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Next you need to obtain quotes based on the budget you've calculated. It's tempting at this stage to stretch repayments over four or even five years to increase the amount you borrow. Don't, because you'll pay too much in interest charges and by the time the loan is repaid, the car will be ageing. Three years is a sensible maximum.
When comparing quotes, look at the annual percentage rate (APR). The lower the figure, the cheaper the loan. Sales people love to quote the 'flat' rate for finance because it is usually about half of the APR, and sounds cheaper. But the APR is the only real yardstick of the difference in loan costs. Lenders are obliged by law to tell you it.
Also look at the total cost of the loan. This is amount borrowed, added to the deposit, interest paid and other charges.
Example:
Peugot 1.1 LX 3dr £8440 on the road
Deposit £1500, agreements over 36 months
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| | | Peugot HP | | Peugot PCP | | AA Loan | |
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| Monthly | | £233 | | £149* | | £225 | |
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| Final Payment | | nil | | £3799 | | nil | |
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| APR | | 14.4 | | 14.0 | | 9.9 | |
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| Total Paid** | | £9967 | | £10,729 | | £9592 | |
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*37 monthly payments
**includes deposit
Before you sign up, ask what happens if you need to end the agreement early. With some, you'll receive a discount. But with others you'll pay as much as if you'd kept going until the end. And, in rare cases, you may pay a penalty.
If you pick the car before the loan you need is confirmed, make sure that 'subject to finance' is written on the dealer's order form. This document is legally binding and you must ensure that you won't be forced to buy the car if your finance application is rejected.
Now whenever your heart says 'buy this car,' your head has the relevant finance information to say yes or no.
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BACK TO BUYING A CAR HOMEPAGE
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