Vehicle Financing

Vehicle Finance - Things to keep in mind

When taking out finance to purchase a vehicle, the lender retains ownership of the vehicle until you have made all the payments in full. If you run into financial difficulty and are unable to make your payments, the lender has the right to seize your vehicle and sell it. If the car is sold for less than the amount outstanding (and remember that a car is a depreciating asset), you are still liable for the outstanding amount. You could theoretically end up in a situation where you still owe for a car you no longer have possession of. Think very carefully about your financial circumstances before taking out vehicle financing.

As with all loans, late payments incur fees, so make sure to ask about penalty fees and the like before you sign the contract. In some cases these fees and charges for late payments can be quite substantial and could cause you to fall in to a rapidly escalating spiral of debt.

It’s in a car salesman’s interests to make as much money from you as possible. Make sure you stay within your budget, and carefully, very carefully check all the additional costs, fees, interest rates and other charges that will be tied in to financing agreement. Remember that there are plenty of cars, and plenty of dealerships, so it’s definitely a buyer’s market (of course, if your credit isn’t so good then your options are more limited).

Don’t sign up for any additional service contracts or insurances unless you really want them and are fully aware of the total costs of those contracts. Any policies that are offered to you by the dealer must clearly state the total cost of the policy, and the monthly repayments. You are under no obligation to purchase any extra insurances or warranties from the dealer at all.

Once you sign that agreement you are bound. Remember that purchasing a vehicle on finance is literally paying more money than need be for an asset that will lose value. Think carefully about what that car will be worth in 3 years or so when the loan is finally paid off. Compare the projected value of the car then, for what the total cost of the finance will be. You might be quite dismayed at the difference between what you’ll pay, and what you end up with, asset wise.

If you do start to run into financial problems and will have problems meeting your monthly payments, talk immediately with your lender (not the dealer). You may be able to work out an amicable agreement that will avoid any unnecessary late charges or other fees.

Keep all correspondence between you and the finance company, dealer, insurance companies in one secure place. Any time anything is offered verbally, get it in writing.