Are you looking at financing a car? Here’s 6 facts you need to know


Buying car insurance is a major decision which you must think carefully about before getting into.  From buying outright with cash to applying for car finance, you must consider the total costs over the long term plus the cost of insuring the car in case there was a theft or an accident that may cause a complete car write-off. The following are some facts you need to know about car financing that will help you make a better decision. 

Monthly Costs of Buying with a Personal Loan Can Be Higher than Other Car Finance Options

Personal loans may look like the cheapest alternative to buying a new car with cash, but the monthly costs can be higher than other finance options. A personal loan can be obtained from the bank, building society and private lenders. It is possible to spread the cost of personal loans for up to 7 years. a personal loan can be obtained over the phone or face-to-face. It is possible to get a competitive fixed interest rate when you take the time to compare your options. While private lenders make funds available almost immediately, you will have to wait until all paper works are completed to have funds disbursed into your account.

With Hire Purchase Car Financing, You Don’t Own the Car Until Complete Payment

Hire purchase has become another alternative option of owning a car. In this case, you will have to make a 10% down payment and then make a fixed monthly payment over some time. For this reason, the car will not be yours until you make the last payment for it. The higher purchase agreement is normally offered by car dealerships and these finance options are competitive for new cars but much less competitive for used cars. Hire purchasing is also easy to arrange, and a flexible repayment of between 12 and 60 months can be arranged. One of the main disadvantages is that it is more expensive for short term car financing.

You, Will, Incur Huge Debt on Car Financing Without Gap Insurance

Car insurance can create a huge debt for you especially when you are involved in an accident and the car is written off or when the car is stolen. Your car insurance company will only pay you the current market value of your car, which means you will owe your lenders or car financiers money that has not been paid. The gap insurance company will cover the costs you owe your car finance lenders plus the current value of the car. Since the values of cars depreciate quickly, gap insurance will be a great option to cover the drastic depreciation.

Exceeding Agreed Mileage Will Cost You More under PCP Car Financing

The Personal Contract Purchase (PCP) is a type of car financing that is similar in many ways to the Hire purchase agreement, but in this case, you have to make lower monthly payments. While the monthly car financing payments are lower, the total amount you will pay will be higher in the end. Under the PCP, you will get a loan for the difference between the price of a brand new and the expected value of the car at the end of the hire agreement. The hire agreement is based on a mileage forecast over the term of the agreement.

At the end of the PCP term, you may trade the car with another and start the process all over again or simply hand the car back to the owner and pay no extra fee. Under this agreement, you may also make a final payment which is also referred to as “Balloon payment”, which is normally the resale price of the car, then you can keep the car for yourself. The problem with this arrangement is that you will have to pay more if you exceed the projected maximum mileage. You will also pay extra fees if you leave scratches and dents on the car, and your outstanding balance may be very high if you want to keep the car.

A Car Will Never Be Yours Under the Personal Contract Hire (PCH) Car Finance

Under the Personal Contract Hire (PCH), you have to pay a fixed monthly price to a dealer, and you will have to pay for servicing and maintenance of the car, and a certain maximum mileage is imposed. With the PCH, you don’t have to worry about the value of car depreciating. Aside from the fact that monthly costs of financing are higher with the inclusion of maintenance and servicing costs, exceeding the maximum mileage under this agreement may cost too much that you may likely want to abandon the agreement.

 Doubling Your Down-payment Will Save Your Money on Car Financing on the Long Run

Having enough savings for down-payment for a car makes a lot of financial sense because you can reduce the term of repayment, which will save you lots of money. In most cases, most car finance lenders and banks will probably consider lowering interest rates when you make a bigger initial deposit for your car.


You need to conduct some research about your options when it comes to car financing. You may want to use an online budget planner to work out how much you can afford every month to meet up with your car finance repayment and meeting up with other debts you have to repay. You should be aware of penalties involved when you default in repayment occasionally and other available options if you can’t meet up with terms of a car refinance options, any longer.

It is also important to pay attention to your total cost of borrowing, which include the full charges over the complete loan term. You need to pay attention to penalties that may come with early repayments, these charges may include the ones imposed for exceeding the maximum mileage. It always pays if you can get Gap insurance to cover the debt you may incur when the difference between the current value of the car and amount you borrow is huge.