What should I look for in a finance quote?
Whenever you are talking to a lender about finance, they should be able to give you a detailed written quotation with all the information you need to know about the agreement.
A formal quotation should show you exactly how much you are borrowing, how long the term is, what the monthly payment is, what the APR (Annual Percentage Rate) is, any balloon payment at the end of the agreement, what fees are payable and when, how much you will pay in total interest and fees, and what the total amount payable is. It should also state how long the quote is valid for (usually 14 days).
Fees and interest
Interest is a cost that is spread across all of your monthly payments, whereas a fee is paid in one lump sum. So although £1,000 in interest will cost you the same as £1,000 in fees, they will affect your cashflow very differently.
The APR is a key number, as it indicates the overall cost of borrowing (your total interest and fees payable over the whole agreement). Lenders might try to talk about a ‘flat rate’, which is the interest but excluding the fees. Don’t be fooled, and insist on talking about APR.
Some agreements (such as a lease or Personal Contract Purchase) have a limit on how many miles you can driver over the course of the agreement. Make sure this limit is an accurate reflection of what you expect to cover.
When am I committed to buying the car?
To commit to buying a car from a dealer, you have to sign a formal contract of sale. This is an official document with detailed terms and conditions set out on the back. Signing a quote is not legally binding for you or the dealership. Once you sign a contract of sale, you are legally committing yourself to buying a car. If you sign it on the dealer’s premises, there is no cooling-off period if you change your mind. If you sign it away from the premises, you have 14 days after taking delivery of the car to change your mind and get your money back.
You are committing yourself to a finance agreement once you sign the formal finance contract. You do have a 14-day cooling-off period to cancel the finance agreement, but that doesn’t mean you have cancelled the car – it just means you have to find another way to pay for it.
How can I negotiate the best deal on a car?
Firstly, get finance pre-approved from a bank before you go to a dealership. That way, you already know how much you can borrow and what your payments will be. You can negotiate from a position of strength, and challenge them to beat your offer.
Secondly, look at what deals are on offer and what price similar cars are selling for. If you can show a dealer that another car elsewhere is available for a better price, they are more likely to reduce their price to match, rather than simply asking them for a discount.