The Elite Ayrshire Business Circle

The Elite Ayrshire Business Circle

Monday, 21 November 2005

First Independent Finance shows

how to drive a great bargain

Asset finance broker First Independent Finance managing director Allan Ross dispels the mysteries of motor car finance

* * *

As a car enthusiast I know buying a car can be great fun . . . days spent in showrooms, looking at the small ads, comparing new models, negotiating the deal and the joy of delivery.

There’s nothing like it – except, that is, the first drive in the new car.

My first car was a Hillman Avenger, and I can even remember its registration number. In the heady days of the 1980’s young farmers drove RS2000s, Ford Capri GTs and even Audi Quattro’s! I wish I had known more about car finance then, for then I might have been able to afford to drive my dream, as opposed to the car with the “It’s a Secret Disco” tax disc, no heater and complimentary blankets. Happy days!

The Avenger was followed by the green mini that could be jammed into awkward places by my boy racer farming friends just to wind me up. Next came a 1300 Fiat Mirafiori, which disintegrated into rust.

Then a milestone in the form of company cars. Strangely, although those were much better cars: RS2000s, Cavalier SRIs, even a Rover Sterling and they didn’t cost me anything, they never had quite the same appeal as owning my own car. They were my office. I didn’t choose them and I remember someone once saying “Something you get for nothing has little value.”

Now though, I’m back to choosing my own cars and paying for them out of my own pocket.
So what’s this have to do with car finance? Well, whilst cars are fun and exciting purchases, finance is dull and boring. Hardly surprising then that the finance option is often chosen in a hurry or done in the same way as its always been, usually through the dealer.

Here’s my tips to drive the car you want, not the one you think you can afford.
• HIRE PURCHASE – Most popular method, pay deposit and fund the balance over a fixed period. Usually the rate is fixed but variable rates are available. At the end of the agreement you pay a small fee along with your final payment and you own it.Pros – This method of funding is simple, early settlement figures are reasonable and its an industry standard with APRs making it easy to compare costs. Cons – You don’t have title until the final payment.

• LEASING – Becoming more popular for VAT registered businesses and some can reclaim half the VAT. Pros – It’s flexible. You may get a VAT benefit and deposits are usually small. Cons – Settlement figures can be high: you never actually own the car.

• CONTRACT HIRE – This is for you if you are looking for a car to be supplied and you want to pay a rental which takes into account maintenance and service costs, you want the rental to reflect the fact that the car goes back to the supplier at the end of the agreement with him benefiting from its value at this point. The rentals are usually lower than other options, as are the deposits and you have the comfort of knowing that your car is being maintained to the manufacturers specification. Pros – no hassle and supplier takes a view of what it will be worth at some point in the future, maintains it and if you are VAT registered you may be able to claim back some VAT. Cons – If you go over the agreed mileage on the vehicle – it can be expensive.

• CAR LOANS – You borrow a sum of money that is not secured on the car. Again, a very simple method. Pros – The car is not secured against the loan and therefore not registered on HPI. Cons – Sometimes the APR can be a little higher.

• OVERDRAFT – Write a cheque and it’s yours. Pros – Dead easy. Cons – It’s difficult to say what it ends up costing, as you never really know how long it is on your overdraft for. Don’t forget those annual renewal fees and bank charges, which are often charged on the debit balances of your overdraft.

• BALLOON HP – This is how I finance my car . . . but don’t tell anyone – it’s a secret! This allows me to drive top of the range at a low monthly payment I negotiate the best price I can at the dealers then I put a deposit down. I then pay 36 equal monthly payments, followed by a final payment roughly equal to the anticipated trade value. Pros – Great car. Cheap repayment and, at the end of the agreement, I can take ownership. Cons – Settlement figures are often higher than standard HP. And make sure you set the value of the balloon payment at the end realistically.

There’s a variety of places to get your deal done such as A BROKER – I’d like to say my company but I’m not allowed to. So lets say someone knows what they are doing, a reputable broker who can be trusted, who wants your business and most importantly who wants you to go back to them. Someone who has a range of products and is independent of promoting any single finance. A reputable broker can offer a genuine choice. YOUR BANK – Often an easy quick route and deals are usually reasonable but not always as good as one expects. THE INTERNET – Sometimes great deal but solving problems can be difficult. THE MOTOR DEALER – Some great deals but watch out . . . sometimes if you negotiate a deal without finance you might get a better discount and then get your finance elsewhere.

Whatever deal you end up selecting, go with one your comfortable with. Now where’s that balloon with my Bentley keys. I wish.

* Allan Ross is managing director of First Independent Finance Ltd
Issued by Fame Publicity Services
10 Miller Road
AYR, Ayrshire

Telephone: 01292 281498

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