Many experts recommend that you should not exceed 20% of your monthly income when you purchase a car on finance. These fees include the cost of the vehicle, the general maintenance costs, the insurance costs and the tax.
Most finance options will last for a number of years. Buying a car with a loan from either a bank or a finance company is the most common way to purchase a new vehicle, as many people cannot afford to pay for a car with a single outright payment. There are two types of loan, secured and unsecured.
If you choose to take out a secured loan you will benefit from low interest rates, however, these can be hard to obtain if you have a low credit score. With a secured loan you will not have ownership of the car until the balance of the loan is paid off in full. An unsecured loan will have higher interest rates, but it means that you will legally own the vehicle, as the loan is attached to you and not the car.
Other finance options include personal contract purchase, whereby you pay a fixed amount each month and then have the option to buy the car at the end of the contract period; and hire purchase, where the buyer makes monthly payments with an agreement to purchase the vehicle at the end of the contract period.
Credit score checks will always be required if you intend to pay for a car with finance. These checks will have a small short-term effect on your credit score. Whether or not the purchase of a car will affect your credit score will depend solely on how you plan on paying for the vehicle.
If you pay with a credit card or with a loan it may have a temporary effect, though this will depend on your credit history and whether or not you make payments on time.
Before you decide to purchase a car you should always work out how much money you are going to require. You need to take into account the whole duration of the payment period. Calculating the monthly payment amount is the first step to ensuring that you get the correct amount of money for your purchase. If you leave yourself short-changed then you could have problems making payment on time, which will have a negative effect on your credit score.
Talk with a Lookers member for more information on the various types of car finance options available, along with the benefits of each one, to decide which payment method may be best suitable for your needs