Things to Watch Out For When Buying a Car On Finance


Unless you’re one of life’s super savers it’s unlikely you can afford to buy a new car outright, you’ll probably need to take out some kind of car finance.

There are two main ways people finance the purchase of a new car, they either take out a personal loan or they arrange a finance deal with the company from which they purchase the car.

The bank loan option is a relatively simple way to buy a new car. With a personal loan you can quite easily compare the best loan rates available on the market, check the APR and then buy the car outright with cash. When it comes to buying a car on finance though, things can get a little more complicated. Here are a few things you should look out for when buying a car on finance.

Don’t Trust the Salesman

The salesmen on car forecourts are notoriously good at what they do. First they’ll try to gain your trust and become your friend. They’ll have a laugh with you, show genuine concern for your needs and often tell you they don’t like the way other salesman operate and that they’re different, believe me they’re not! They, like every other car salesman on the planet have only one goal, to sell you a car.

The Price You Pay Matters

When buying a car on finance many car salesmen will try and convince you that the overall price you pay for the car doesn’t matter. They will argue that the most important thing is how much you pay to finance the car on a monthly basis, this is completely untrue. Yes, when you consider the amount you’ll be paying out each month for car insurance, fuel and maintenance costs then you will of course want that monthly finance payment to be as low as possible. When buying a car on finance though, try and remember that you will have to pay back every pound that you spend on the purchase price of the car in one way or another before the finance deal ends, so the overall price you pay for the car still matters a lot.

Ask To See The APR

Many salesmen will also try to tell you that they are giving you an extremely low rate of interest on your car finance deal. The interest rate they will often quote though is not the real interest rate. When buying a car on finance the base interest rate charged is not the rate you should be looking at, the rate you should be asking to see is the APR. The APR is the true interest rate you are paying to finance the vehicle after all fees and charges have been taken into account. The APR will often differ hugely to the interest rate you’ve been quoted by the salesman.

Watch Out For Bubble Payments

We mentioned earlier that the overall price you pay for the car matters just as much as your monthly finance payment. One big reason for this is that car salesmen often try to manipulate/lower your monthly payment by adding a large ‘Bubble Payment’ at the end of the finance deal.

This bubble payment could mean that you have to pay thousands of pounds on your final payment in order to keep your car. The salesman may argue that this bubble payment doesn’t matter because you can just hand the car back at the end of the finance agreement to avoid the bubble payment. Although it may sound simple, handing your car back to a finance company is not as simple as it’s made out to be so watch out for those bubble payments. If you’re happy to have a bubble payment on your finance agreement then that’s fine, just so long as you know that it’s there.

11 Responses to Things to Watch Out For When Buying a Car On Finance

  1. All great tips! Buying a car can be a real hassle and it pays, literally, to do your homework. We bought our last car four years ago and did our homework beforehand and had a nice down payment. This allowed us to go in with the opportunity to make an informed decision when financing came up.

  2. I paid cash for my vehicle when I moved to Canada but I sure did have to do my homework. I wasn’t familiar with all the vehicles in Canada so I read up on the one’s I was interested in and paid it in cash. If I had to finance one I would have done the same thing. There’s no sense buying something so costly going in with your eyes shut.

  3. My Wealth Desire says:

    Wonderful tips! If you don’t mind, can I add terms of warranty of the cars. Is that 3 or 5 years warranty and what is the coverage? I think warranty is financially helpful especially after 3 years of the car, some engine or mechanical problems will come out.

  4. Alexa says:

    When I bought my car four years ago the salesman was trying to get me to finance with a 20% interest rate!! I got sick of his pushiness, I went to a local car lot got a better price and a much much better rate through a local bank. Definitely worth it to do homework. You don’t want to buy a car on impulse.

    • I agree Alexa, with a bank loan you usually know where you’re at. With finance agreements there can be so many things hidden in the small print to give you a headache a couple of years down the line! Thanks for the comment.

  5. Matt says:

    Lately, I’ve spent a bit too much time underneath my car repairing things, and why do things always break or fall off when it’s snowing???
    Needless to say, although I have the mechanic’s skills to run a car cheaply, I am going to be spending a bit more on our next one, so I’ve started budgeting a year in advance, as that’s when the next MoT is due, and it should have done 170,000 miles by then.
    I figure if I start saving and planning now, it’ll be easier on the pocket then, with or without finance.

    • I spent years battling with old cars and got sick of them breaking down all the time so I went for something a bit newer. It’s a horrible feeling walking out of the door each morning wondering if your car will start. It was also costing me money because I was self employed and needed a working vehilcle to be able to earn money.

  6. Luana says:

    Going with the car dealer’s loan offer or big bank isn’t the only way to secure a car loan. A community credit union generally offers lower rates and is more sympathetic to borrowers with lackluster credit history.

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