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How Much Does Car Finance Really Cost?

Knowing what to expect before you go head on into a car financing deal is so important, and here at Carmoola, we want to provide you with as much value as possible so you can make an informed decision. 91% of car buyers use finance to purchase their next vehicle. And with so many people opting for car finance, it’s only natural to think about the true cost of financing a car. With this number in mind, we’d like to tackle one of the most common questions asked by our customers, that is – how much does it cost to finance a car?

Today’s blog post includes everything from administration fees to monthly repayments and even the hidden fees. So if you’re asking yourself, “how much does car finance really cost”, you’ve come to the right place. We’re answering all the burning questions about car financing and its true cost. 

How much does car finance really cost? 

Car financing companies understand that a ‘one-size fits all’ product just won’t work, especially when it comes down to money. So, first of all, you need to decide which type of car finance you will use. There’s hire purchase (HP), personal contract purchase (PCP), personal contract hire (PCH) and the option to get a single loan.

All four have similarities, yet there are some key differences. For instance, with PCP you're only borrowing a proportion of the cost of the car. You'll agree to fixed monthly repayments over a set period of time (usually 2 or 3 years), which are calculated based on the 'Guaranteed Minimum Future Value' of the car at the end of the contract. Whereas a HP agreement is like a traditional loan, and you'll pay back the total cost of the car over a set period of time (can be from 1 to 5 years, or sometimes longer).

One thing all types of car finance share is regular monthly payments. There maybe a deposit involved, too and possibly some admin fees (unless you’re just getting a single loan). Below, we’ve listed what you might need to pay when financing your car, and some factors that will affect how much you are paying.

How much do I need to deposit for car finance?

Some car financing requires you to put down an upfront deposit. The size of the deposit will impact how much you repay monthly: the higher the figure, the lower the monthly finance repayments on the amount you borrow. Just like when getting a mortgage for a house, if you have saved some upfront money, your monthly payments down the line will be lower 🏡

However you can get zero deposit deals too, and we do offer those here at Carmoola, so if you don't have spare capital lying around, but you do have a good monthly income, a zero deposit may be the best deal for you. 

What is the difference between financing a new car vs. a used car?

So, how much finance can I get for a used car? Well, here at Carmoola, if you're buying online or from a reputable dealership, we make it super easy to get finance for a used car with the Carmoola virtual card. Whatever the car financing deal you find offered from the dealership, it's worth simply adding the terms into our calculator and find out what monthly payments you will be making with Carmoola. 

So how much to finance a new car then? Exactly the same principle applies with new cars as well! as used cars. However you may be more likely to get a 0% APR deal with new cars, so look out for that. If you are still asking yourself  "how much interest will I pay on car finance?’" read our blog article explaining everything here

Used cars are usually cheaper to purchase, (and new car will depreciate much faster too) and therefore the monthly costs will be lower, but more about that below…

Monthly Repayments

Now that we know about the differing cost of a new compared to a used car, let’s get into what you will be spending each month. 

Monthly repayments are the bulk of the costs that you need to take into account when financing a car. In order to get the car financing deal, you will enter into a finance agreement that usually lasts anywhere between 12 months and 60 months. 

It’s important to feel comfortable with the amount you need to pay before entering into the agreement, especially with PCP, HP and PCH. However, if you’re upgrading your ride with Carmoola, you can benefit from flexible finance and spread the cost of payments while amending them according to your financial situation. 

Let’s say you can’t meet the agreed payments for a couple of months. You can simply extend the loan, decreasing payments in the process. It gives you more flexibility over your payments and offers complete transparency. 

Admin fees

This is often skipped over by a lot of purchasers, and it's important that you read the small print before entering into any deals, as it often varies from company to company. Admin fees are more associated with PCP, PCH and HP, though some loans can feature them, for example Carmoola will charge you only a £1 transfer fee at the end of the term, but other companies will vary so do check that out.

Car dealers are businesses as well, and they often include admin fees to cover their costs. This could include a range of things, such as registering the deal on the system, processing finance documents and issuing necessary documentation. 

Hidden Costs

However, some dealers charge “hidden costs” when they offer car finance, be it upfront or end of contract charges. These can amount to a staggering £1,200. So, as always, don’t be scared and do question hidden fees before you sign up for an agreement. Ensure that you ask the financier plenty of questions about total costs, and make sure that you are super clear on what costs will be added by the end of the contract. 

Another "hidden" cost might be a charge if you have exceed the agreed annual mileage, or caused damage or excessive wear and tear to a car you have purchased via PCP or have on PCH or lease. So do check these out in the small print in advance of signing!

Finally remember that if you have a PCP then you will need to make a balloon payment at the end of the contract in order to own the car - if you wish to of course.

The Total Cost of Car Finance

As you can see, there are a few costs involved with certain car finance types, depending on the type of finance you choose.That’s why it’s super important to know what you’re paying for and when you pay it. You should always choose a car finance deal that is simple, efficient and transparent. A good tip is to always compare the APR charged - this is calculated in the same way by all companies, so it's a great comparison tool. Then you can relax knowing you have secured the best deal, and all you need to worry about is driving your new car! 🚘

We’d love to hear your thoughts on this article!

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