Once lockdown is over, you might be thinking of hitting the open road. And who can blame you after being cooped up at home for months on end? But beware the cost of car finance
However, if you’re thinking of taking out a car loan, make sure you’ve considered all the costs. A new high-end car can be a very tempting offer – but it comes at a price.
Car finance is booming, despite a fall in demand due to Covid-19 . £30bn was lent in 2020. It is now almost as easy to walk away from the forecourt with a brand-new BMW as it is to get a contract for a new iPhone.
Car finance is the fastest growing part of consumer credit.
The cost of car finance
In fact there’s been a lot of concern from the UK’s regulator – the Financial Conduct Authority – about the cost of car finance. Research from 2019 found that commissions for selling cards was often linked to the level of interest charged. As a result this created an incentive to sell more expensive credit. The FCA estimates that this is costing consumers around £165m in excess interest each year.
In addition to cost, remember with car finance on hire purchase that The car isn’t yours until after the final payment, unlike with a personal loan. This means the loan is secured against the car, so if you miss payments, you could lose the car.
Often interest rates for car loans can look low. But always compare the total cost of borrowing, including interest and all charges over the term of the loan.
At 7.5% APR for a loan, Lurgan Credit Union provides an excellent alternative to other forms of car finance. Each loan is protected with free insurance and we also encourage you to save as you repay the loan.
Next time you might be able to afford to buy a car for cash, which is almost always cheaper.