Essential Guide To Financing Your Vehicle

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Essential Guide to Financing Your Vehicle

To buy or to lease? When it comes to personal vehi-cles, it’s an important question. If you’re buying, do you pay by cash, bank loan or do you opt for a Hire Purchase plan?

What about other running costs that should be fac-tored into the purchase price, such as fuel consump-tion and servicing? What are they and how do you estimate them up front? Perhaps you should follow Mr Getty’s advice and lease. You won’t own the as-set, but do you really want a depreciating asset (i.e. an asset that is losing value) sitting on your drive-way? One you later have the hassle of disposing of, or selling.

The reality is, the finance option that is right for you, will always depend on your circumstances. That’s why we’ve created this guide - to simplify some of the issues surrounding vehicle finance and give you the knowledge that will help you to make an in-formed decision.

The report is divided into 3 sections. Each looks at a different issue you should keep in mind when pur-chasing your vehicle.

In Section 1 we look at the ‘Whole Life Costs’ of running your personal vehicle. To calculate the total costs of operating your vehicle, you need to consid-er more than just the purchase price. Calculating ‘Whole Life Costs’ is the only accurate way of assess-ing the true cost of running a vehicle.

ESSENTIAL GUIDE TO FINANCING YOUR VEHICLE


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Section 2 explores the types of finance available and helps you decide which is right for you. Knowing what form of car finance is best value for money, given your unique set of circumstances, can have a significant impact on the overall costs. Purchase and leasing are the most popular options and these are the ones we will be looking at in this report. By look-ing at the pros and cons of each option, you’ll have a better idea of which is best for you.

Section 3 is all about choosing a provider who can best meet your needs. It’s difficult for many individ-uals to have all of the knowledge, skills or time nec-essary to optimise management of their vehicles. This is where the support of a good leasing provider is invaluable. In this final section we will give you some useful pointers, to keep in mind when doing your research on vehicle dealerships. We’ll also give you details on what our company, DFC can offer. If you are interested in a free consultation with us, it’s here you will find all the details.

Regardless of which finance option you choose, an educated driver will always be able to get a better deal, so let’s begin…

If it appreciates, buy it. If it depreciates, lease it Billionaire oil tycoon J.Paul Getty

Being in a position to accurately estimate the total costs of driving a car will help keep your personal costs in control. It pays to do your research and make sure you are comparing apples-to-apples.

To calculate the total costs of operating a personal vehicle you need to consider more than just the pur-chase price. Many individuals often focus on capital costs of acquisition only. Others account for fuel consumption but don’t factor in depreciation.

Yet according to research by CAP Automotive, de-preciation will cost the typical motorist three times as much as they spend at the petrol pump. Before we highlight some other ‘whole life costs’ of owning a vehicle, we’ll look some more at depreciation - the difference between the value of a car when you buy it and when you come to sell or trade it in.

Depreciation Did You Know? Many drivers assume the cost of filling up is the biggest motoring expense they face, but in fact it’s depreciation.

The drop in value from depreciation varies between makes and models, but typically a new car will lose over 50 per cent of its value after three years. Al-though this is a “typical” assessment of deprecia-tion, there are many factors that will play a part in determining how fast your vehicle will depreciate. This can include the make, the number of miles you drive, the condition of the vehicle and also the run-ning costs.

Buying a used vehicle will dampen the depreciation, but this can increase other whole life costs, all of

Consider ‘Whole Life Costs’


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which need to be taken into consideration.

There is arguably no better way to manage depre-ciation costs than with Personal Contract Hire. This is because your monthly payments are primarily based on the difference in value between the brand new vehicle when you take out the lease and its residual value when you return it.

Residual value is the estimated value of the car at the end of the contract. This means at the end of

What Car? Depreciation Calculator of a Volkswagen Golf

A useful online tool you can use to find out the depreciation of up to four different vehicles is the ‘What Car?’’ Depreciation Calculator.

This gives an instant visual rep-resentation of the depreciation sus-tained in the first four years of a vehicles life.


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the lease, usually 36 months later, you simply hand the car back without having to worry about depreci-ation or resale.

Other costs you need to keep in mind when pur-chasing your vehicle include the following:

Financial costs to keep in mind• Fuel costs• Insurance• Depreciation• Scheduled and predictable servicing costs• Costs of incidental repairs such as broken wind-

screens and wing mirrors• Vehicle tax • Interest incurred if the car was bought on credit• Interest you may have lost from savings

If you decide to sell at a later date you‘ll also have to add in…

• Selling fees - e.g. costs of advertising• Risk of being undercut • Vehicle disposal fees

Time & Stress Those are some of the financial costs of operating your vehicle but the real headache for many indi-viduals is in the time and hassle it takes to manage their vehicles, particularly if you operate on a busy schedule.

Time spent co-ordinating and arranging road tax renewals, insurance, breakdown cover, scheduled servicing appointments, dealing with unexpected maintenance issues. Also the time spent meeting and negotiating if you later chose to sell the vehicle.

All of these can all be a real headache for individuals who have more important things to worry about throughout their everyday lives.

There are many advantages to both buying and leasing personal vehicles. However, to make it truly cost-effective you’ll need to finance your vehicles in the most suitable way. Knowing what form of finance is best will have a significant impact on the costs of driving your new vehicle.

Purchase and leasing (also known as Personal Con-tract Hire) are the two most popular vehicle finance options. So let’s look at which one could be right for you as an individual...

Option 1 - Purchase with cashAdvantages

• You own the vehicle, so if you’re the type of per-son who wants to customise your car or van, you can.

• No monthly repayments to worry about. • You can push for a ‘cash discount’.

Disadvantages • You must pay the full cost upfront which could

mean spending savings and losing interest.• Investing your money in something else may be

a smarter choice, if you can also afford to lease your vehicle on a monthly plan.

Decide on the type of finance deal for you


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• The responsibility of ownership means you must organise the car’s insurance, maintenance and repairs etc.

• If you need to keep cash, then buying outright isn’t going to be the best option as your cash-flow will be affected.

Option 2 - Purchase with a bank loan Advantages

• This way you can spread the cost over time but still get instant ownership of the vehicle. So it’s a good option if you want to own the car outright.

• You can customise the vehicle if you choose.• A bank loan can make more sense when interest

rates are low.• You can still push for a ‘cash discount’ with the

car dealer.

Disadvantages • The cost of credit varies widely. The headline

rate isn’t necessarily what you’ll get; it can vary, depending on your credit-worthiness.

• As with cash, you bear the brunt of any depreci-ation.

• Although it’s tempting to go for longer loan peri-ods with smaller monthly payments, you’ll pay a lot more over time through interest if you do so.

• You must compare loans carefully. The annual percentage rate (APR) is the easiest way to work out how much a loan will cost you over its life-time.

Option 3 - Hire Purchase (HP) With a Hire Purchase (HP) agreement, you’ll normal-ly pay an initial deposit of between 10% and 50%

of the vehicles value. You then pay off the balance of the full price in monthly instalments. When all payments are made (usually after a period of two to five years) the HP agreement ends and you own the vehicle.

Advantages • Once you’ve made your final monthly payment,

you’ll own the vehicle. So if eventual ownership is important to you this could be a good choice.

• You’ll be able to drive a vehicle you may not have been able to buy outright.

• Flexible repayment terms (usually up to five years) can help fit in with your monthly budget. For instance, if your disposable income is likely to decrease over the agreement term it might work well.

• Fixed interest rates mean you’ll know exactly what you’re paying each month.

Disadvantages • If you choose longer loan periods, with smaller

monthly payments, you’ll pay a lot more over time through interest.

• In a few years, the car’s value could be worth less than your remaining payments due to deprecia-tion.

• HP can prove a lot more expensive than a bank loan.

• Servicing often costs extra • Monthly payments may be higher than other

finance options, such as leasing as you’re paying off the full value of the car.

• You won’t own the car until the final payment is made, which means the car can be repossessed if you default on payments.

• You won’t be able to sell the car without settling the finance.

• You need a good credit rating to get HP deals with lower interest rates

Option 4 - Personal Contract Hire (also called leasing)Personal Contract Hire or vehicle leasing is an increasingly popular process of funding a personal vehicle, with more and more individuals opting for this method. It’s a simple process, you choose the vehicle and it’s ordered for you.

Payments are made monthly over an agreed period of time (often 36 months). At the end of the term, you return the vehicle and have nothing further to pay, provided the vehicle condition is in line with BVRLA guidelines and has not exceeded the agreed mileage.

The monthly payments are worked out using the difference between the cost of the new car and how much it will be worth when the lease is over.

Vehicle purchase price

[minus]

Residual value

[divide]

Number of months of lease

Advantages • Drive away in a car that might otherwise be out

of your price range in terms of purchase price• You can be driving a brand new model every two

or three years, which means you’ll never have to worry about the car being out of warranty.

• Paying a competitive fixed monthly amount can make your budgeting much more simple

• Low Initial Payment: In many lease agree-ments, only a small deposit is necessary, usually

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amounting to 3 monthly payments. • Low fixed monthly repayments: (on average

between 35% and 55% less costly than car loan repayments).

• Leases can be between 12 and 48 months, which allows you to have all of the decisions about how long you wish to keep the vehicle for

• Eliminate the risks around vehicle maintenance and depreciation

• Hassle free: For an additional monthly fee, you can ask your dealer to take care of nearly every hassle associated with vehicle ownership. This can include servicing, maintenance (including tyre replacements) and repair packages so you’ll have no unexpected lump fees. It can also in-clude breakdown rescue cover and replacement vehicle cover in the event of a breakdown.

• No hassle of re-sales. You don’t have the worry of selling your car at the end of your contract

Disadvantages • No matter how long the lease you won’t own the

car at the end. So if ownership is important to you or you want to modify the vehicle, this will not be the best option.

• It’s important to agree with your lease dealership what the expected annual mileage will be. If you do more miles than arranged for in your agree-ment, you’ll be charged excess mileage charges.

• Fair usage - The vehicles must be returned in a reasonable condition. Excessive wear and tear will impact the final costs. Standard wear and tear is allowed though, so make yourself aware of what is considered fair wear and tear (see BVRLA guidelines)

• If you think your circumstances might change and you might need to break the contract early, be aware that early termination can be expen-sive so make sure you know what these charges will be up front.


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In this final section we’ve outlined some pointers to keep in mind when you are deciding on a deal-ership. We’ll also give you an overview of what our company, DFC can offer, with a focus on our most popular option for personal customers: Personal Contract Hire. And if you’re interested in a free con-sultation with us, you’ll find all the details at the end of this section.

Tip 1Consider the purchasing power of your dealershipRemember, even with Personal Contract Hire the vehicle is still being sold; it’s just being sold to the lease company and not to you. So purchasing power matters.

Companies like DFC that purchase thousands of ve-hicles each year are experts in negotiating substan-tial discounts with vehicle manufacturers. We can pass these savings on to you in the form of compet-itive rates.

You also benefit from the advantageous rates that we have negotiated with our suppliers for parts and accessories, thus ensuring that we continue to keep your costs down.

Tip 2 Make sure there are no hidden chargesWe believe the spirit of vehicle management is a fixed monthly payment and no hidden extra charges to be paid at the end of contract. We are commit-ted to managing contract costs such as over con-

Choose the provider who can best meet your needs


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tract mileage, refurbishment and termination costs during the contract period. Using our sophisticated forecasting system, we can predict your end of con-tract mileage, which allows us to work with you to manage your contract parameters.

Tip 3 Consider the flexibility of your dealershipShould your contract situation change, i.e increase in mileage, early termination or contract extension, come and talk to us. At DFC we believe in long term relationships with our customers and therefore we understand that there may be an element of con-tract flexibility needed to ensure that we maintain our strong relationship.

Also consider what you might want to do at the end of the contract. With DFC you have a number of options; return and collect your new vehicle, ex-tend the contract for 3, 6 or 12 months or purchase the vehicle for family or friends.

DFCs relationships with major funding partners allow us to offer various finance options to suit your specific circumstances. The term of the contact can be tailored from 1 year through to 4 years.

Tip 4Note if the dealer is independent Because we are totally independent and not tied to any particular funder or manufacture we can search the entire market place to find the perfect vehicle for your needs and budget requirements. We are trusted by our customers to provide impar-


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tial advice and to guide you through the selection process including a detailed analysis of “Whole Life Costs”.

Tip 5 Consider how much ‘hassle’ the dealer can remove for you This varies from one leasing deal to another, so it’s important to check. We’ve outlined below some of the ways we go about saving you time and hassle at DFC.

Management of maintenance and servicingWe are unique in our industry, in providing a One Call Operations Department 365 days a year 24 hours a day. Essentially we take all the hassle away by taking full responsibility for managing your vehi-cle in one call. This includes:

• One call for all servicing, recalls, warranty, tyres, breakdowns and accidents.

• 24 hour/365 driver helpline.• Convenient on-line service booking facility.

All aspects of vehicle maintenance are included, i.e, routine servicing, tyre and brake replacement, war-ranty issues, manufacturer recalls and breakdowns.

We facilitate the provision of a courtesy vehicle for routine servicing/breakdowns to ensure that your day to day operations are not disrupted.

Vehicle administrationAt DFC have developed a bespoke system to remove the burden of all vehicle administration eg Invoicing, Maintenance, Vehicle Purchase, Disposal, Traffic Offences, Safety Recalls, Warranty Issues, Road Fund License Renewal, MOT, and much more. Saving you time, saving you money

BOOK YOUR FREE CONSULTATION

WITH US


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For over 25 years we have supplied, funded and managed vehicles in the UK and Ireland. We know meeting up with us can save you time and minimize your vehicle costs.

During the free consultation we will discuss your budget, what your current circumstances are, and find out what exactly you are looking for.

We can help you decide on the right finance option for you and can then go back and search the entire marketplace for the best deal. No matter what you decide, there’s no

obligation, so it’s completely risk free for you.

If you are interested in knowing more about which finance option is best for you or you just want to learn more about whole life costs, please claim your free consultation

by calling 028 9073 4222

We are confident we can offer a solution that will result in both cost and time savings for you. We look forward to meeting up to find out more about your individual needs.

CALL 028 9073 4222

Essential Guide To Financing Your Vehicle

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