How to set up the best car finance plan

How to set up the best car finance plan

20 September 2022 Concept Car

Car finance is not something you think about for fun. For most of us, it’s a drag and unpleasant and business at best.

However, in our opinion it really pays off to spend a few minutes on a car finance plan. In fact, you may be able to totally change your perspective and save thousands of Pound by doing so!

In this article, we won’t bore you with yet another overview of PCPs and HPs, borrowing vs buying outright and the likes. There are plenty of those on the web already. In fact, we have quite a few of them on our blog.

These are useful and serve a purpose. But really, you should be asking yourself a few basic questions instead.

To be exact, you should be asking yourself seven important questions.

Ready? Then let’s go and help you get the best car finance plan you can get.

#1: Can you actually get a car finance plan?

How much more basic can you get? And yet, few people ask themselves this vital question.

What use is it to even consider your options if you’ll get rejected everywhere anyway?

Here are typical dealbreakers:

  • You’re a student and don’t have a credit score yet.
  • You’re unemployed and/or have lots of debt and/or no savings and/or in insolvency.
  • Or your credit score is very low.

Do you fall in any of these three categories? Then most dealers and banks won’t take you on as a customer.

At CCC, however, we can usually still make it work. Talk to us now about your options at 0800 093 3385 Or simply use our convenient contact form.

Further Reading:
The guide to student car loans

#2: What kind of life do you want to live?

That’s a big question. But just about the right size in this case.

Think about it: What is a car finance plan, really? It’s the opposite of buying a vehicle with cash.

Car finance means paying more in the long run, but less now. For most people, it will mean being able to afford more today, as you won’t spend a huge sum of money in one transaction, thereby depleting your resources.

Buying something as expensive as an automobile will always involve some form of sacrifice. But a car finance plan offers more flexibility, whereas outright ownership usually implies that will you have to cut back on many pleasurable things like going out for dinner or attending a concert or treating yourself to some new clothes.

Those in favour of cash payment have a point. But this, too, comes at a cost. Always be aware of that, before you empty your entire bank account just to save on interest.

#3: Can you live with (yet another) constant debt repayment?

This, then, is the flipside of the argument we just made.

A car finance plan means paying a certain amount every month. For a long time.

Yes, it will mean you now have more money on the bank compared to a cash purchase. But it will also mean that debt repayments will be on your mind for years.

And, as with anything, they quickly add up.

Don’t forget that debt repayments are only part of the total cost of driving a car. You’ll need to add petrol, insurance, road tax, cleaning, check-ups & maintenance as well as potential repairs to the bill, too.

If you already have loans on other purchases from the past, the monthly total can get overwhelming.

So think about this for a while: How much can you add to the burden? And how well do you do under the psychological stress of constant debt?

Further Reading:
Running Costs of Used Cars: All You Need to Know
Can you help me keep car costs as low as possible?

#4: How important is ownership to you?

Ownership is a great concept. In relation to cars, it has a few noteworthy benefits:

  • You can do what you want with the car (within legal limits, of course).
  • You don’t have to worry about mileage limits.
  • You can usually sell the car at any moment. This does depend on the details of your contract, however.

There are different forms of ownership.

Buying a car with cash gives you a totally different sense of entitlement than buying it with a bank loan. And buying it with a bank loan is still a bit different from going to a dealer: The latter credit is usually tied to the car, so you can not sell it off quite that easily.

We personally think ownership is a lot less incredible than many people make it out to be. We do think, however, that it is essential to opt for a model that will eventually allow for ownership, as this offers you a higher degree of flexibility. It’s also good to know you can quickly make some cash if you really need it.

It is also, on a long term basis, a lot cheaper than renting, leasing or constantly renewing your PCP.

#5: What do you actually want and need out of a car?

It’s bewildering that many people never ask themselves this key question.

You can make it a lot easier by breaking things down:

  • How many people will use the car?
  • How much trunk space do you need?
  • Is the car aimed at transportation only or should it also “represent” you at work?
  • Do factors like a car’s ecological footprint matter to you?
  • Does it need to be a fancy model?
  • How often will you need the car?
  • Do you frequently drive long distances?
  • Do you place great value on the latest safety technology?

Interestingly, the responses to these questions will, to a degree, determine which car finance plan is best for you.

  • Leasing and PCPs are great if you insist on always having the most up to date technology and that new car smell.
  • Leasing has the additional benefit of coming with a service package. Which is great if you rack up a lot of miles and thereby subject the vehicle to a lot of wear and tear.
  • Used car dealer finance is perfect if you take a more down to earth approach and mostly use the car for shorter trips.

#6: Are you a fair judge of your own financial status?

Each car finance plan makes some implicit assumptions about the way you handle your finances.

  • PCPs are intended for those who want as much as they can get at the lowest short-term price but at the expense of long term cost.
  • HPs are great if you want a new car, reject very high monthly rates, want stability and are 100% sure you’ll be able to keep paying off the loan until the very end.
  • Dealer loans are perfect for anyone with financial difficulties but the aim of improving and still retaining ownership.

Dealer loans are great as well if you’re looking to reduce your risk. They are a simple concept with very little details. They’re easy to understand and can be perfect if you just want to get a car without having to worry about the kind of fine print that can sometimes make PCPs a cause for concern.

#7: Where do you see yourself in 3-5 years from now?

The question we all dread in job interviews. But a sensible one when buying a car.

Buying a vehicle is a commitment. It says a lot about what your plans are for the next few years.

  • Leasing and PCPs assume that your needs and wants change all the time and that you can never be happy with the same car for a very long time.
  • Loan-based models take the opposite view: That even a used car can be a fantastic, safe and economical choice and that no one needs to constantly have the latest gadgets.

It is true that life will occasionally throw you a curve ball. But that said, especially with dealer finance, you can always talk to your contact person at the dealership to update your contract and maybe change it to a bigger car if the need arises.

Either way – think about your plans and how your car finance plan fits into them. You will thank yourself later for it.

20 September 2022 Concept Car