Buying a car in the UK is a significant financial commitment. It involves analysing your needs, saving for a deposit, or understanding the loan fees. However, some costs are transparent, so you can budget easily. What about the hidden ones? You cannot prepare for them unless you know them.
However, they increase the total costs of car ownership, which you might not be prepared for. It may mean delaying the dream of owning a car further. The blog discusses the car-owning costs that might not be visible easily. Identifying and knowing these will help you plan the savings accordingly.
7 strategies to avoid car purchase hidden fees
One generally purchases a car either by upfront purchase, a car loan or car finance. Each way to buy a car involves certain fees. It could be administrative costs, loan completion payments, interest, etc. However, these are the genuine costs that you may face with nearly every loan product. However, you may spot other costs you may not see in the agreement. Here are some top costs to avoid while applying for car finance or a loan:
1) Avoid driving beyond mileage limits
Some loan providers impose mileage charges in car finance to protect the vehicle’s functionality. However, one pays it only if he exceeds the mileage limit allowed. These limits help prevent the car’s wear and tear and maintain its resale value. For example- you buy a vehicle at lease for 3 years with an annual mileage limit of 12000 miles. However, you exceed the mileage by driving more than 15000 miles per year. You exceed it by £9000 in total.
According to the lease agreement, the company charges £0.15 per mile. This means you must pay £1350 extra by the end of the lease term. This unexpected cost may affect your plan to own the car after the period. Alternatively, extending the term may imply additional costs.
2) Identify car tax (if any)
Car tax, also known as Vehicle Excise Duty (VED), is the tax that you must pay on the vehicle. The amount you pay depends on theCO2 emissions, engine size and the registered date of the car. With this concern, it is better to choose an eco-friendlier car. It generally hosts a smaller engine. Thus, it may help you save money than one with a big engine. Alternatively, checking out an electric vehicle or hybrid model frees you from paying any car tax.
3) Be wary of early repayment charges
If you decide to settle the dues early, confirm it from the provider. Generally, most loan providers don’t allow you to pay early. Thus, don’t pay unnecessarily even if you have the cash ready. It may imply additional penalties, making the car loan more costly. You may not find this fee highlighted in the loan agreement every time. That’s why make it a point to discuss one with your loan provider before agreeing to the terms.
4) Paying for the depreciation value on PCP
Personal Contract Purchase(PCP) is one of the best ways to finance a car. In this, you don’t have to pay the full value of the car. Instead, you pay only the depreciation price. It is the difference between the day you receive the car and return it on the other day. It reveals how much the car’s value has been depreciated since then. This makes monthly payments cheaper. However, at the end of the agreement, you can decide to either purchase it or return it.
To own the vehicle, you must pay a balloon payment. This represents the actual depreciation value. However, you must know whether you can afford the balloon payment before the agreement. If not, check the Hire Purchase car finance agreement.
Alternatively, if you are short of just £5000 to clear the balloon payment, don’t worry. Get a 5000 loan for bad credit with no guarantor requirement instantly. You can use it to clear the dues and buy the car without facing additional fees or charges. You may get one despite a poor credit history without a third-person requirement or guarantee.
In Hire purchase, you own the car without paying the balloon payment. It would be easier for you to manage.
5) Understand the early termination fees
The truth in life is that everything does not go the way one wants. Hence, your financial situation may change depending on the economy, income drop, or other experiences. It may affect your capability to continue the car payments. Thus, always keep in mind that when you sign a car loan agreement, you must pay the termination fee if you decide to end the contract.
However, you can legally terminate the agreement after paying half of what you owe on the agreement. It includes interest, balloon payments, scheduled repayments, and other fees. However, you will not receive any refund if you have paid over 50% of your loan agreement. You may also be liable for any additional mileage or damage charges.
6) Beware of the gap insurance
Gap insurance covers the difference between the car’s value and what the loan company pays out. However, most companies state it as a mandatory cost when it is not. Thus, be aware of the gap in insurance charges. Check whether you can skip it and how. It could turn out to be an unnecessary expense.
7) Pre-delivery inspections
Most companies conduct pre-delivery inspections to ensure that everything is in order. While one generally includes it in the purchase price, some dealers may charge additional fees. It is particularly for more comprehensive inspections. Moreover, pre-delivery inspections should be a must for used cars. It will help you know the potential issues. Some may not be visible with a simple inspection. You must go for a detailed one that may cost around 200. It also depends on the level of detail required.
What to do before signing the agreement?
Being vigilant at the time of signing the contract is important. Here are some steps to take before financing the deal:
1. Review the agreement meticulously
Always read the terms and conditions thoroughly before signing up. Check for the hidden marketing fees that may affect the budget. Also, match the agreement cost with the terms. Do you encounter something extra? If yes, ask the provider.
2. Enquire about the necessary fees and services covered
Yes, you must ask the reason behind each fee. It will help you know the need and the importance of paying for one. Check whether the fee is higher than the services the company offers. If yes, try to negotiate and pay for only the legible charges.
3. Stand against the unrealistic solicitor fees
Avoid paying anything that the solicitor does not cover. Beware of sudden increases in prices without justification. If you encounter one, ask the reason. You can even reject the payment requirement if the reasons don’t comply with the fee hike requirement.
4. Avoid extra accessory charges
Some dealerships may install accessories without permission. Later, they may demand a fee for the latest and best accessories installed. Most of these are available at cheaper rates in the market. Thus, refuse the extra charge that you did not agree to initially.
5. Seek independent financial advice
If you struggle to analyse the best dealer after comparing the options, seek advice. The experts may help you choose the right one, given the circumstances.
Bottom line
Identify these aspects and hidden costs while buying a car. Check whether you can skip on some of these expenses. For example- check the additional accessories that you don’t need. Avoid exceeding the mileage limit. Additionally, the hidden fee must be analysed during the loan approval process. It will help you avoid unnecessary expenses.
