Financing Your New Car – What You Need To Know

Researching a car, customising the spec and hunting down the perfect model is so much more fun to think about than the financials, but equally, if not more important. Cars, particularly the really nice ones, can also be really quite expensive, which means that only people in extremely fortunate positions are able to buy them outright. Most people have to rely on some kind of credit to buy their new car. These are the quick fire facts of all the financial things you need to know before buying your new car to minimise complications and get you on the road as soon as possible! 

Think About Your Deposit, Before You Start Looking

Most dealerships and car sales outlets will need a deposit on vehicles being sold to non-cash buyers. Many businesses will also set a minimum deposit amount and structure repayments around the outstanding balance. If you do not have access to a suitable deposit, the most common types of car finance (hire purchase and personal contract purchase) are unlikely to be available to you.

It’s important that you only use the cash or money you have available to you to pay a deposit and do not rely on unsustainable sources of credit, like short term loans to build up your deposit. Fortunately, payday loan regulations work to prevent frivolous or non-emergency use of this kind of high cost credit. Piling one type of credit on top of another could make you look like a riskier customer to future lenders. As with any form of credit you should be certain you can meet your repayments before you commit to the cost of any kind of credit. 

Limitations Of Car Financing

 In 2018, it was estimated that 90% of cars were bought through the payment plan known as personal contract purchase. This is a secured agreement in which the outstanding value of a car is repaid over a set term (typically, 3 years). This kind of financing can look extremely attractive with low cost monthly repayments. At the end of the term, customers can choose to pay the lump sum outstanding value of the car or trade it in and move on to another model, using the equity in the first car as a deposit. 

Over the term of the agreement, the customer cannot exceed an annual mileage limit, often around 10,000 miles. Penalties for exceeding this limit can be 5p per mile. There is a disagreement amongst experts who say this is not legally enforceable but arguing with the company could leave “black marks” on your credit file. 

If you know that you are likely to exceed this mileage, this payment option might not be suitable for you. In 2020, if your daily commute to work is going to exceed 39.68 miles (and you’re not going to use your car at the weekend), you are likely to be subject to a fee at the end of your contract. 

Check The MOT History Before You Buy To Save Money

Car clocking is the manual winding back of the mileage clock on a vehicle. This practice is expected to have been done to 25% of cars across Britain between the years of 2014 and 2016. This scam could result in £1000s of unexpected costs, simply because certain mechanical expenses and frequent services should be performed after a recommended number of miles. Moreover, whoever is winding the mileage clock back is likely to be turning over a decent profit, because cars with less use are obviously much more desirable because they are considered more reliable. 

Before buying a second hand car, privately or from a dealership, you should check the MOT history online. This can be done via the government website. Prospective buyers will be able to see the mileage record and if there have been any backwards movements. You will also see any regular faults or minor issues with the vehicle. This could help save a lot of money on repairs costs and also give you the peace of mind that your new car is safe and reliable. 

Emily Muelford
Emily is a British writer whose love of car culture is augmented by a fascination with both the European and American automotive markets. Her perspective is uniquely fish and chips.