Friday 6 December 2019

Plan now to finance your new car - but be wary when offered 'deal of the century'

Focus on finance

Do the maths: Check what suits you and what you can afford when choosing a finance package for your new car
Do the maths: Check what suits you and what you can afford when choosing a finance package for your new car
Eddie Cunningham

Eddie Cunningham

Now is the time to plan for your 2020-reg purchase - if you haven't already done so.

For those of you lucky enough not to need a finance deal of some description - you can look away now.

However, the fact of the matter is that most people will need full, or partial, finance to get themselves into a new motor.

The problem is that there are so many options out there you need time and a touch of clinical assessment to make sure you get the best deal going.

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The most important thing is to realistically calculate how much you can afford on monthly repayments. 'Stress test' the figure you arrive at. Can you cope with that outlay if your income, for whatever reason, were to dip a bit?

Don't, for example, take discretional income (such as overtime or a nice-little-earning 'nixer') into account. They can dissolve quickly. Then what would you do?

Insulate yourself from such a nasty shock by being conservative in what you can afford to pay each month.

That also involves making the distinction between 'afford' and 'want to'. There is always the risk of going the extra few euro to get the next trim level.

I'm not being a spoilsport here but you need to be disciplined, especially if, as is the case for so many now, your mortgage, school fees, medical bills await payment on a regular basis.

So, while it can be tempting to increase the repayment budget when you test drive a new car, just stick to the sum you clinically calculated.

Personal Contract Plans (PCPs) are big favourites but you need to read the small print to make sure you meet all the conditions - such as the mileage allowance. Lots of people sign up for 15,000km a year when they really need 20,000km.

That involves paying for every excess kilometre.

Remember too that hire purchase and personal loans will have higher monthly repayments than a PCP.

That's because the latter defers a bigger chunk of the amount to be repaid (balloon payment) to the end of the (usual) three-year term.

Ask the dealer, bank or credit union to explain any conditions attached to your finance product.

That will also help you focus on the overall cost.

And do you want to own or 'lease' the car? You can buy it outright at the end of a PCP deal (or renew, or hand back the keys and walk away).

If you wish to own a new car then maybe a bank or credit union loan could work better for you.

Always remember that, generally speaking, where PCPs or HPs are concerned, you don't own the vehicle until the final payment has been made.

Finally, try to think not only about this deal but the next one - especially where a PCP is concerned. Be aware that you may have to come up with hard cash to supplement what will go towards your next deal as a deposit.

I'm sorry if this all seems a little negative but I have had a few sad tales this year of people not thinking through the deal and finding themselves having to borrow to scratch a deposit together for their second PCP deal.

The problem arises where the guaranteed future market value of a car is not much different from the prevailing value of the market.

Essentially that means there may be little equity (difference between a lower-price guaranteed sum and what the car is really worth) for you to use as a deposit.

That's something you can affect now.

Maybe go through those figures one more time?

THE DEALS

Compounding all that, in a positive way, is the number and variety of brands' incentives ranging from zero per cent finance to special scrappage deals to a variety of purchase and lease plans which are potentially worth hundreds, if not, thousands of euro.

Nearly every brand has the 'deal of the century'.

But the only thing you should focus on is: What's really in it for you?

Take a lot of time understanding what any given offer really entails.

One thing I constantly harp on about is, regardless of brand or offer, that you should check if the repayment/subscription/scrappage amounts are calculated or based on the 'full' quoted price of the car.

Ask if you can first negotiate a discount as is often the case where people buy in more conventional fashion.

The difference, especially if you haven't a trade-in, can be an asking/selling price that's a couple of thousand euro lower.

If you can establish that then you'll know if you are paying interest and/or repayments that are based on a higher price or not.

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