1. Not considering the monthly repayments
Not many people can afford to buy a car outright so finance is usually needed. It is vital that when shopping for a car, you think about the monthly cost of a loan rather than the actual ticket price on the vehicle. You can lower your repayments by extending the period of the loan and/or by shopping around as many car finance providers as possible in order to find the best rates. You can use a calculator to help work out the monthly payments.
2. Used versus new
Vehicles are not usually a good investment and new cars in particular, quickly depreciate. After the first two years, a car has typically decreased in value by as much as 40 percent. Proportionately, used cars depreciate much less than new ones. So, if you intend to sell the car on after a couple of years, you will be better buying used.
In the past, new cars were much more attractive than used ones because of their warranties. These days, warranties last longer and are often transferable to a new owner. This makes a used vehicle much more appealing than in years gone by.
3. Buying the wrong car
Rather than choosing a vehicle that meets their specific needs, many people are tempted by a bigger car or a ‘head turner’. That’s fine if you can afford it but it usually makes more financial sense to listen to your head rather than your heart. The more expensive the car, the more sense it makes to compare car finance deals carefully and thoroughly.
4. Not considering additional costs
The purchase price of a car is important but it is also vital to consider the insurance and maintenance costs. High powered cars will usually be more costly to insure and may well push the total cost of a vehicle beyond your budget.
There are also maintenance costs to consider such as regular servicing, tyres and replacement brake pads. Higher-end cars tend to incur higher maintenance costs.
Another important factor to bear in mind is fuel efficiency. Diesel cars tend to be more expensive initially but more fuel-efficient so if you drive lots of miles, a diesel will often make more sense.
5. Zero deposit
Cars, as we have discussed above, depreciate rapidly. If you finance the total cost of a car, particularly a new one, you may soon find that you owe more to the finance company than the car is actually worth.
If you plan to sell or trade in the car before the end of the finance period then this ‘negative equity’ is more of a problem than for those who intend to keep the car beyond the end of the loan. If you owe £8000 at the end of the finance period and sell the car for £6000, then you will still need to pay £2000 to the finance company to clear the debt.
If you had put £2000 down as a deposit initially, this could have been avoided and the monthly repayments would also have reduced. So it makes sense to pay a deposit whenever possible.