Car Finance – What You Should Know About Dealer Finance

Car finance has become big business. A generation ago, a private car buyer with, say, £8,000 cash to spend would usually have bought a car up to the value of £8,000. The problem with car finance is that many buyers don’t realise that they usually end up paying far more than the face value of the car, and they don’t read the fine print of car finance agreements to understand the implications of what they’re signing up for.
For clarification, this author is neither pro- or anti-finance when buying a car. What you must be wary of, however, are the full implications of financing a car – not just when you buy the car, but over the full term of the finance and even afterwards. Financing through the dealership
For many people, financing the car through the dealership where you are buying the car is very convenient. This blog will focus on the two main types of car finance offered by car dealers for private car buyers: the Hire Purchase (HP) and the Personal Contract Purchase (PCP), with a brief mention of a third, the Lease Purchase (LP). Once you have made your final payment, the car is officially yours. Usually you will end up paying less in total with an HP than a PCP if you plan to keep the car after the finance is paid off.
The car finance company guarantees that, within certain conditions, the car will be worth at least as much as the remaining finance owed. 1) Give the car back. 2) Pay out the remaining amount owed (the GMFV) and keep the car. 3) Part-exchange the car for a new (or newer) one. The dealer will assess your car’s value and take care of the finance payout. If your car is worth more than the GMFV, you can use the difference (equity) as a deposit on your next car.
As part of purchasing a car on finance, you should consider and discuss all of the various finance options available and make yourself aware of the pros and cons of different car finance products to ensure you are making informed decisions about your money.
Stuart Masson is founder and owner of The Car Expert, a London-based independent and impartial car buying agency for anyone looking to buy a new or used car.
The Car Expert offers specific and tailored advice for anyone looking for a new or used car in London.