Buying and running a car

       

Gordon Martin

Aside from a house, a car is one of the most significant purchases you can make, so doing your research and finding the best solution to achieving your aims can save you cash and take the stress out of what can be a tough decision.

Gather a deposit

One of the greatest principles on buying a car and saving money often comes with the idea of saving for a larger deposit up front. While it is a good idea to take advantage of the many types of financing deals available in the market, upfront payment will reduce the total amount of time that you have to pay back a loan and help you to save more on the cost of your car.

Saving up a substantial deposit could potentially knock hundreds of pounds in interest payments off the total price you end up paying for a car. Make sure to check out all best buy tables and use their repayment calculators to see how much a loan will cost you each month. Play with the variables such as the amount of deposit you commit and the term. If you are unsure make sure to get some independent advice before committing to any form of financing.


A car is a significant purchase

Dream cars

Here is a list of dream cars should money be no object!

  • Aston Martin Vanquish
  • Audi R8
  • Porsche 911 Turbo
  • McLaren 650S
  • Ferrari 488 GTB
  • Lamborghini Aventador
  • Rolls-Royce Phantom

How to pay for your car

There are many other ways that you can save to pay for a vehicle or to cut extra costs out of the total borrowing amount that you need.



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Loans

You may be able to find a loan that is available at a substantially lower price than you can receive any type of dealer-based financing. Depending on your credit it may be a much better idea to consider going to a specific financial institution to get a personal line of credit or bank loan at a potentially a lower interest rate.

Manufacturer finance

Certain manufacturers may have a finance plan for their own vehicles which you may want to consider. Working with the manufacturer to purchase a new car could mean getting a competitive deal as they can play with their margin.


Car finance to purchase a vehicle

Work the dealer

Working with the dealership to discover which dealer can offer some of the lowest finance plans with your current financial situation may bear fruit. There are some very low rate deals available out there as purchasing incentives. Shopping around not only for a vehicle that you like but for a finance plan at a local dealer, makes a lot of sense. Make sure to check the total cost of the finance to any total purchase price for a car when comparing.

Leasing a vehicle or a personal contract plan

Rather than financing a vehicle it may be an idea to consider a lease depending on the amount that you need to drive and what you are buying the car for. If you are planning on keeping your mileage fairly low on the vehicle, a lease may represent a way that you can save on maintenance costs and perhaps upgrade your wheels more frequently than if you purchased the vehicle outright. By using some of these strategies you could potentially find a vehicle at a considerably lower rate or a financing rate that could be much less expensive for you to enjoy over time.

Understanding the cost of borrowing

The cost of borrowing with any type of vehicle can sometimes be a confusing process. Comparing interest rates and discovering what a vehicle might actually cost by the time you have it paid off can be much higher than you think. This means that by saving up a down payment you could potentially knock a good chunk off the cost of the car outright. It is not uncommon for prospective purchasers to focus on the retail cost of the car or just the monthly repayments. Make sure to factor in all costs when evaluating which deal is for you. It maybe the case that once you have crunched the numbers that you decide that the car that you thought was for you might not be affordable. Better to find this out before you commit to any financing deal or making a purchase that you later regret.

Begin with saving in advance of a purchase

Before you start looking for your dream motor, start by opening up a new savings account where you can earmark what you would typically expect to spend on a car loan plus the amount that you want to put aside for the contingency fund mentioned above. Generally, this means paying around 133% of what you would want to pay for your car loan each month. When saving for a down payment you can add-in some of the other costs that you would have allotted for maintenance, insurance etc. and place all of these funds into a savings account to start building up a fund that could be used as a respectable down payment. After just a few months you could potentially have a good chunk of change set aside that could be put towards a down payment on a loan or a bit of negotiating power to get a better interest rate.

Working with your financial institution to find the best short-term growth savings account could be a great option as well. You could even set up a standing order from your current account to ensure that a certain amount of money will be filtered into that account automatically each month. This can increase your financial discipline as you are not consciously transferring money each month. It is also good practice to get used to the amount a loan would cost you monthly. You can continue to adjust the standing order after you get your car loan set up so that your savings can continue to grow at a rate that is comfortable for you.

Questions lenders ask

Before you apply for any type of finance it is worth considering and preparing for the questions a prospective lender may ask you or want to know more about.

Consider where you work and the security of your income before you apply. How long have you been at your job and what are your prospects going forward?

What do you pay other lenders per month and how will that impact your ability to repay their loan if they were to grant it?

How much money do you have in the bank? How much do you have saved in stocks, bonds, mutual funds and other assets?

Plan, plan and plan again

Having access to an extra emergency fund in the form of the extra money that you are putting into your savings account each month can really help you prepare for a variety of unforeseen expenses. When your car is a few years old and no longer covered by a warranty, a garage bill could give you a nasty shock. When unforeseen expense like a full brake pad replacement could cost £300-£400 with labour crops up, you may not have the funds to cover the bill. You could look at a payday loan but if you have an emergency fund, then you can cover those costs for less. This level of planning will help to make sure that you can keep your car on the road while also having the option to pay down the total cost of your loan if the car is serving you reliably.

Determining what is affordable

This goes without saying and applies to any form of financial commitment but make sure you can afford to meet the repayments, not only when times are good but when times are less good. For example, what would you do if you lost your source of income? How would you maintain your payments? Savings may cover the gap but for how long? These are the sorts of questions you need to ask yourself. Another strategy is to budget for overpayments. Say the monthly repayments are £250 a month, you could set aside £350 and use that surplus as the contingency. Setting a savings goal of a third of your car loan for example, will help to prepare you for any unforeseen costs with the vehicle or even have a fund that you could use to pay off the loan early.

By using a savings calculator and seeing how quickly these deposits can start to grow, you will be able to see what £50 or £100 every month could potentially lead to over the entire duration of your loan. These types of savings could mean cutting a full third of your loan out which could save you hundreds of pounds. It can also help you to prepare for any unforeseen expenses when the warranty of your vehicle has run out.

Keep in mind the total cost of the car

As your savings account continues to grow it can be very tempting to consider spending the money on something other than a vehicle. Although a few hundred pounds off of the price of £10,000 vehicle may not seem like a huge amount of incentive to maximise a down payment, the financial freedom that you can experience later on with your savings will be well worth it. Plucking some figures out of the air, for every £100 that gets added into your savings account, this could continue to represent as much as £20 off of the total cost of your next vehicle in interest payments if you are willing to put that money into a down payment. As well as reducing the overall cost of borrowing, you may also be giving yourself an element of future financial freedom. By reducing the overall monthly costs of your vehicle and having the option to pay down your loan faster, you could own your vehicle in less time which could represent considerably more savings that you could be making every month.

Conclusion

Look at all the options when looking to buy a car. It may make sense to buy outright, get some form of financing or even lease the car. It all depends on your own circumstances. What works for one person might not necessarily be the right option for another. Keep some of these top tips in mind and remember it is always wiser to consider using a down payment and continuously saving money to pay down your car faster and prepare for expenses, even if you have a car loan at competitive rates.

Give us a shout on any of our social media pages with your thoughts on any of the concepts raised in this guide. For more information on the subject of car buying check out this article.