Only those who have relied on public transport know how tough it can be.
Buses or trains can be exhausting and unreliable, while Uber or taxi rides can quickly become too expensive. You’re always running late to appointments, dealing with someone blaring loud—and terrible—music next to you, or walking miles just to get to the nearest station. Enough is enough! Clearly, it’s time to buy a car!
The bad news is that not everybody has the ability to pay a large sum upfront for a new or even a used car. The good news is that there are several financing options available.
Car finance is a convenient way to get your hands on a new set of wheels without shelling out a lump sum upfront. Moreover, it allows people to afford a more modern or better-equipped vehicle than if they were paying in cash. This means access to newer technology, improved safety features, and higher reliability.
But it also comes with its own pitfalls, and making a wrong move could cost you a lot more than you bargained for. To help you navigate the world of car finance with confidence, here are the top six mistakes people often make when signing a deal—and how to avoid them.
1. Not Understanding the Total Cost of Finance
One of the biggest mistakes people make is focusing solely on the monthly payments. While a low monthly payment might seem like a bargain, it often means a longer loan term or a hefty balloon payment waiting for you at the end of the contract. Ensure you calculate the total cost of the finance deal, including interest rates and additional fees, to get a full picture of how much that ‘affordable’ car is really costing you.
2. Falling for Mis-Sold PCP Deals and Inflated Interest Rates
It has been reported that many people have been mis-sold PCP (Personal Contract Purchase) deals, often paying higher interest rates than they should have. The PCP claims scandal has brought to light how some lenders have taken advantage of customers. Dealers received commissions based on the interest rate they charged, which created an incentive for them to set higher rates, often without customers realising the true costs involved. The Financial Conduct Authority (FCA) in the UK has stepped in and is investigating these practices. As part of these efforts, the FCA has now forbidden lenders from using Discretionary Commission Arrangements (DCAs).
3. Ignoring the APR
APR (Annual Percentage Rate) is crucial when choosing a car finance deal, as it tells you how much the loan will cost over time. Many people fall into the trap of signing the paperwork without fully understanding what their APR rate is. Even a small difference in APR can significantly affect the overall cost of the loan, so it’s worth shopping around and negotiating to get the lowest rate possible.
4. Not Considering Your Mileage
If you’re opting for a Personal Contract Purchase or leasing deal, your mileage estimate is more important than you might think. Exceeding the limit can lead to steep penalties at the end of the agreement. It’s easy to underestimate how much you drive—so take the time to calculate your average mileage accurately, including weekends and any potential road trips. Better to be safe than sorry when it comes to avoiding surprise costs.
5. Failing to Factor in Maintenance Costs
A shiny new car often comes with maintenance plans, but these aren’t always included in your finance agreement. Many people overlook the additional costs of servicing, MOTs, and general upkeep. Failing to budget for these costs could leave you struggling down the line. Make sure you understand what’s covered under your deal and plan accordingly for maintenance to keep your vehicle in top condition.
6. Not Knowing Your End-of-Contract Options
A common pitfall is not understanding what happens at the end of your contract. With PCP, for example, you generally have three choices: return the car, make a final payment to keep it or use any residual value to trade it in for a new vehicle. Many people leave this decision until the last minute, only to realise they can’t afford the final payment or don’t have enough equity for a favourable trade-in. Knowing your options upfront helps you plan and prevents unwanted surprises.
Avoiding these common mistakes will put you in a much better position to make a savvy decision on your car finance journey. Remember, knowledge is power—and with a bit of homework, you can drive away with confidence, knowing you’ve got a deal that truly works for you.
