Rule 6. Understand your total financial commitments – now and over time
If you read through the various questions asked in any of the car finance articles, you’ll find countless people trying to find out how they can get out of their financial 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. Plus buyers tend to forget that cars cost money to run – a recent study found that the average is £160/month, and that doesn’t include finance payments.
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.
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?