Anishvin on YouTube did a great intro video into the UK car finance landscape. I did a quick transcript below with some artistic license.
Some obvious things you need to calculate, some not so obvious. NOTE: He is talking about the UK car finance industry specifically & his expertise lies in high end vehicles.
Check the time codes on the left – Video is here > https://www.youtube.com/watch?v=InSMcjLozUw
0:19 Not a lot of people finance their car sensibly using car finance
0:25 Generally you are looking at car financing because you do not have the money available to buy the car
0:33 Different types of car finance, the best option for you will depend on your situation and how much you earn
0:37 Biggest issue with car dealers when it comes to car finance is that when you walk into a dealership the first question they ask you is “how much can you spend a month” – What can end up happening is that you end up paying a lot more for the car than what the dealer told you
1:10 Depending on the deal, the amount you pay up front can be offset and count against the payments at the end which means you end up paying a lot of interest because you are paying the interest on the full amount as your initial payment is not used against the total amount, your initial payment is used on the money that is left over at the end of the deal period
1:20 Hire Purchase. You put a deposit down, say 10% of the value of the car. Then you pay the rest of the money owed on the car over the period of the agreement. So if the car is 50K, deposit is 5K, and the length of the hire purchase agreement is 48 months. Your monthly payment is 45k divided by 48. Interest will be charged on the money borrowed which depends on where you are, which country. Two types of interest, at least in the UK. Flat Rate and APR. Flat rate is the amount of interest you would get if you put the money in the bank. This is interest rate you should be looking at
2:10 Financing a car can be because you don’t have the money to pay for it up front but you can also use financing because it is a better use of your money ie better than having all the money tied up in the car from the start. If you buy an Aventador and you finance it with a flat rate of 3%, flat rate not APR, if frees up the 300,000 pounds you would have tied up in the car if you bought it, and allows you to use that money elsewhere where you may be able to get a higher return than the 3%
2:40 Supercar finance works differently to financing on normal cars. This is especially true if the supercar is desirable and if there is a waiting list. You may end up paying more than the sticker value of the car but if you choose correctly, the car may end up being more valuable at the end of the finance period than at the beginning
3:08 Normal cars. You are going to be paying extra with the finance plus you are losing money through deprecation. The difference between the amount you pay compared to the value of the car at the end of the terms could be big, in which case financing may not be the best solution.
4:00 The longer the financing term, the smaller the monthly payment but the bigger the total amount paid. The smaller monthly amount may make you think it is cheaper when it is actually more expensive.
5:10 End the contract early. Some financing companies will make you pay a fee others wont
5:30 Interest rates. In the UK all advertising, all prices quoted to you will be using APR. Only use your money to buy a car if that money is not being used elsewhere
6:30 You do not want to be in a position where if you want to end the contract early, the financing company comes back to you and says you owe use money. (presumably because the value of the car has gone down faster than what was anticipated when you first took out the financing deal. You want to be in a position where at a minimum you dont owe the financing company any money, and preferably, where the car has lost less value that anticipated at the start of the agreement and even better, appreciated in value).
7:31 Know what type of car finance plan you are getting into. PCP, Lease, Hire Purchase etc. You need to know the differences between them
8:20 Know the rate you are paying, flat rate and APR
8:30 You need to think about the residual value of your car when you come to sell it. Look at the final balloon payment and see if that is more or less than what your car will be worth at the end of the agreement. If the balloon payment is more than the value of the car, you end up owing money. (not sure if I agree here, you can simply not pay the balloon payment and walk away from the car. Maybe what he means is you end up paying a bigger deposit if you want to take another car with PCP from the same dealer. If the car is worth more than the final balloon payment, it can be used to reduce the deposit on your next car from the same dealer.)
9:20 Dont get confused by car dealers offering deposit contributions. You could also be negotiating money of the cost of the car as well
9:30 When a financing company presents you with a deal. 9 times out of 10 they can do something better if you ask them to
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