YOUR GUIDE TO: FINANCE
By Steve Bell, Tuesday June 10, 2008
Choosing the right car at the right price is one thing, paying for it is another. If you’re looking for finance, the package your dealer offers you is far from the hundreds of others available. How do you spot a good deal? Make sure your quotes includes the annual percentage rate (APR) and the total amount payable by the end of the term. Compare with like for like, too. Has accident, sickness and redundancy cover included in both quotes? Think about whether you really need this cover, and look into arranging this seperately – you may be able to save money. Check all the details and don’t just focus on the rate or monthly repayments. Look at the total repayable amount to understand exactly how much a loan will cost you over its lifetime. A dealer should provide you with a written quote upon request, so don’t be fobbed off with excuses. Get everything in writing, so you can confirm an offer later. Shop around. Don’t assume that the dealer is the best place to get your finance. Many internet companies now provide competitive loans. Haggle. A salesman will not offer you their best deal straight away. Bargain hard and you could make some worth-while savings. Don’t be talked or tricked into something you’re not sure off. It’s easy to get confused with numbers, so if you are unsure of something, say so. Don’t sign anything that you don’t understand.
What if I’m turned down?
Don’t be surprised if a lender turns you down, especially if their rate is high. However, if several providers give you the cold shoulder, then your credit rating score is not up to scratch. Every financial purchase you make gets registered with credit reference agencies. They moniter your repayment success, so if you miss one or two, then you affectively get a black mark. If you continue to miss or make late payments, then your credit score reduces. The lower the score, the lesser chance you have to get any finance at all. If you continually miss or are late with your credit repayments (even from 3 months to 10 years) then you will be blacklisted. Your only chance of redemption will be to make sure you do a couple of easy tasks: Don’t go overdrawn with your bank account. Don’t default on any direct debit payments and most importantly, pay back your debts with your creditors. This all adds to your credit score. You can then slowly build up your credit score, but this may take some time.
Are there any catches with 0% finance?
0% interest is exactly what it says. Getting anything free is very rare, but with any zero per cent finance there aren’t any catches in that sense. However, you may find that these deals require a larger deposit and repay over a shorter period than the average finance deal.
I’m planning to use the equity in my house, is this better than a loan?
First of all, make sure that the new mortgage repayments are affordable. The APR on the mortage will almost certainly be lower than with a personal loan, but you’ll probably be paying back your repayments over a longer period. Personal loan repayment terms are also slightly more flexible, and generally you’ll be paying back less. Remember, if your use any security against your home, then you’re always playing with fire. A heafty re-mortage is sometimes the only way for some to afford a more expensive car, but, always do your homework and shop around as you may find that you can get a personal loan at a more affordable rate.
I’ve received a windfall. Can I pay off my existing loan off early?
More often than not you can, but read the small print. The lender will calculate what is left to pay on your agreement which will also include any interest, and let you know what is owed. This is known as a “settlement figure”. The amount calculated to ‘pay-off’ will generally stand for a 1 month period. After which the figure will be re- calculated again (this is due to varying APR’s). Always weigh up the pro’s and cons. Sometimes you’re better off waiting towards the end of your agreement before you settle. You can ask for a settlement figure at any stage of your agreement, and this will be given to you free of charge. If you do pay off your loan early, then this will also boost your credit score.
Can I hand my car back?
In some cases, a hanful of lenders will allow the client to hand the car back after a certain period of time, which is generally 18 months after the agreement was taken out. If you take this option, you are then free from any further charges – the lender has already got back the debt and also earnt plenty of profit at the same time. This can be useful for those who may get into financial difficulty. They will sell your car at auction and pocket the profit made from the sale. Either way, the lender is in a win-win situation. Ask whether they have this option in their terms and conditions.
I’ve defaulted on my repayments, will my car will be repossessed?
Your lender can be flexible and in most cases help with your financial difficulties. You must keep them up to date on your situation and ask whether they can reduce your monthly repayment fee. If so, then this has to be agreed with your lender. If you continue to not pay or break any agreement made, then they’ll start to recover the outstanding debt. If you are unable to do pay back the outstanding debt, then arrangements will be made to have your car repossessed. This is handled by an outside company who will remove your car even if Police enforcement is required. The lender will sell your car at auction, and whatever difference is left from the sale and your outstanding debt, will have to payed back to the lender plus any interest they may charge.
I have a bad credit score and a Count Court Judgement (CCJ). Can I still buy a car on finance?
Yes. There are many creditors who will be able to get you car finance. But be aware. Instead of assessing your credit score, the lender will place the finance (debt) against the car you want to buy. An agreed repayment term may sound affordable, but a huge amount of interest will also be added to the deal: High risk finance. You will also find that the loan will be spread over a longer period of time (5-8 years in most cases). You may get the car you want, but the APR rates are too high. It’s not uncommon to pay up to 35% interest – normal finance APR’s average at about 9%. Don’t think you’re safe with this sort of finance deal, though. Legal terms and conditions still apply.
How do I get a copy of my credit history?
There are two credit reference agencies in the UK. Experian and Equifax. They have your complete credit history record. Experian offer a free service which includes a very detailed credit file, whilst Equifax offer a similar service but with much less information, and they charge £2.00 for the privilage. Once registred on Experians website (you’ll need a credit card for this) you’ll be able to read through every credit check and every finance purchase you’ve had or made. Depending on your repayment loyalty, a simple traffic-light system at the end of your file will determine how likely your are at obtaining further finance. Red: obviously means you are unable to get any credit, Amber: you stand a low chance and, Green: you’re credit history is very good. This is definately worth investigating before you apply for any finance deal.
One final point worth remembering:
Every finance application you make, whether it is for a mobile phone, a fridge or car, will be registered with these two companies. The more you apply for finance and are declined, the worse your credit score becomes.
Useful links:
Experian
Equifax
