With the ongoing pandemic and ever-changing restrictions, chances are you haven’t set foot in a dealership for some time. Despite most car-buying experiences being online for 2021, financing your new set of wheels still comes down to the same principles.
As of January this year, the FCA has quashed down the commission rates that once pumped up prices on the showroom floor. So for the first time in a decade, buying a new set of wheels has never been as affordable.
Getting over the first hurdle of purchasing a vehicle doesn’t need to fill you with fear. Here’s our rundown of how to finance your car the right way in 2021.
Know your finance options
Despite the finance industry’s evolution over the years, there are still only three core finance options available for buying a vehicle. In a nutshell, they look like this:
Hire Purchase (HP)
The one that requires the least collateral against you.
Easily one of the most accessible financing options to go for, HP is secured against the vehicle itself. Until you make the final payment, you can’t sell the car without the lender’s permission, but you can return it.
Typically, you place a 10% deposit down before making your monthly repayments with interest during the fixed loan period. Once you have paid back all your instalments, the car is yours outright. Just make sure you never miss a payment, as the lender can repossess your vehicle.
Make sure you check out all the terms and conditions to see if servicing is included.
Personal Contract Purchase (PCP)
The one that allows you to change cars more frequently.
Quite simply, PCP typically involves you paying a deposit followed by low monthly instalments over a fixed period. Once done, you can either pay a “balloon payment” (lump sum) or purchase the car outright. If you then want to sell the vehicle privately to pay off the remaining balance or return it, you can.
As you are essentially hiring the car, make sure you stick to the agreed mileage limits and keep the vehicle in a good clean condition. With the added chances of penalties, a PCP may be less cost-effective than an HP if you intend on keeping the car.
Personal Leasing (Contract Hire)
The one where you are less tied to your vehicle.
Like PCP, personal leasing comes with low monthly repayments but without the option to buy the car. This one typically comes with a hefty three month’s rental in advance, which is determined by your agreed mileage, type of car and length of the contract.
If you go for personal leasing, make sure you stick to all your agreed terms to avoid penalties. It’s also worth reading your terms and conditions with a fine-tooth comb before signing on the dotted line to avoid being stung with servicing charges too.
Before signing any financing deal, make sure you shop around for the best rates on the market. Be mindful of APR vs the total amount repayable, as well as any additional admin fees. If you are hesitating to go for financing due to poor credit history, there are bad credit car finance options available.
Don’t opt-in for all the additional extras
Although a red flag has been raised with the FCA, dealerships still reap commission benefits from all the added extras they try to sell you. Not all of them are necessary bolt-ons to your finance agreement and can often be found cheaper from a third-party. So be mindful of:
- Minor damage insurance – covering an array of cosmetic damages like scrapes and bumps that can affect the value of your car when it comes to the end of its lease plan. As an added extra, they might try and sell you an alloy wheel and tyre cover.
- Asset protection insurance – this covers the gap between the current market value of your car and your outstanding loan. Should your vehicle get stolen or lost, it also covers the cost of replacing your vehicle.
When faced with the option of additional extras, you are free to look elsewhere for a better price or if you’re feeling brave enough, ask for a discount!
Future-proof your options
From 2030, you will no longer be able to purchase a petrol or diesel-fuelled vehicle as part of the government’s “green industrial revolution.” So as the UK moves towards a zero-emissions roadmap, it’s worth future-proofing your finance and vehicle options.
London’s Ultra Low Emissions Zone (ULEZ) is a world-leading initiative that was set up to tackle the city’s toxic air pollution. After several studies evidencing how nitrogen dioxide (NO2) and particulate matter (PM) coming from transport contributes to shortening life expectancy and damaging lung development, the scheme was rolled out back in April 2019.
Unless your vehicle complies with the strict ULEZ standards, you have to pay a daily charge to travel within the zone. Before travelling, you can use the ULEZ checker to ensure your vehicle is exempt or if you will have to pay the charge.
The ULEZ initiative has proven so effective that other cities like Oxford, Bath, Aberdeen, Bristol, Cardiff, Cambridge, Derby and others will be rolling out the scheme. So as 2030 draws nearer, there’s never been a more pressing time to get your hands on the most compliant vehicle out there.
So before making your next car purchase, take a look at the electric vehicle (EV) market first. With a rapidly growing EV infrastructure sweeping the country, as well as various at-home electric points available, you’d be hard pressed not to find a worthwhile deal.
Are you ready for the future? Financing your car has never been more simple. More affordable with the FCA stomping down on unnecessary commission and more accessible for any credit score, 2021 is the time to get ahead of the financing game.