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Disadvantages of car finance


Updated
10 Oct 2019

Woman stressed in a car

We understand that car finance isn’t for everybody. However, a lot of the reasons people give for not buying a car on finance aren’t particularly strong. In this article, we go through some common complaints made about car finance and how they aren’t really problems after all.

You don’t own the car

With certain car finance agreements, such as a Hire Purchase or Personal Contract Purchase (PCP), you don’t actually become the owner of the car until the end of the agreement (once you’ve paid the loan in full). Many people don’t like the idea of not owning the car they’re driving and paying for.

We’d argue, however, that this is more of a technicality than anything. For all intents and purposes, it’s your car. You drive it, you pay for it, and you maintain it. There are very few restrictions on a car bought on finance, and all that really changes at the end of the agreement is that you become the sole owner of the vehicle.

Some car finance agreements allow you to return the car to the lender at the end, giving drivers the luxury of choice. All that’s expected is for the car to be returned in good condition, and regular car maintenance is something that most owners will perform on their car anyway. Instead of going through the hassle of selling a car that you own, you may be able to simply hand it back to the lender. It all depends on what you decide.

You have to pay interest

It’s understandable that people will be turned off by the prospect of having to pay interest, sometimes significant amounts, over the span of their car finance agreement. We, on the other hand, view it as the price to pay for making an otherwise unaffordable car available for you to purchase. Car finance is all about making cars more affordable, and paying for a car in manageable monthly instalments is the best way to do that, even if it does mean paying slightly more in the long term.

Many people wouldn’t be able to buy the cars that they truly want (or need) without the payment structure that buying a car on finance offers. In fact, there are very few people who can afford to pay for a brand new car in one upfront payment. Interest is just the way to pay for the option of buying a better vehicle.

It’s too easy to buy a car that’s out of your budget

Some people complain that car finance is a form of temptation, almost luring you to buy a car that would otherwise be unaffordable. It’s true that the monthly payment structure of a car finance agreement makes buying a car more manageable, it’s unfair to claim that car finance is the cause for people getting themselves into difficult financial situations.

Reputable lenders, like us at Carfinanceplus.com, only offer loans to those who can afford them. We carefully assess their monthly income, their credit history, and their expected ability to meet the repayments successfully. Therefore, buying a car on finance that is unmanageable is very rare, and this situation is only likely to occur if there is a change in a person’s income (such as if they take a pay cut or lose their job). If this happens, you must contact your lender, explain the situation, and attempt to renegotiate in order to make the payments more manageable. Lenders don’t like giving loans that are unlikely to be repaid, so it’s in their best interest, as well as yours, to ensure that the loans are affordable.

Insurance can be more expensive

Another common complaint against car finance is that your insurance premiums tend to be higher than if you’d have bought the car privately. This is partially true, but it’s not the whole story.

It’s true that your lender will usually force you to get fully comprehensive car insurance; they want to protect their investment, at least until the finance agreement is over and the car is no longer their property. Therefore, if you were only going to purchase basic, Third Party insurance, then the fully comprehensive insurance imposed upon you by you car finance provider will be higher. However, if you were going to get fully comprehensive insurance anyway, then it’s no more expensive than buying the car privately.

Also, if something bad does happen to your car, you’ll be glad of the fully comprehensive insurance! We discuss the relationship between car finance and insurance in more detail here.

You’re at risk of having your car repossessed

Many car finance loans are secured, meaning you offer some form of collateral in case you default on payments. Therefore, if you fall behind on payments, then your finance provider may be authorised to repossess your car. This is, of course, an unfortunate position to be in, but it’s only likely to occur if you miss payments and fail to contact your lender.

In most cases, if you’re aware that you’ll be unable to make your next payment(s), it’s best to contact your lender and be honest with them about your financial situation. You may be able to change the terms of your finance agreement in order to make the repayments more affordable. It’s unfair and inaccurate to think of your lender as a threatening figure who will take your car away at a moment’s notice.

Here at Carfinanceplus.com, we pride ourselves on making our finance options as affordable and accessible as possible. Our panel of expert lenders have vast experience in the car finance industry, and we’re happy to answer any questions you may have. We hope we’ve dispelled some doubts you may have had regarding car finance. For more information, get in touch with us today.

     
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