More and more people are choosing to pay for their cars using a car finance agreement. But do they understand it?
A finance agreement can be a good option as it enables people with less ready money to nevertheless put down a deposit on a vehicle and start driving it right away.
But, car finance agreements can seem a little complicated, particularly if it is the first time that you have taken one out. So, below is a helpful guide to understanding your car finance agreement, so that you can navigate this aspect of car ownership with ease and confidence.
How does a car finance agreement work?
A car finance agreement basically involves you paying for your vehicle in a given number of instalments. Firstly, you will put down a deposit on your car (usually this is around 10% of the total cost of the car) and then you agree to pay a certain amount, usually on a monthly basis, until you have fully paid for your car. You will need to sign paperwork in order to enter into this agreement and if you do not keep up with the payments, there may be financial consequences. The up side of a car finance agreement is that you can start driving your new car as soon as you have put down the deposit. The downside is that you do not own your car completely until you have finished paying off all of the instalments.
What should you look out for when choosing and signing a car finance agreement
There are two key situations that car buyers can find themselves in here. They are outlined below.
What if the car starts to fall in value?
It can happen that a particular make or model of car becomes worth less and less as the time goes on. And, when you sit down and do your calculations, you find that if you make all of your remaining payments you will be paying far too much for this vehicle given its current, lower value. In situations like this, the Consumer Credit Act 1974 allows you to return the car to the person you bought it from if you have already paid half of its value or more in instalments. Alternatively, you can offer extra money to make up your payments to half the car’s value.