Many motorists have become exposed to the benefits of buying a new vehicle on a finance agreement. For many, it is a good financial method to fund a new vehicle without the stress of saving the entire cash price. Whilst interest is often paid on top of the vehicle’s overall price, the cost can be paid in affordable monthly payments across an agreed fixed term. Generally, the longer the term, the smaller the monthly payments, however, more interest is added — but the shorter the term, the less interest you will pay. There are ways to reduce the final amount you will end up paying. Here, car dealers, Lookers plc, explains how you can keep the cost of your finance agreement down.
You can choose to part exchange the current model of your car when arranging a new finance plan. Often the most obvious way, using your vehicle as a part exchange can be substituted as your deposit. The car dealer ‘buys’ your vehicle from you and deducts the vehicle value from your new vehicle value so that the final payment you owe on the vehicle will be reduced by the value of your current vehicle. What’s more, you avoid the inconvenience of having to sell privately.
It is important that you can get your monthly payments to suit your monthly budget — you don’t want to over-commit. If you fail to meet your monthly payments, it will go against your credit score and limit your borrowing potential for other products and services, including loans and mortgages. When it comes to calculating monthly payments, you can choose how much deposit you want to initially put down on your new vehicle. The more you can pay upfront, the less you will owe over the length of the finance agreement — meaning monthly payments will be lower and the final payment at the end of the agreement is also likely to be lower.
If you have a monthly budget and lower monthly payments are a priority, then a lengthier finance agreement is probably the road you should go down. This is because you have a longer period of time to pay off the finance company, meaning the value is split across more monthly payments, with a lower value to pay at the end of the term.
However, the longer the period you take the finance agreement over, the more interest you are likely to pay because you are borrowing over a greater duration. Choosing to take the finance over a longer period means you are likely to pay more over the full term. By opting for the shortest term possible, you limit the amount of interest accrued overall, meaning the overall amount you pay is likely to be less than a longer finance term.
Of course, the best way to finance a new vehicle is dependent on individual needs and the budgets of each driver. Only you will know the most affordable way to buy your new car. Before you head to a dealership, have a monthly budget in mind, consider how long you want to finance a vehicle for and decide how much deposit you can afford. Having these details at hand will make the process smoother and give sales executives the best possible chance of finding the right vehicle and payment plan for you.