As a trusted car finance lender in Ireland, we know a thing or two about the mistakes people make with finance. Take a look at our guide, as well as advice, before you apply for your next finance deal. Here are the common mistakes people make with car finance.
Focusing Only On Monthly Payments
It’s easy to just focus on monthly payments in a finance deal. It’s the main cost that comes out every month, but this number itself doesn’t paint the full picture. The most important figure is the total loan amount. This is the total amount that you’ll be required to pay which includes interest rate. Yes, monthly payments are a massive part of the finance picture, but don’t be drawn into a deal that promises low payments across a significantly longer term. This could actually end up costing you more than a finance deal with higher monthly payments across a shorter loan term.
Warning: If you do not meet the repayments on your hire-purchase agreement, your account will go into arrears. This may affect your credit rating, which may limit your ability to access credit, a hire-purchase agreement, a consumer-hire agreement or a BNPL agreement in the future.
Warning: You may have to pay charges if you pay off a hire-purchase agreement early.
Monthly/Yearly Running Costs – The Full Picture
The cost of a car doesn’t stop with monthly payments; you must take monthly and yearly running costs into account. We’ve covered running costs in a separate piece, where we found that a family car can cost as much as €900 a month to run. This includes fuel, maintenance costs, insurance and taxes, amongst other smaller outlays. This is a huge expense and must be taken into account with any finance deal. You may be just within the range of affording a car loan, but does this tip over the edge when running costs are included?
Being Attracted By The Promise Of Soft Credit Checks
A soft credit check is an initial look at your finances that doesn’t appear on your credit file to future lenders. Soft credit checks aren’t possible in Ireland like they are in the UK, though, and you should avoid any lender that promises a soft credit check. All credit report checks are required to leave a digital footprint on your file, which can be viewed by future lenders at your request.
Ignoring The Small Print: Mileage And Early Settlement Fees
‘Always read the fine print’ is a common phrase, and it couldn’t be truer for car finance. Make sure you’re aware of any potential mileage limits and subsequent fees if you go over this. If you’re someone who’s planning to use your car a lot, this can be a deal breaker. Additionally, some finance deals include early settlement or missed payment fees. Browse any potential contract and look for excess fees. If they exist, consider the chances of these costs occurring during your deal before you sign on the dotted line.
Ignoring Depreciation
More importantly for new car finance, depreciation can leave you in negative equity down the line. On average, a new car loses 15% to 25% of its value in the first year, and this only increases until around the three-year mark. If you’re looking to finance a new car, calculate the approximate depreciation cost to see how much your car could be worth in future. If this is well below the amount you are required to repay, you could be at risk of negative equity. This, however, depends on the rates you have been offered and your personal circumstances, which affect the terms of any potential deal.
Choosing The Wrong Finance Product For Your Needs
Every person is different, and what you want from a finance deal isn’t the same as the next person. Some prefer straightforward ownership and are happy with an initial deposit. Others favour choice at the end of the agreement, with a deferred upfront deposit and a longer finance deal. It really is up to you, and the biggest mistake you can make is going for something that doesn’t suit you. Take the necessary time to explore every financial product, and don’t commit until you are absolutely sure of the direction you wish to go. There are two main finance products, HP and PCP. Here at LM Operations, we only offer HP car finance.
HP
Hire purchase (HP) car finance is a traditional form of finance in which the lender buys the car on your behalf, and you make monthly payments towards a sum set by the lender. A deposit is common, although not mandatory, and the ownership of the car passes to you once repayments are made.
PCP
Personal contract plan is a more flexible approach to finance. Again, the lender purchases the car, but this time you can choose to return the car at the end of the term. In a PCP agreement, you usually skip a deposit, pay slightly higher monthly fees and then have a large final lump payment. At this point, you can either pay the fee and keep the car, avoid the payment and simply hand the car back, or transfer the finance to a new car.
LM Operations does not offer PCP finance.
Warning: If you do not meet the repayments on your hire-purchase agreement, your account will go into arrears. This may affect your credit rating, which may limit your ability to access credit, a hire-purchase agreement, a consumer-hire agreement or a BNPL agreement in the future.
Warning: You may have to pay charges if you pay off a hire-purchase agreement early.
Final Words
Car finance can be daunting. There’s plenty to look out for in a potential deal, and having the right finance partner by your side is key. Here at LM Operations, our customers often speak of the personal support they’ve received from our team.
If there’s anything we can support you with, including any questions about car finance, just get in touch.