How does finance work on a car?

footballissue

Hi all,

Im 20 years old and am interested in getting a car and people been telling me everyone is getting finance on a car.

I have absoloutly no idea on how this works? I am looking to get a really good car maybe an Audi A3.

I was wondering how does finance actually work? Like basically i purchase the car i pay a deposit and then i have to pay monthly a fixed fee?

Say if i want to sell the car before the finance is paid, can i still do this?

Cheers any advice would be a great help

C_Ronaldo

basically it works like you said, you make monthly payments over a set period, you could sell the car before the 2 years for example is up but you may be charged for doing so, you would have to ask teh finance company about it,

i never had a car on finance, iv always bought it with my own money

peterg1965

If I may be honest, you are probably aiming a little too high at 20 to run an Audi A3, unless of course you have loads of money, in which case apologies. Dependant on your circumstances a personal loan may be cheaper than finance from a dealer which is secured on the car (called Hire Purchase). You are right, you would pay a deposit and then a fixed monthly fee, maximum of 60 months from a dealer. If you sell the car before the loan or Hire Purchase is completed you are obliged to pay a 'settlement figure' you can pay the finance of at any time before the term completes. Hope you find what you are looking for.

C_Ronaldo

i agree with peter, getting an A3 on HP will be alot, ask around about a loan

DealDrivers_company_representative

There are two main methods: HP, where you borrow however much you need to (simple calculation of car total price less your available deposit amount!) and pay a monthly amount - at the end of the term the car is yours. There are some very good HP rates around on the High St at the moment.

The other is PCP, where once again, beside your deposit, you borrw the balance but the monthly amounts are lower than HP becasue at the start of the term you have a GFV (guaranteed final value) figure agreed with the finance house. At the end of the term, you can choose to pay that GFV lump sum and keep the car, or hand it back to the financer. They will sell it and anything they make over & above the GFV is yours. The monthly amounts and GFV are calculated by the funder by assessing your forecasted annual mileage and no' months you want the deal over (and the spec' of the car you are asking for....a moldovian racing green unpopular car with scary extras and interior trim colour will clearly be given a lower GFV than a sensible coloured and optioned Audi!).

There are loads of cheap apr's quoted on the market but you get nothing for free...and where there's a cheap apr' on a pcp it means the gfv figure will be tragic (!)...so always assess a balance between sensible GFV, apr, and monthly quote.

If you need some example quotes run contact us direct and we can show you a comparison set of quotes on a specific car description of your choice.

Some advice, without knowing your personal circumstances - financing a car you can't afford to buy is just another loan - at your age think carefully about this as putting cash aside for a mortgage, and other needs, may need to take priority over having (& running/insuring) a flash car. If you do decide to 'go for it' ensure you get deal (if you take pcp) that allows you to re-contract your mileage within the term. Some do, some don't..and they won't make it terribly clear when they sign you up. If your job changes mid-term and you end up doing more mileage you'll be stung with a nasty excess mileage figure at the end.

Hope that helps....

icare_4

I am looking at buying a new car. Usually I save up and pay cash, but am looking at the finance deals on offer as they SEEM a good deal. Both the cars I am considering offer an APR of approx 6%. One asks for a small deposit with a lump sum payable at the end of the equal monthly installments and the other asks for a 50% deposit with the remaining 50% being paid off in equal monthly installments by the end of the 3 year term. Both dealers say the deal is giving a flat rate of about 3%. How does this work? Will I really be paying about 3% which means, if so, that I can earn more interest on my money in the building society. I can't get my head round the maths. Can someone please explain? Thanks.

Hermione54

3% flat rate is about 7% APR. Flat rates are extremely misleading - you need to insist on knowing the APR so that you can compare like with like.

iluvmylexus

if you buy a car on hp the finance company owns the car until you make the last payment
thats why the log book records the registered keeper , not owner
you have to settle the finance if you sell the car before you have finished the repayments
the car will be recorded on the hpi register while the finance company have an interest in it

if_i_was_a_richman

Is the HP/PCP guaranteed against the car giving your more value to your finance?

example being, would a £30,000 model be easier to get finance on rather than a unsecured loan

waster_2

iluvmylexus wrote: »

if you buy a car on hp the finance company owns the car until you make the last payment
thats why the log book records the registered keeper , not owner
you have to settle the finance if you sell the car before you have finished the repayments
the car will be recorded on the hpi register while the finance company have an interest in it

If my memory serves me, my recollection was that by law the HP company only “owned” the item (in this example a car) until a certain proportion (50% rings a bell) of the loan is paid off. After that, the ownership rests with the person who took out the loan, with the HP company having the same remedy as any other credit provider in a default situation.

Not got time to check so may be off the mark.

Idiophreak

It's worthy of note that if you decide to go with finance at a dealer, you shouldn't mention this til you've discussed price - if you're taking a 0% deal, they'll just make you pay more on the price. (I'm sure this is mentioned in an article of martin's somewhere?).

I got finance on my car, because I was too lazy and in too much of a rush to sort out a personal loan, but I got a good rate from the garage anyway, so probably only lost out on a couple of hundred overall.

OP, as others have said, be careful when deciding to buy a good car so young...I'm 24 and I've got an astra (not too fancy) that cost about 9k - payments are £270/month + tax, insurance, petrol, parts etc...It adds up.

If I'd have got a more basic, but reliable car (say £3k), I could have cleared it by now and be livin it large