The ten golden rules for buying a car

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Follow The Car Expert's Ten Golden Rules for Buying a Car

Rule 6. Understand your total financial commitments – now and over time

If you read through the various questions asked on The Car Expert forums, or in the comments of any of the car finance articles, you’ll find countless people trying to find out how they can get out of their finance obligations. It might be because their circumstances have changed, or they have changed their minds, or they have a new job in a different country, or so on.

Usually it’s problems affording the payments, and usually it can be traced back to a lack of thought or understanding of the long-term financial commitment of taking out car finance over four or five years.

Just because you can afford the deposit and monthly payments to buy your ideal car right now, doesn’t mean you can comfortably keep up payments over 36-60 months. This is especially true if you are borrowing the maximum you can afford, leaving yourself nothing to spare if your life expenses start to increase.

If you fail to keep up your payments, the finance company can take your car (or get a court order to take it) and ruin your credit rating, making it impossible for you to get credit for years afterwards. Plus you’ll still have to pay any outstanding balance back, which you probably can’t afford because that’s how you got into that mess in the first place.

This rule is particularly important for younger car buyers. Plenty of young adults save up a deposit and can manage the monthly payments at the start of the term, because they’re living at home and have minimal expenses to cover. But soon they want to move

But soon they want to move out, and have to worry about mortgage payments, bills – you know, real life. Far too many sports cars have been auctioned off by finance companies after young and rash borrowers defaulted on the payments.

The Car Expert ten golden rules - finance commitments

Turns out that he couldn’t afford the payments after all…

Read this article on points to consider before applying for car finance, and make a smart long-term decision.

Next page: Why do I really need to test drive the car?

Stuart Masson

Stuart is the Editor of The Car Expert, which he founded in 2011, and our new sister site The Van Expert. Originally from Australia, Stuart has had a passion for cars and the car industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

12 Comments

  1. hi stuart ,
    is it right that a balloon payment on a bmw new car purchase deal , cannot be reduced by early repayment sums . ?we were told by their salesmen that we could reduce the balloon payment by early overpayments. how much interest is included in the balloon payment,? would it typically be more than the interest accruing in our regular monthly payment on a pcp deal?

    Reply
    • Stuart Masson

      Hi Robert. Normally no, the balloon amount at the end of the term is fixed as it represents the predicted value of the car at that time. Usually overpayments will reduce the monthly payment amount, which includes the interest payable on the balloon. Some finance companies will allow you to use overpayments to shorten the term, but this is less common.

      You pay the same APR on the balloon as you do on the monthly payments. However, you are paying the interest for the whole loan amount (inc. balloon) up-front. Making overpayments will reduce the total amount of interest you pay as you are reducing the amount of debt outstanding.

  2. Hi Stuart, I’m considering taking a PCP out on a brand new Audi S3, I have a considerable deposit that I can put down, 12k to be exact which makes the monthly payments easily affordable but my concern is, that after the 3 or 4 year payment term comes to an end, the difference between the GFV and what the dealership actually values the car at at the time of trade in, the actual deposit I’ll have to put towards another PCP deal will be considerably less and the payments will be considerably more. So 12k inital deposit turns into 2k after 3 years so in effect 10k lost! Are people aware of this?

    Reply
    • Stuart Masson

      Hi Rob. Always assume that you will have no equity over and above the GMFV. If you do, then great. But never start counting equity in advance.

      It’s not so much as “£10K lost” as “£12K of cash lost now but lower monthly payments for three years”. If you put no deposit in, your monthly payments would be much higher and you would also be paying interest on all that extra money borrowed, so your Total Amount Payable would go up.

      (But you are right in that most people seem to be unaware of this; they get sucked into a PCP and then get to the end of it and realised they are screwed when they want to change for another similar car)

  3. These are all really great advice stuart! People really need to bare all of these things in mind.

    Reply
  4. I have a 2016 ford ka which i got last may, i would like to takr it back to garage, how much would i loose on a 48 months finance plan

    Reply
    • Stuart Masson

      Hi Angela. Probably about a third of the car’s value, at a very rough guess. Have a read of our article on new car depreciation for more information.

  5. Hi Stuart I recently sighted a paper at BMW for them to check my finance no handover paper and paid 500 does that mean I am legally binded to the car also the invoice price is much higher than the actual price of car is that correct?

    Reply
    • Stuart Masson

      Hi Jasmin. If you signed a form for them to “check your finance”, this was almost certainly a finance application. The finance company generally does not check your credit score or review your financial situation until they have a formal application – it’s not in their interests and it’s certainly not in yours.

      If you have signed a form and paid the dealer £500, they consider you to have bought the car.

      The invoice price may be different from the advertised price of the car, but there should be a good reason why. If it’s a used car, the advertised price won’t include road tax. Dealers will often also try to throw in an admin fee that may have been mentioned in very small print in the advertisement or on the car’s window display, plus they will almost always try to sell you extras like GAP insurance and other crap that you don’t need or want. Often they will assumptively include this in the finance quotation and hope you won’t demand they remove it later on.

  6. Thanks for the helpful advice Stuart! I’m looking into buying my first car this year- any pointers?

    Reply
  7. Hi
    I am 2 years and 2 months in to a 36mth pcp on a skoda citigo. I have kept up my payments of £124.70 per month this totals £2750 ( approx ) . I want to give up my PCP now and don’t understand if I will have to pay any more money as I have paid for more than 50% of the 3 years could I hand it back without a penalty ?
    Thanks

    Reply
    • Stuart Masson

      Hi Jayne. The 50% point refers to the Total Amount Payable, which is the total of your deposit, the monthly payments, the final payment (GMFV) and any fees and charges. It is not 50% of the term.

      For more information, have a read of our comprehensive guide to voluntarily terminating a PCP.

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