Car finance is big part of any car buying decision. It’s important to understand your options and avoid over committing yourself. That dream car might be hard to resist but is it really possible... The dollars need to make sense.

Most vehicle purchases involve some kind of finance and the finance dimension of your options should always be considered carefully.

Understanding what you can afford is an important part of preparing to buy your next car, whether you are buying privately or through a dealer.

Sort Your Finance First?

Many respected sources advise that you get your finance pre-approved to turn yourself into a ‘cash buyer’ and give yourself flexibility.

But don’t let preapproval from one source rule out other options.

Make sure you shop around.  Don’t assume that your bank will give you the best leading rate for your purchase.  Make sure you also get information from your dealer along with a finance company specialising in vehicle finance, such as Toyota Financial Services.

Considering all aspects of the deal you are being offered may change your perspective on the best finance option...

• Are you going to own or only rent the vehicle?
• What deposit is required?
• Do payment amounts suit your income flows?
• How long will you be repaying the contract?
• Interest rate and fees?
• What rights do you have and what will it cost to settle all or part of the facility?
• What security do you have to offer to support the loan?
• What if any additional insurances/ services are you required to take as a condition of being given the loan?

Understanding Your Options

You can finance you new vehicle many ways:

• From cash or savings if you are lucky enough to be able to buy a car that meets your needs without finance.
• Personal Loan from your bank, a building society, credit union or finance company. The interest you pay will vary – expect to pay more in interest if your loan is unsecured.
• Revolving Credit Facilities & Overdrafts from your bank or normal lender offer flexibility for short term borrowing when you aren’t quite sure how much money you will need – likely to be more expensive than personal loans and not a good  option for long term debt.
• Adding to your mortgage from your bank or normal lender can lower the interest rate you pay. But consider the total cost of the car portion of your mortgage. The total payments could be higher than a shorter-term loan at a higher interest rate. And remember such loans use your home/ landed property as security.
• Vehicle finance plans from your dealer can often be tailored to your needs. This may include the varying payments to suit your income flows (larger payments at the end of the contract, for instance).  There may also be buy-back or minimum trade-in options (as described below), offering peace-of-mind when it comes to the future value of your vehicle.

• Guaranteed minimum trade-in / buy-backs set in place an offer from your dealer/ financier to buy back the vehicle from you at a price agreed with you provided agreed conditions are met. This means you know the future minimum value of your vehicle and can be sure it will be worth more than you owe at a contracts end and maintain a level of equity in your vehicle. Typically there will be a requirement for the vehicle to have travelled less than an agreed mileage and be in a reasonable condition when returned.
• Leasing to buy offers tax advantages for companies and self-employed people and offer the option of effectively renting your car with some limitations on mileage and with or without servicing included in monthly repayments. (Note: if you decide not to buy the car, lease to buy deals often end with a need to pay the difference between an agreed final payment and what your leasing company can get for the car.)

Whether you arrange finance through your dealer or through a third party, understanding the financial implications of your purchase couldn’t be more important.