buy it at the end of the arrangement, while with PCP you buy the car at the end of the leasing agreement. Either way, remember to check the terms and conditions carefully for penalties and extra charges.

 
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